1. What are the advantages of your strategy compared to traditional asset allocation strategy?

Compared to traditional asset allocation strategy, our approach offers some unique benefits:

  • Diversification across a broad spectrum of asset classes including stocks, bonds, real estate, gold, commodities, energy master trusts, high yield bonds and inflation-protected securities.
  • Ability to achieve consistent returns with limited downside risks through a dynamic rebalancing process. Our strategies focus downside protection and risk reduction in bear markets.  We adopts a ” winning by not losing” philosophy.  The risk indicator model and cross-asset momentum strategy both have the tendency to outperform and profit in the bear markets. Putting them together, we have created a strategy that not only outperforms the markets but also limits downside risks.
  • Easy implementation through monthly rebalancing. We publish our recommendations on the first business day of a month. You can just pick a portfolio, follow it and rebalance accordingly. It only takes half an hour a month.
  • Cost efficiencies by using ETFs or index funds. We recommend using ETFs and index funds for the implementation of our strategies. Compared to active mutual funds, the ETFs or index funds can save  you 0.5% – 1% a year in management fees and sales costs.
  • A systematic and disciplined strategy. Our investment process is quantitative and systematic. It removes human emotion from the decision-making.

2. How did you test your strategies?

We used 40-years of historical data back test our strategies. All the models have both strong  theoretical foundation and robust empirical supports. Many academic and industry researches have confirmed our findings. Please check the “Resources” page to find the research papers.  Since ETF data does not go back to the 70s, I used the underlying indices for back tests. For those indices without complete history, I used proxies, approximation or left them incomplete.

3. How do I implement your portfolio recommendations?

You can pick one of the four portfolios depending on your investment goal and stage of your life cycle.  For example, if you are in your 40’s and 50’s and at the stage of accumulating your wealth, you may consider choosing moderate portfolio, which targets 60% risk assets and 40% bonds,  as your long-term target. Then you can follow our dynamic portfolio recommendation and rebalance your portfolio at the beginning of every month.

4. How often are the portfolios updated?

We update our portfolio recommendations  on the first business day of a month. As a subscriber, you should get an email with our Monthly Newsletter and Portfolio Recommendations.

5. Which broker do you recommend to trade the ETFs in the portfolios?

We are not affiliated with any broker. You can use your current broker or any other broker you are comfortable with. Because all the ETFs in our portfolios are fairly liquid, you may want find a broker who charges low commissions.

6. How do commissions affect the results? What is the minimum size of an account can I implement the strategy? How many trades are made each month?

The back test results shown in the website do not include commissions. On average, the number of trades per month is 8. The impacts of commissions on your performance will depend on the size of account and your commission schedule. For example, if you pay $8 per trade, then the total commissions per year is $8*8*12 = $768, which is 1.5% for a $50K account .  You can still beat the benchmarks comfortablely with commissions.  However, you may want to find a better broker or a better commission schedule. Some of the brokers, like Interactive Brokers,  charge 1 cent per share. For small accounts, you can save your commissions significantly by using the commission schedule based on the shares of a trade.  Furthermore, my recommendations will also take commissions into account. For small portfolio adjustments, like 1-2%, I may not change my recommendations so you can save  commissions without significant impacts on performance.

7. How do you dynamically adjust the portfolios?

We adjust our portfolio weights every month on the first business day. After we run the models, we change the portfolios according to the following rule:

(i) For the nine risky assets including SPY, IWM, EFA, VWO, IYR, AMJ, GLD, GSG and HYG, if momentum of a risky asset  is negative, we change its weight to zero.

(ii) Among the nine risky assets with positive momentum, we over-weigh the four risky assets with the highest momentum.

(iii) Among the safe assets including TIP, IEF, TLT and SHY, we pick two of them with the highest momentum to invest.

(iv) If the risk indicator shows “risk off”, we change the weights of all risky assets to zeros.

(v) We scale the weights proportionately so that the total weight is 100%.

8. Can I use the comission-free ETFs to implement the strategy?

Some brokers such as Fidelity, Vanguard and T.D. AmeriTrade offer commission-free trades to some of ETFs. Investors can certainly replace some of ETFs in our portfolios with closely related commission-free ETFs to save transation costs.  Please see the two posts on how to take advange of the offers.

Use Fidelity and Vanguard Commission-Free ETFs for Implementation
Use TD AmeriTrade Commission-Free ETFs for Implemenation

Also note that for some of the ETFs, investors need to hold more than 30 days to save commissions.