• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar
  • Skip to footer
Cult Of Money

Cult Of Money

Personal finance for the crypto-curious.

  • About
  • Podcast
  • Contact
  • Cryptocurrency
      • How To Start

      • What Is Cryptocurrency And How To Invest?
      • What Is Bitcoin And How Does It Work?
      • What Is Ethereum And How Does It Work?
      • Most Common Crypto And NFT Scams (And How To Avoid Them)
      • Proof Of Work vs. Proof Of Stake vs. Proof Of History
      • How To Invest In Crypto In Your IRA Or 401k
      • Tools + Resources

      • Best Cryptocurrency Exchanges
      • Best Cryptocurrency Wallets
      • Best Crypto Savings Accounts
      • Best Tax Software For Crypto And NFT Traders
      • Reviews

      • Coinbase Review
      • Gemini Review
      • BlockFi Review
      • Binance Review
      • Hodlnaut Review
      • Ledger Wallet Review
  • DeFi
      • How To Start

      • What Is DeFi?
      • What Is Staking Your Crypto?
      • Centralized vs. Decentralized Exchange
      • Tools + Resources

      • Uniswap Review And How Do Decentralized Exchanges Work?
      • Reviews

  • NFT
      • How To Start

      • What Is An NFT?
      • Tools + Resources

      • Most Popular Play-To-Earn Crypto Games
      • Popular Projects

      • What Are VeeFriends And Are They Worth It?
      • Bored Ape Yacht Club NFTs Are Popular (And Expensive)
      • What Is The Sandbox And How Can You Play?
      • Why Visa Bought A CryptoPunk
  • Investing
      • How To Start

      • Tools + Accounts

      • Reviews

  • Personal Finance
      • Banking

      • Best Bitcoin Rewards Checking Accounts
      • Tools + Resources

      • Tax

      • Income Tax Prep Guide
      • Bookkeeping And Accounting For Crypto And NFTs
Investing

Tactical Asset Allocation (TAA) Portfolio

By Karl • October 27, 2021

At The Cult of Money, we want to help you navigate your finances. To do this, many or all of the products featured here may be from our partners whom we receive compensation from. This doesn’t influence our evaluations or reviews. Our opinions are our own. Learn more here.Advertiser Disclosure

There are thousands of financial products and services out there, and we believe in helping you understand which is best for you, how it works, and will it actually help you achieve your financial goals. We're proud of our content and guidance, and the information we provide is objective, independent, and free.

But we do have to make money to pay our team and keep this website running! Our partners compensate us. CultOfMoney.com has an advertising relationship with some or all of the offers included on this page, which may impact how, where, and in what order products and services may appear. The Cult of Money does not include all companies or offers available in the marketplace. And our partners can never pay us to guarantee favorable reviews (or even pay for a review of their product to begin with).

For more information and a complete list of our advertising partners, please check out our full Advertising Disclosure. CultOfMoney.com strives to keep its information accurate and up to date. The information in our reviews could be different from what you find when visiting a financial institution, service provider or a specific product's website. All products and services are presented without warranty.

This is an introduction to a regular series updating what I am doing with my primary portfolio. I will be sharing my stock market investment goals, and how I construct my Tactical Asset Allocation Portfolio. I’ll share some of my holdings, and also share some of the risks involved.

I keep all my investments at Fidelity because I love how they are low-cost, and they usually have deals to keep things commission-free. If you’re still paying a lot of investment accounts, it’s time to switch to a broker like Fidelity.

See how they compare to other brokers in this awesome list of the best stock brokers.

Investing Is About Balance

Investing is all about balance.  I strive for balance in my investments, knowing that I won’t get amazing returns, but I’m far more likely to get wealthy making good returns (singles and doubles) consistently than trying to hit home runs each time and striking out.  Preservation of capital is a top priority.

Let me back up and cover my goals for investments, and why I invest in only ETFs.

Investing Goals

My overall goal is to maximize my returns give a few conditions.  I want “limited” risk, I want low draw downs (aka low downside volatility), and I don’t want to spend hours and hours every day managing my money.

CultOfMoney Current TAA allocations for stock market investments
Current Allocations

So, the limited risk I achieve by owning only ETFs.  I also consider mutual funds, but I prefer to exit at a price I know instead of the end-of-day price.  Additionally, I have been burned by previous ownership in individual names announcing bad news that then blows through stops.  The ETFs hold multiple names so this type of single name shock.

