Tactical Asset Allocation (TAA)

Strategic Vs. Tactical Asset Allocation

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How I Built My TAA Portfolio

I started this page in 2012 as the introduction to my monthly portfolio updates. My goal was simple: get the best return I could with limited risk, low drawdowns and very little time spent each week. Preserving capital came first. I'd rather hit singles and doubles every year than swing for home runs and strike out.

These were my rules:

• ETFs only. I'd been burned by single stocks dropping straight through my stop-loss on bad news. An ETF holds dozens or hundreds of companies, so one company's surprise doesn't sink the position.
• Position caps. Any one holding was limited to 5% of the portfolio, or 10% in a few cases.
• Trend filters. I used the 40-week moving average, which is close to Faber's 10-month average and easier to get weekly data for, plus a faster 20-week average. If an ETF closed below either one, I sold it.
• Momentum weighting. Each month I ranked sectors and asset classes by recent performance and gave more weight to the leaders. At one point large-cap US stocks got 15% of the portfolio while emerging markets got 5%.
• Monthly trades. I only changed positions once a month unless a holding broke below its moving average.

The idea behind momentum weighting is that assets that have done well over the past several months tend to keep doing well for a while, an effect documented across stocks, bonds and commodities in academic research.

Why Avoiding Big Losses Matters

The recovery math is the whole case for TAA. A loss shrinks the base you're growing from, so the gain needed to get back to even rises faster than the loss itself.

That's why I'd take a steady 8% a year over a strategy that averages more but drops 40% now and then. One bad year can erase several good ones, and it takes far longer to climb back than to fall.

A Simple TAA Model You Can Copy

The simplest published version of TAA spreads money across five asset classes and applies one rule to each. It takes about 15 minutes a month.

1. Split the portfolio equally across five ETFs: US stocks, foreign developed stocks, US bonds, real estate (REITs) and commodities.
2. On the last trading day of each month, compare each ETF's price to its 10-month simple moving average.
3. If the price is above the average, hold it. If it's below, sell it and park that slice in a short-term Treasury fund.
4. Repeat every month without exceptions.

Faber's paper found this approach produced returns close to buy-and-hold over long periods with much smaller drawdowns, though past results don't guarantee future ones. You can add the momentum ranking I used, or keep it to the single trend rule.

Where Crypto Fits In A TAA Portfolio

Crypto can be one sleeve in a tactical portfolio, sized small because it's far more volatile than stocks. Bitcoin has had several drawdowns of 75% or more, which is exactly the kind of loss a trend rule tries to sidestep.

The SEC approved spot Bitcoin ETFs on January 10, 2024, and spot Ethereum ETFs began trading on July 23, 2024. That means you can hold crypto exposure next to your other ETFs and apply the same monthly moving-average test. Our page on the BlackRock Bitcoin ETF covers how these funds work, and our crypto portfolio allocation page covers sizing.

Moving averages lag. In a crash as fast as March 2020, a monthly rule sells after much of the damage is done. A 5% cap on the crypto sleeve, the same cap I used on every position, keeps one bad month from wrecking the plan.

How To Run A TAA Portfolio

You need a broker with free ETF trades and good charting. I kept everything at Fidelity for its low costs, and it remains a strong choice for US residents, with $0 online commissions on US stocks and ETFs and its own spot Bitcoin ETF.

Readers outside the US can't open a standard Fidelity US account. eToro offers stocks, ETFs and crypto in the UK, EU and Australia as well as the US, though the crypto list and some features vary by country and, in the US, by state. Wherever you live, run TAA inside a tax-sheltered account if you can: an IRA or 401(k) in the US, an ISA or SIPP in the UK, a TFSA or RRSP in Canada.

Taxes are the hidden cost of trading monthly. In a US taxable account, positions held a year or less are taxed as ordinary income. Gains on assets held longer than a year get long-term rates, and the 0% rate applies to taxable income up to $49,450 for single filers and $98,900 for joint filers in 2026, under IRS Revenue Procedure 2025-32.

What To Watch Out For

• Whipsaw. In sideways markets the price crosses the moving average again and again, and you buy high and sell low in small amounts many times.
• Lagging in strong bull markets. Trend rules are late to re-enter after a sharp rebound, so TAA can trail buy-and-hold for years.
• Taxes and costs. Frequent sales in a taxable account turn long-term gains into short-term ones.
• Breaking your own rules. The method only works if you follow it every month, including the months it feels wrong.
• Not personal advice. This describes how I ran my own money. It isn't a recommendation for yours.

Update

From the Cult of Money editors, November 2026: Karl published this introduction in January 2012 and followed it with monthly portfolio updates. We've kept his rules and reasoning in his words, removed the 2012 charts and long quotations, rebuilt the loss table, and added spot Bitcoin ETFs, tax notes and options for readers outside the US. His monthly update posts aren't part of the new site.

FAQ

What Is Tactical Asset Allocation?

Tactical asset allocation adjusts how much you hold in each asset class based on rules, usually price trends or momentum. It differs from strategic allocation, which keeps a fixed mix no matter what markets do.

What Is The 10-Month Moving Average Rule?

You hold an asset while its month-end price is above the average of its last 10 month-end prices, and sell it to cash or short-term bonds when the price falls below. You check once a month.

Does Tactical Asset Allocation Beat Buy And Hold?

Not reliably on returns. Its main benefit in published tests is smaller drawdowns, and it can trail buy-and-hold during long bull markets.

Can I Use TAA With Bitcoin?

Yes. Spot Bitcoin ETFs let you apply a moving-average rule to Bitcoin in a regular brokerage account or IRA. Because Bitcoin is so volatile, most rules-based investors cap it at a small share of the portfolio.

Is TAA Good For A Retirement Account?

A retirement account is often the best place for it, because trades inside an IRA, 401(k), ISA or TFSA don't trigger capital gains tax each time you sell.