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

Tactical Asset Allocation (TAA) Update - October 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

August was a bit sour, but after Fed Chairman Ben Bernanke announced Tapering would not happen in September, the markets took off. It resulted in a rather solid month, albeit only for a short while until the Government shut down we're enjoying right now {sarcasm implied}. October still has a ways to go, and after a rather rough start, markets have picked up quite a bit the last couple days. Time will tell if this is the continuation of solid equity markets; or, the start of a long overdue correction.

For September Stocks were up 3.39%, Real Estate was up 2.45%, Gold was down 4.78%, and Bonds finished up 0.90%. Our Balanced Tactical model finished up 2.38%.  The blended benchmark of 50% Vanguard Total Stock Market / 50% Vanguard Total Bond Market was up 1.98%.

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

Readers will notice a big change this month to my TAA model. Specifically, we've added an additional asset class to the mix (International Stocks).

When I first built this model and decided to share it for free, I wanted to keep it really simple. That was a success. After getting quite a few reader comments though on why the model was US only, I took a look at adding International Stocks to the published model and decided it wouldn't hurt to share. After all, for our actual clients we do include International Stocks so why not be a little more transparent and include them for all blog readers.

To make sure the integrity of the model was pure, I have kept the performance reporting based only on the actual model allocations. This means that while this addition would have increased returns, I am only publishing the live (real) returns as they were published. Going forward the returns will reflect this same integrity and I do not expect to add additional asset classes down the road. Remember, this is a free model I publish to help educate the value of a Tactical Asset Allocation approach. As such, it's not a recommendation - rather it's an exercise in being transparent and showing the merits of a possible investment strategy.

Despite this change in structure to the model, it really isn't changing much this month compared to last. Stocks are still the leader of the pack, just now stocks are globally diversified instead of being US only. The model is not a fan of Real Estate or Gold at the moment, so they are 0% weightings.

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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