Portfolio diversification is another method I use to limit risk.  My asset allocation model limits the amount of any one instrument that I can hold to 5% usually, or 10% under certain circumstances.

The limiting of risk and the low draw down I achieve by following a simple timing model much like Mebane Faber of the Ivy Portfolio fame (he’s also a top investing blogger).  I use the 40 week moving average, which is nearly equivalent to the 10 month moving average that he expounds in his papers & books.  It is just easier for me to get data on the 40 week average than the 10 month.  i also use the 20 week moving average.  Both of these moving average reduces the risk of holding during an extended downturn.  Protection of capital is key for me.

CultOfMoney - TAA Current Sector rankings for stock market
Sector Rankings

Finally, I have limited time, and as they say time is money, so I want a systematic way to determine investments, make the trades, and move on.  My model does that, and attempts to limit trades to the minimum necessary.  The above is the sector ranking that I ran last Friday, showing where the sectors stand now, though I only change positions once a month (unless the price goes below the 20 or 40 week moving average.)  The theory that I am using is based in relative strength or momentum.

The academic research shows that there are lasting affects that I am trying to harness.  Therefore, my model weights the top performing sectors more heavily than the poor performing sectors.  As you can see above, Large Cap Domestic currently gets a 15% portfolio weighting, while Foreign Emerging Markets only get 5%. I’m also looking at doing a little bit of cryptocurrency investing.

How I Try To Limit Losses And Risk

One of the things that I really try to limit is losses (duh).  But you may be more aggressive about doing the same when you see the following.  First, here is a great quote From Ken Fisher, Forbes, 1989:

Here’s the paradox: The odds are overwhelming I will end up richer by aiming for a good return rather than a brilliant return — and sleep better en route. Folks who seek a killing usually get killed. Gunslingers get shot, and often in the foot, with their own guns. While there is always some guy around on a red-hot streak, his main function is to tempt the rest of us into becoming fools and paupers. A return of 15% to 20% annually is a lot more than most folks realize, or need. If a 30-year-old with $10,000 in an IRA gets 15% annually, he’ll be a millionaire before normal retirement. That’s the power of compound interest. If that same 30-year-old were to sock away another $2,000 per year at 15%, he would end up as a 65-year old $3 million fat cat. At 20%, it’s an incredible $13 million. That’s a lot, but it’s not too much to ask. The two most definitive studies ever on long-term returns, the Ibbotson/Sinquefield and Fisher/Lorie studies, both point to average annual returns for stocks of 9% plus per year going back to the mid-1920s. So 15% to 20% per year is really 66% to 100% better than the market as a whole. That’s tough but doable. Consistency is the key. It is close to impossible to get a good, long-term, rate of return if you suffer serious negative numbers en route. It’s the math. A single year that is down 30% means you have to get 30% per year positive returns for the next four years to get back on track for a 15% annual average. Or, if you score 20% annually for four years, and then suffer a 30% decline, your five-year average return is only 7%.
(This is also quoted fairly regularly by Jeff Saut at Minyanville)

A big quote I know, but important.  If you have a large loss, it really is almost impossible to get back to where you would be if you had a more consistent yet lower return.

If you have a method that can return 10% annually, first off you are doing pretty well.  But if you’re shooting for the stars, looking to make the “quick buck”, you may want to re-evaluate.  Looking at the returns required over the next 4 years after a loss that must be averaged in order to get back to that 10% annual return.  A 20% loss in the first year requires 4 years of almost 20% returns.  That is going to be pretty tough, especially without taking on even more risk.

CultOfMoney - required return after loss
Required return after loss

The moral of the story:  Protect capital, even at the expense of higher returns, because it is very difficult to recover.

Some people put money into the stock market in a manner that is more like gambling than it is to investing.  You must manage risk rather than pursue return.  You could do everything right for years, and one day the risk can catch up with you.

Super Bowl, World Series – they don’t know what pressure is. In this building, it’s either kill or be killed. You make no friends in the pits and you take no prisoners. One minute you’re up half a million in soybeans and the next, boom, your kids don’t go to college and they’ve repossessed your Bentley. Are you with me? — Louis Winthorpe III, Trading Places (1983).

