Strategies Update: After A Strong 2024, A Shift Toward The Defensive

Yep: it’s a brand-new month, so it’s time to take a look back at our three simple, easy-to-replicate investing approaches. And that means the Easy Rider Portfolio, our diversified investing mix that can serve as your core allocation; the active Momentum Rider Portfolio, which targets top-performing assets; and the nimble Sector Momentum Edge Strategy, which rides the best-performing US sectors.

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Here’s how they performed in December and the tweaks they’re making to greet the brand-new year.

PART I: THE SECTOR MOMENTUM EDGE

First, a quick review of the strategy.

The Finimize Sector Momentum Edge is built with two key goals in mind: catching the wave of the top-performing sectors and shielding your money when markets get rough.

Here’s a reminder of how it works: every month, you check out all 11 US stock sectors and find the three that have been delivering the best returns over the past three, six, nine, and 12 months (excluding the most recent month’s returns) and you split your investment evenly among them. But there’s a catch – you only dive in if these sectors are outperforming returns on cash accounts (or cash equivalents). If they’re not, that means they’re in a downtrend – so, in that case, you’d play it safe and park your money somewhere safer: bonds.

Next, a look at how it performed in 2024.

December wasn’t smooth sailing: the strategy dropped 5.6% (versus a loss of 2.7% for the S&P 500) as sectors other than tech and consumer discretionary – which the strategy didn’t hold – faltered. Even so, it wrapped up 2024 with a solid 21.8% return, just shy of the 24.5% achieved by the S&P 500, which benefited from its tech and communication-heavy weighting.

But remember: the strategy isn’t designed to beat the S&P every year. Instead, its focus is on delivering stock-like returns across different market environments while exposing you to significantly lower risk. By that measure, 2024 was another success.

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Here’s how the different sectors performed in 2024:

Overall, the strategy’s tilt toward financials, utilities, tech, and communications paid off nicely. Here’s how the year’s positioning and performance stacked up:

How Sector Momentum Edge was positioned in 2024. Source: Finimize.

Finally, the strategy’s latest lineup.

With the way things are going, the Sector Momentum Edge strategy isn’t calling for any changes in positioning for the new year. So the portfolio will continue to be equally weighted across the same three sectors: 33.3% in our preferred utilities ETF (XLU), 33.3% in a communication services ETF (XLC), and 33.3% in a financials ETF (XLF). Steady as she goes.

Sector Momentum weights for January. Source: Finimize

PART II: THE FINIMIZE EASY RIDER PORTFOLIO

First, a little refresher on its strategy.

The Easy Rider Portfolio aims to deliver steady returns of 4% to 8% per year over the next decade while minimizing the risk of big losses along the way. It’s a diversified combination: 60% global stocks for growth, 20% bonds for stability, 10% commodities to hedge against inflation, and smaller doses of gold (7.5%) and bitcoin (2.5%) for extra protection. This blend helps balance your investments, boosting your chances of reaching your financial goals, while reducing your risk compared to an all-stock or 60/40 (stocks/bonds) portfolio.

The Finimize Easy Rider Portfolio. Source: Finimize.

Next, a look at how it performed in 2024.

The Easy Rider fell 4.2% in December as all assets struggled. But for 2024 as a whole, it still delivered a solid 10.8% gain (9.3% for the version without bitcoin). Sure, that’s less than global stocks’ 16.5% surge – thanks to their hefty 60% allocation to US stocks, which had another exceptional year – but it’s comfortably above its 4%-8% target. And remember: Easy Rider isn’t about beating global stocks (since it’s diversified, it’ll always underperform when stocks do really well). It’s about balancing risk and boosting the odds of hitting that return target in all kinds of markets.

Looking at the individual contributors in 2024, US stocks stole the show, adding a hefty 7.1% to the portfolio’s return. But gold and bitcoin weren’t just sitting on the sidelines – they chipped in 2% and 2.2%, respectively. (Note: you’d have made even more if you invested through bitcoin directly rather than through BITO and if you didn’t rebalance every month, as it’s done in the results shown here).

The rest of the lineup performed less impressively: developed market stocks eked out just 1.6%, emerging markets managed 8%, and bonds ended up as a drag on performance. But remember: a little underperformance is the price you pay for a more balanced, resilient portfolio.

US stocks, gold and bitcoin drove the Easy Rider’s gains in 2024. Source: Finimize.

PART III: THE FINIMIZE MOMENTUM RIDER PORTFOLIO

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First, a speedy recap of its strategy.

The Momentum Rider Portfolio shares the same goals and investment universe as the Easy Rider Portfolio but takes a more active approach. Its mission: invest in only the top-performing assets while shielding your portfolio during market downturns.

Here’s how it works: each month, the portfolio selects the four best-performing assets from a diversified mix – US stocks, developed market stocks, emerging market stocks, bonds, commodities, and gold – based on their momentum over the past three, six, nine, and 12 months. Each chosen asset gets a 24% allocation. If bitcoin ranks among the top performers and beats cash, it gets a 4% slice too. To manage risk, the portfolio invests only in assets that are trending up. If a leading pick is in a downtrend, its allocation goes to bonds instead for safety.

Now, a look at how it performed in 2024.

Unlike the passive Easy Rider, this strategy dodged underperformers like government bonds and commodities in 2024, instead leaning into stocks, gold, and bitcoin.

The positioning of the Momentum Rider portfolio in 2024. Source: Finimize.

That more concentrated approach paid off with a 15.5% return for the year. US stocks and gold were the biggest winners, contributing around 11% to returns. Stocks from other regions chipped in, though their modest returns didn’t move the needle much.

And yes, bitcoin delivered too – adding 3.35%. But the version without it would still have returned a strong 12.6%.

The Momentum Rider’s more concentrated bet on US stocks and gold paid off in 2024. Source: Finimize.

Finally, the strategy’s new January lineup.

Things just got interesting: the strategy is ditching developed and emerging market stocks in favor of cash. With those markets – plus US Treasuries, international bonds, and commodities – all trending downward, only US stocks, gold, and bitcoin are showing momentum. That might hint at broader market weakness.

So as we kick off the new year, the strategy is leaning defensively: 75% is parked in safe-haven gold and bonds, while just 25% stays in US stocks. It’s a cautious setup for potentially choppy waters ahead.