I’m undertaking a 1000-day reinvention project, blogging here daily to track my progress. In Saturday Reflections, I take time out to reflect.
I didn’t expect my options trading to lead to a renewed appreciation for buy-and-hold investing but that’s exactly what it’s done. By following someone else’s rules for the options wheel, I have begun to heal my dysfunctional trading and investing patterns. And, more important, I learned to build and follow a system consistently rather than allowing my whims to determine what I might do on a given day or in a given month or quarter.
I have only been trading the options wheel since April, so this has been a relatively quick change, but it was years in coming, even decades, since my investing goes back to the 1990s.
The real accelerant to my practice has been the building of my own app that encodes rules I developed, rules that suit me and that I believe in.
Now I’m ready to do that for my longer-term portfolio, my traditional IRA. I’m going to use a systematic approach that uses a defined target allocation with simple timing rules for moving into and out of asset classes.
Meb Faber’s tactical asset allocation approach
I discovered investment advisor Meb Faber’s tactical asset allocation model in 2025, and played around with it as the market whipsawed after the tariff’s announced by the U.S. president.
The problem is that an investing and trading approach can’t work as it should if you just “play around with it.” You have to commit to it (for years!) to see the benefits.
Before learning to do the options wheel, I didn’t commit to a particular investing approach. Now that I’ve been doing it for a few months, and even have my own application for supporting me in doing it according to the rules I’ve formulated, I have developed a new discipline.
Meanwhile, I’ve had an asset manager in charge of my (relatively) large IRA. Now I’m ready to take it back and implement my own version of Faber’s Global Tactical Asset Allocation approach.
Here’s the plan
I’m starting with Faber’s moderate global tactical asset allocation model, and modified it based on my own investing experience and preferences. He used 13 asset sleeves, and I’ve expanded that to 16.
My current IRA allocation doesn’t look much like this. Like most retail investors, I am heavy on U.S. equities and light on gold, commodities, and real estate.
Faber’s model calls for a monthly decision point for each sleeve. For each sleeve, you evaluate the last closing price of the month against the 10-month moving average. If the closing price is above the 10-month MA, you remain invested (or go 100% into that allocation, if not already invested). If the closing price is below the 10-month MA, you exit to 90-day t bills.
Faber’s backtest of a system similar to this on the S&P 500 through 2012 showed that the timing model achieved better returns with lower volatility and a much lower max drawdown:
Expanding his analysis to look at diversified portfolios similar to the one I shared above show much better returns than buy-and-hold:
Making it more emotionally palatable
But I’m not going to use a monthly evaluation and buy/sell day. I’m going to do it weekly, as tested in Gabriel, Pagani, and Zarattini’s 2025 paper Global Tactical Asset Allocation Updated Results and Real-Market Implementation Using Python and IBKR. Instead of a monthly evaluation using the 10-month MA for calculating buy/sell signals, they divide each portfolio into four tranches of 25% each. Each week, one tranche is considered for entry/exit, based on the ticker’s closing price compared to the 200-day moving average. That tranche is only considered for entry/exit every four weeks.
Rebalancing via weekly tranches reduces return volatility due to rebalance timing luck, and by limiting the rebalancing each week to just 25% of the portfolio it also reduces turnover relatively to simply rebalancing the entire portfolio every week.
If I followed the monthly rebalancing, I’d be looking at huge transactions when the signal told me to enter or exit. I’m not sure that’s emotionally sustainable. Instead, working with 25% of each position at a time feels more sustainable and palatable to me.
Next steps
I’ve started adding “Portfolio Steward” capabilities to my Options Wheeler app. I’ve equipped the app to access Schwab data via their trader API for individuals. Without my own system for managing this, I don’t think I could reliably implement this tactical asset allocation model.
I’m planning to do the first rebalancing on September 1st. I foresee the following changes to my portfolio at that time:
- Trimming U.S. large cap equity exposure (I am overweight relative to the target allocation)
- Eliminating positions that have no place in the new allocation (e.g., $XLU, $SHLD)
- Adding gold, which has recently crossed above its 200-day MA (if it stays above it)
- Replacing my commodity plays ($GUNR and $XLE) with an actual commodity ETF ($PDBC)
- Selling all my bonds, because all the bond positions are below their 200-day MA
One thing I love about this is it is putting systematic decision making rather than depending upon my investing intuition and whims. However, my investing intuition and whims have recently told me: “cut back on expensive U.S. equities; no more bonds; add gold and other commodities.” That’s exactly what I’ll be doing, but I’ll be doing it based on rules not feelings.