Holding Reserves Pays Off


So far, 2016 has been rough on our Focus List. But it's early yet, and times like these demonstrate the importance of our recommended cash position.

At the moment, our Focus List has 21.4% in Vanguard Short-Term Corporate Bond ($79; VCSH), a low-volatility exchange-traded fund that focuses on investment-grade securities with short durations. The ETF's value fluctuates more than cash, but it yields 1.7%, while cash pays almost nothing.

At the moment, the Focus List contains 12 stocks. A fully invested, equal-weighted portfolio would have delivered a negative price return of 13.7% as of Feb. 10. However, our recommended bond-fund position would have blunted the effects of the market decline, leading to a loss of 11.2%.

Don't let the Focus List's slow start worry you too much. History suggests a strategy of holding high-quality stocks can deliver market-beating returns; our Focus List outperformed the S&P 500 Index in five of the last seven years. If the market fails to improve, we may further boost our cash position.

We advise investors tracking the Focus List to sink equal dollar amounts into all 12 stocks. However, we have identified a few favorites from the list. Call them the Lucky 7. From now through Feb. 24 you can download a package of statistical reports on those seven stocks at www.DowTheory.com/Go/Lucky7. That's a $75 value at no charge. You'll find more than a dozen similar packages at the Horizon Store at www.DowTheory.com.

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