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

Tactical Asset Allocation (TAA) Update - January 2014

Tactical Asset Allocation (TAA) Update - January 2014

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

2013 is now in the books, and it was a pretty good year. Not as good as some might think, however, as the only asset class that actually produced double digit gains were US Stocks. International stocks produced high single digits, real estate basically was flat, commodities lost double digits, and bonds lost single digits.

So for truly diversified investors, it was a positive year, but not nearly as good as financial media would have us believe. After all, over most time periods being properly diversified is better than just using US stocks.

For December US Stocks were up 2.2%, International Stocks were up 0.6%, Real Estate was down 1.4%, Gold was down 3.8%, and Bonds finished down 1.1%. Our Balanced Tactical model finished up 0.42%.  The blended benchmark of 50% Vanguard Total Stock Market / 50% Vanguard Total Bond Market was up 0.59%.

Now that the dust has settled, our Balanced Tactical model finished up 8.23%. Solid, not great, but exactly what I would expect given the market conditions. 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 third consecutive month the model has barely changed. Stocks are still the leader of the pack, with a blend of US and non-US stocks (favoring US stocks). The model is not a fan of Real Estate or Gold at the moment, so they are 0% weightings.

For the first time in quite awhile, the model is actually not fully invested (it has 2% in 1-3 year treasury bills / cash). This happens when the good asset classes (stocks in this case) simply go up too much, too quickly. The model starts to get a little defensive and seeks to lock in gains from those strong performers.

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

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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