Four Steps to Investment Success (Part 2 of 4) 1

How would you like a free retirement nest egg or two?

Since 2004, some of the world’s largest portfolio managers, including BlackRock, Bridgewater and AQR, have increasingly been employing a new investment strategy that may boost your total portfolio return by well over 2x or 3x, while reducing your risk.

This new strategy is called “leveraged risk parity,” or “leveraged income and growth.”

A Free Retirement Nest Egg

On Wall Street, diversification is known as the only “free lunch,” and soon, “leveraged diversification” may be known as the only “free retirement nest egg.”

Did you ever wonder why we use loans, or “leverage,” to buy our homes and cars, but not our retirement portfolios? Is this because homes and cars are better investments, or because we simply didn’t have the right investment tools and experience?

For the past 25 years, I have been researching leading investment trends. I have worked in commercial real estate and high-yield bond research, long/short technology hedge fund portfolio management, and for the past 12 years as a financial advisor in Thousand Oaks, specializing in ETF strategies, and I have never seen a new investment process that is this opportunistic for investors.

Four Steps to Investment Success:

  2. Leverage
  3. Risk Control
  4. Leading Growth Stocks

In the March CVL issue, we explained that the Income and Growth investable benchmark portfolio has materially outperformed the ETF growth portfolios recommended by Warren Buffett and David Swensen. In fact, ETF PM’s Income and Growth portfolio is the only one of the three solutions that has consistently exhibited risk low enough for investors to consider using leverage at times.


The main principle in risk parity is to apply leverage to an efficiently balanced portfolio, with broad diversification, in order to enhance performance while reducing risk.

In early 2016, Wall Street’s new leveraged asset class ETFs were finally operating long enough to be analyzed fairly, and ETF PM quickly launched the industry’s first leveraged income and growth portfolios.

Leveraged Income and Growth

Over the past decade, we estimate that the Income and Growth 3x (IG 3x) portfolio gained 463% in total return, while the S&P 500 delivered just 94%. The Buffett and Swensen ETF growth portfolios rose by 90% and 70%, respectively.

In addition to delivering extraordinary outperformance, IG 3x exhibited far lower risk than the Buffett and Swensen solutions. In the market crash of 2008, we estimate that IG 3x would have gained 2%, while the Buffett and Swensen portfolios fell by -32% and -26%, respectively.

Leveraged ETFs

The Income and Growth 3x investable benchmark has delivered incredible performance, but there are still negative issues to understand regarding leveraged ETFs.

For example, leveraged ETFs are more complicated than unleveraged ETFs, and the leveraged versions have far less actual performance history. In certain “choppy” market environments, leveraged ETFs often deliver materially distorted returns.

In addition, investors in leveraged income and growth must also be mindful of the somewhat rare periods in which non-correlated asset classes endure material declines simultaneously.

Regardless, all of the negatives associated with leveraged asset class ETFs seem to be somewhat immaterial compared to their potential for tremendous performance improvement, and risk reduction, when they are used effectively.

Risk Control

In the May CVL issue, our third step to investment success will examine how certain leading portfolio managers utilize rules-based risk controls to protect their assets, especially when using leverage.

Leading Growth Stocks

Everyone would like to be an early investor in the next great company that delivers a return comparable to Apple (AAPL), Alphabet (GOOGL), Amazon (AMZN) or Facebook (FB).

In the June CVL issue, our fourth part in this series will cover leading growth stocks, and our top picks for the second half of 2017.

While past performance is never a guarantee of future results, be sure to catch all four steps to investment success!

David Kreinces is the Founder & Portfolio Manager for ETF Portfolio Management (ETF PM), a Thousand Oaks-based financial advisor. To learn more, visit or call 866.409.5844.