I’m undertaking a 1000-day reinvention project, blogging here daily to track my progress. In Wednesday Wealth, I write about money management, retirement, estate, and long-term care planning.
I’ve recently taken over control of my IRA from an asset manager. Instead of using a diversified buy-and-hold portfolio like the asset manager recommended, I’m adding simple timing rules so as to reduce volatility and drawdown size.
I’m following Meb Faber’s quantitative approach to tactical asset allocation expanded with weekly tranche-based entries and exits as described in this paper by Gabriel, Pagani, and Zaratiini.
Yesterday, I began a transition to the new approach. With the help of Codex, I’ve built a (local) web application that I can use each week for four weeks to gradually sell out of non-preferred ETFs and move into preferred ETFs, where the signals tell me to be invested, or into cash, if the signals indicate a defensive stance.
My basic allocation has 17 asset sleeves, each with a preferred ETF. If, as of the day before a buy/sell day, the preferred ETF is above the 200-day MA, I stay invested, or move one 25% tranche to invested from defensive, if it was defensive at the last update for that tranche. If the preferred ETF is below the 200-day MA, I either stay out of the ETF and in a money market fund, or, if invested at the last tranche update, I move that 25% tranche out.
Right now, all the bond sleeves as well as international real estate and gold are defensive. Meanwhile everything else is invested.
Over four weeks, I will move to a state where, for each asset sleeve, it is divided into four tranches, and each tranche is invested in the ETF or sitting in the money market fund depending on what happened four weeks ago for that tranche.
The need for an application to help me
It would be difficult to do this without the web app I’ve built, but not impossible. I could use spreadsheets to tell me how to gradually move out of non-preferred ETFs while establishing positions, per timing signals, in the preferred ETFs.
Right now I have more than 30 positions I’m juggling, legacies from the portfolio I held before I handed it off to the asset manager and positions he established as well.
The first rebalancing took me about an hour and a half yesterday. The web app doesn’t submit trades itself — only recommends them. Then I enter them manually into Schwab.
When will I know whether this was a good idea or not? Years later. Investment approaches only prove their worth on that kind of timeframe.
But one thing’s for sure: this is more emotionally satisfying than working with an asset manager.