How the strategy works
Conventional balanced funds (60/40) divide the portfolio between stocks (higher return, higher risk) and bonds (lower return, lower risk). They are static allocations, which rebalance occasionally, but do not actively consider the risk environment.
We have dissected the risk environment more carefully and observe that there are smaller, shorter-duration risks which are unpredictable and not worth trying to navigate, but the larger, longer-duration risks (recessions) are more predictable and navigable.
Our asset allocation model starts with the same basic framework as a traditional balanced fund, but makes allocation adjustments for longer-duration risks, using our proprietary, real-time, recession probability model.
If the probability of being in a recession is very low, we increase exposure to stocks and reduce exposure to bonds. As the recession probability increases, we increase our exposure to bonds and reduce our exposure to stocks. The portfolio is rebalanced whenever allocations exceed a drift tolerance.
These adjustments result in a meaningful increase in returns and a reduction in risk, and with time and compounding, make a significant difference to the value of your retirement savings.
Watch our 15-minute PowerPoint presentation and/or download our White Paper for a detailed explanation of how it works. We walk you through the logic and evidence behind this solution. We want you to understand how your savings are being invested.