Reply To: Performance of Models

[David Lucca]

@Nate - "Why have the models been so heavily invested in bonds over the recent months when the overall market has been on an upward vector? I think we've missed out on significant gains."

The post above yours answers your question - I wrote, "The models were designed to comply with the rules of your 401k plan - holding periods after purchase, restrictions of all kinds and to give good results while balancing growth and safety. They are NOT designed to "beat the market" in every time period. You will notice though, that over the long term, they have handily beaten the S&P 500 Index."

I want to add that YOU can override the configuration of the models any time you want to take more risk. The models have trounced the market over the past 13 years. They did that by taking a reasonable approach. At times they missed getting destroyed and at other times, they lagged the market. The long-term result is what you see in the chart.

If you want to completely ignore bonds, you can choose to put things into just the topped ranked equity funds. Just realize that you too will at times be right and at other times lose half your money.

In the end, for pilots on the road a lot, the models were designed to live within the rules of the plan, while creating a stable investment return. It has done this will. Adjust as you will.

@Ben - The model went back into its normal allocation to bonds. We create a system that works over a wide variety of market conditions and then follow the system - unless the whole thing gets hosed by world events.

The Fed will find tapering difficult. I am betting it is like dancing with a bear. You can start, but you can't stop. Despite what they say, I don't see it happening. The economy here and overseas in Europe is lethargic. +44 million Americans receive food stamps. If we did not have the new EBT (credit card) food stamps, you would be witnessing soup lines like the great depression. I could go on, but I believe the Fed will be forced to prop up the economy, even as the Congress and Administration continue to spend wantonly.

As I mentioned above, you are ultimately in charge of whether you want to follow a model or adjust it to your specific circumstances or risk tolerance. If you read the report on understanding the models, you will understand how they make decisions.

Kindest Regards,
Dave