Fintech executive, writer, math geek, and investment systems developer. Founder and CEO of Altruist and Founder of FormulaFolios.

Tactical Asset Allocation (TAA) Monthly Update - August 2013

Below are the most up to date allocations for the Tactical Asset Allocation model I've written about on the blog.  For those needing a refresher on what TAA is and why I think it's important as part of an investment plan just click here to revisit the first post. [table id=6 /]

Previous Month Recap

After a brief pause from late May through June, financial markets have been back to their roaring ways - with the exception of bonds. Bonds didn't get clobbered or anything, they've just been sort of blah.

For July Stocks were up 6.29%, Real Estate was up 1.21%, Gold was up 6.25%, and Bonds finished down 0.30%. Our Balanced Tactical model finished up 2.00%.  The blended benchark of 50% Vanguard Total Stock Market / 50% Vanguard Total Bond Market was up 2.99%.

Despite lagging our benchmark by a couple percent in 2013, the model is still nicely up and tracking for a solid year. In raging bull markets this rather defensive style of investing will rarely lead the pack, but markets don't go up forever, so I'm confident the model will more than pick up the slack whenever the next bear market decides to get under way.

Allocation Changes for This Month

The model isn't changing much this month, but it is now in some relatively new territory. Specifically, one of the components of the model limits a positions size when it is firmly over bought. At the moment, the stock market is in this zone. As a result, despite being the strongest growth asset class, the model is "limiting" stock exposure to 30%. In testing this has proven to be very smart as we don't want to fall victim to buying high and selling low. Rather, the model will back off an asset some, while continuing to own it during the tail end of a bull run.

In the end, the model is still happy with stocks. It's also cautious though. Going into August we have no gold, limited real estate, and a hearty (though reduced) exposure to stocks.

Since the model I share here is "balanced" keep in mind it always keeps at least 50% of the portfolio in either bonds or cash.  The whole idea of this balanced tactical asset allocation (TAA) approach is to keep a highly diversified portfolio that can get through the markets major ups and downs without the dizzying volatility of just growth investments.  It's not perfect, but so far so good.

The model is mechanical, so it takes no lead from my opinions.  My opinion, however, is that stocks will not be able to sustain their current trajectory.  A correction, even if mild, is due sometime in the near future (if not already under way).

Long Term Model Performance Versus Benchmark

For those that want to track the performance of this model here's the most up to date info:

[table id=5 /]

I've also added some long term metrics on return and risk here (complete with data going back to 1997):

[table id=9 /]

To see how performance is measured just check out the static page on TAA here. **Note** I only update the long term metrics quarterly versus monthly like the other tables above.

As mentioned in past posts I'll update this model/strategy each month roughly 1 week into each new month.  This way scalpers can't just steal the research as their own and other financial professionals can't simply use the research to manage their clients money.

If you like what you see here feel free to pass this on to others via email, use the Facebook icon below to share it there, or just suggest in personally to a friend.  If you are not currently a client, and would like to know more about this strategy - feel free to reach out to me directly via this contact form.  If you have general questions, just use the comment form a couple inches below this post.

Thanks for stopping by my blog and have a great day!


Jason Wenk

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Recession Probability (RPA) - August 2013