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

Tactical Asset Allocation (TAA) Update - December 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

As 2013 winds down, it appears financial markets are running out of steam a bit. While November was an okay month overall, December (thus far) has not been. We'll see how these last couple weeks play out.

For November US Stocks were up 2.7%, International Stocks were up 0.13%, Real Estate was down 5.3%, Gold was down 5.5%, and Bonds finished down 0.5%. Our Balanced Tactical model finished up 0.87%.  The blended benchmark of 50% Vanguard Total Stock Market / 50% Vanguard Total Bond Market was up 1.16%.

For most of 2013 US Stocks have been the only good investment available. Contrary to what many believe, 2013 was not a good year overall. Every asset class other than US Stocks is either up very modestly or even negative for the year. This gives investors the impression 2013 should have been a great overall investing year, but in reality, it wasn't. Diversified investors (which is the smart thing to do over the long term) have substantially underperformed the US Stock market.

Lesson to be learned: Don't be fooled - every time you chase the biggest winners you're almost always setting yourself up for a big disappointment in the future. Eventually (and I suspect rather soon) US Stocks will become the laggard. When that happens, those of us using the broadly diversified (and smarter) approach to investing will plug along with good results - even though the US Stock market flails along. To me, it's not a question of IF this will happen, only WHEN it will happen.

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

For the second consecutive month the model has barely changed. Stocks are still the leader of the pack, with a close to equal blend of US to non-US stocks (slightly favoring US stocks). The model is not a fan of Real Estate or Gold at the moment, so they are 0% weightings.

The model is starting to see a potential pullback in US Stocks (which may already be underway in December). As such, it's quite likely the model starts to trim back the exposure to equity markets going into 2014. We'll know for sure in about two weeks and will report back on the blog come early January.

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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