Enhanced Just-the-Basics FAQ
WHAT IS SMI's ENHANCED JUST-THE-BASICS (EJtB) STRATEGY?
The Enhanced Just-the-Basics Strategy (EJtB) invests roughly half the portfolio in index funds, and half in actively-managed mutual funds. The index funds do not change throughout the year, while the rotating actively-managed funds are evaluated for replacement every three months. You'll find a good overview of the strategy on our Enhanced Just-the-Basics page.
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ISN'T EJtB THE SAME AS SIMPLY PUTTING PART OF MY MONEY IN JUST-THE-BASICS AND PART IN UPGRADING?
Not exactly, although that's another easy way to get a similar result. Enhanced Just-the-Basics is basically a tidy, specialized way to accomplish the combining of indexing and active-management. But it's certainly not the only way, or necessarily even the best way, to do so.
If you decide to simply split your portfolio into a Just-the-Basics portion and an Upgrading portion, your portfolio will differ from EJtB in two important ways. First, you'll need to monitor the Upgrading portion of the portfolio monthly rather than quarterly. Second, research Schwab has done indicates there is value in certain specific combinations of indexing and active management. For example, indexing most of the large cap money resulted in better returns than a 50-50 split between indexing and active management. Enhanced Just-the-Basics takes those specific allocations into account, whereas a simple split portfolio of JtB and Upgrading would not.
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IS THERE A WAY TO DO EJtB WITHOUT SELLING ALL MY FUNDS EACH QUARTER?
Keep in mind that EJtB doesn't necessarily require you to sell all your funds each quarter. Roughly half of the money will be in index funds and will be untouched, except for an annual rebalancing. And the three rotating funds don't rotate every quarter necessarily — occasionally the same fund will be held for consecutive quarters.
However, if you prefer to hold your funds a little longer and avoid the quarterly selling, you may prefer to follow a pure Upgrading approach with the actively-managed fund portion of your portfolio. To do so, one option is to take a portion of the portfolio and apply the Upgrading strategy without any modification, using the recommended Upgrading asset allocation percentages. Or you may wish to instead use the asset allocation percentages recommended for the rotating funds in Enhanced Just-the-Basics, but buy the recommended Upgrading funds instead. To accomplish this, take the large-cap rotating amount recommended in EJtB and divide it evenly between funds in SMI risk categories 1 and 2. Then take the small-cap rotating amount recommended in EJtB and divide it evenly between funds in SMI risk categories 3 and 4. The foreign EJtB component can be invested in SMI risk category 5 funds.
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WHAT RESULTS CAN I EXPECT FROM THE EJtB STRATEGY?
Our research indicates that EJtB has outperformed Just-the-Basics (simple indexing) over the past several years. It has also edged Upgrading by a slight margin since 1996, although Upgrading will likely outperform EJtB in the long-term, as all of the Upgrading portfolio dollars are invested to beat the market, whereas half of EJtB's dollars are tied to the indexes. It seems reasonable to expect EJtB to provide returns somewhere between JtB and Upgrading. Our EJtB page shows how EJtB has performed over the past several years.
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DO I HAVE TO USE FIDELITY IF I WANT TO FOLLOW EJtB?
No, although that's probably the easiest place to do it. Every quarter, SMI does the analysis of all the potential rotating funds and posts the new recommendations on the EJtB page 
of this website.
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WHY HOLD AN INDEX FUND IN THE SMALL-CAP CATEGORY WHEN THE ROTATING FUNDS PERFORM SO MUCH BETTER?
Despite the recent data looking unfavorable, indexing tends to move in and out of favor almost like its own investing style. There will again be years like 1997 where the indexes outperform the best of the active managers even in that category.
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I HAVE BOTH TAXABLE AND RETIREMENT ACCOUNTS-WHAT'S THE SMARTEST WAY TO SPREAD MY MONEY BETWEEN THEM FOR EJtB?
Index funds are naturally tax-efficient since they don't trade much, plus in EJtB you won't be selling index funds other than for rebalancing. So, as much as possible, keep your index funds in the taxable accounts and shelter the rotating funds (which might trade quarterly) in your tax-deferred accounts.
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HOW DO I GET THE NEW EJtB FUND RECOMMENDATIONS EACH QUARTER?
SMI posts the new Fidelity rotating funds the first or second day of each new calendar quarter on our Enhanced Just-the-Basics page .
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WHRE CAN I FIND AN UPDATED PEFORMANCE HISTORY OF EJtB?
A quarterly performance history of EJtB is available here.
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