One last reminder, this is what I’m doing.  This could change at any point without notification.  I am not an investment adviser.  This is not advice.

What for further updates on at least a monthly basis for the changes in holdings each month as a make them, and I’ll track performance also so you can decide if you want to follow along or use me as a contra-indicator.  Readers, what is your investment plan and strategy?  What are the returns that you make annually?  How do you limit risk?

Karl

Karl Nygard is the original founder of Cult of Money and created the website to share his ideas on investing, personal finance, and more.

Editorial Disclaimer: Opinions expressed here are author’s alone, not those of any bank, credit card issuer, airlines or hotel chain, or other advertiser and have not been reviewed, approved or otherwise endorsed by any of these entities.

Comment Policy: We invite readers to respond with questions or comments. Comments may be held for moderation and are subject to approval. Comments are solely the opinions of their authors’. The responses in the comments below are not provided or commissioned by any advertiser. Responses have not been reviewed, approved or otherwise endorsed by any company. It is not anyone’s responsibility to ensure all posts and/or questions are answered.

Subscribe
Login
Notify of

4 Comments
Oldest
Newest Most Voted
Inline Feedbacks
View all comments
maddyC
11 years ago

Interesting allocation system, keep us posted on how goes.

0
Reply
Van Beek @ Stock Trend Investing
11 years ago

You and my investing approach is very similar. I use my own simple long-term timing signals of which some are also based on moving averages. On what set of data do you apply these timing models; on specific ETFs that you have selected or on something else? I use in general the major stock market indices as basis for the timing models.

0
Reply
Author
Karl
11 years ago
Reply to  Van Beek @ Stock Trend Investing

I actually use both the S&P and individual ETFs for the moving averages, individually if course. The stoploss is the 20pictures or 40 week moving average on each individual holding. It makes for quite the spreadsheet, luckily I have it so I can just refresh some links…

0
Reply
Holland
10 years ago

Karl, interesting blog. can you share the spreadsheet that you use and the mechanics of how you weight the etf sector?

0
Reply

Primary Sidebar

  • Facebook
  • Instagram
  • Pinterest
  • RSS
  • Twitter
  • YouTube

Editor’s Picks

  • 8 best cryptocurrency exchanges ranked

    8 Best Cryptocurrency Exchanges Ranked For 2023

  • crypto savings accounts

    6 Best Crypto Savings Accounts For 2023

  • Cryptocurrency Bonus Offers

    10 Best Crypto Promotional And Bonus Offers

  • best crypto wallets

    Best Crypto Wallets For 2023 (Software And Hardware Options)

  • Best Portfolio Trackers For Cryptocurrency And Stocks

    6 Best Portfolio Trackers For Cryptocurrency And Stocks

  • best tax software for crypto and NFT traders

    Best Tax Software For Crypto And NFT Traders In 2023

Popular Posts

  • proof of work vs. proof of stake vs. proof of history

    Proof Of Work vs. Proof Of Stake vs. Proof Of History

  • Why I Bought An NFT

    Why I Bought An NFT [And 5 Reasons You Should Too]

  • My Dogecoin Experiment: What I Learned From Investing $2,000 In DOGE

  • common crypto and nft scams

    Most Common Crypto And NFT Scams (And How To Avoid Them)

  • Bookkeeping and Accounting for Crypto and NFTs

    Bookkeeping And Accounting For Crypto And NFTs

  • what is a 51% attack

    What Is A 51% Attack? (And How Is That Game Over For Crypto?)

  • what is staking crypto

    What Is Staking And How Can You Make Money With Your Crypto?

  • what are veefriends

    What Are VeeFriends And Are They Worth It?

  • how to file a complaint against crypto exchanges

    How To File A Complaint Against A Crypto Exchange [Crypto Regulators]

Footer

Pages

  • Best Cryptocurrency Wallets
  • Best Cryptocurrency Exchanges

Categories

  • Cryptocurrency
  • DeFi
  • NFT
  • Personal Finance

About

  • About The Cult Of Money
  • Contact
  • How We Make Money
  • Advertise With Us
  • Facebook
  • Instagram
  • Pinterest
  • RSS
  • Twitter

Copyright © 2023 | Cult of Money | Privacy Policy | Terms of Service

wpDiscuz