Adaptive asset allocation strategies for core investments
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Adaptive Asset Allocation Strategies for Core Investments. Gabe Varga, CMT Website: www.FidelitySignal.com E-mail: [email protected] INDIANAPOLIS METRO AREA - TRADERS & INVESTORS May 4, 2013. Adaptive Asset Allocation Strategies for Core Investments.

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Adaptive Asset Allocation Strategies for Core Investments

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Adaptive Asset Allocation Strategies for Core Investments

Gabe Varga, CMT

Website: www.FidelitySignal.com

E-mail: [email protected]

INDIANAPOLIS METRO AREA - TRADERS & INVESTORS

May 4, 2013


Adaptive Asset Allocation Strategies for Core Investments

Change over time, as the economy and the markets change


AdaptiveAsset Allocation Strategies for Core Investments

Vanguard Target Retirement 2030 - VTHRX

Vanguard Target Retirement 2015 - VTXVX

http://quotes.morningstar.com/fund/vtxvx/f?t=vtxvx


Adaptive Asset Allocation Strategies for Core Investments

Definition of strategy: A method or plan chosen to bring about a desired future, such as achievement of a goal or solution to a problem.

www.businessdictionary.com/definition/strategy.html

Important or essential in relation to a plan of action

www.thefreedictionary.com/strategic

Definition of tactics: Means by which a strategy is carried out (e.g. stock selection)

www.businessdictionary.com/definition/tactics.html


Adaptive Asset Allocation Strategies for Core Investments

Definition of Core Holding in the Financial Dictionary - An investment expected to be part of a portfolio over a long period of time.

Examples: retirement account with mutual fund holdings, blue chip stock portfolio

Trading accounts and core investment holdings are usually managed differently


Markets are in unstable disequilibrium


Tail events can happen unpredictably


Mathematical foundation using fractal theory


Theory of reflexivity; Unstable disequilibrium


The psychology of bubbles and crashes (booms and busts) has not changed over the centuries


Prospect theory describes the influence of fear, greed, and hope on human decision-making


The 3 'M's of trading Mind, Method & Money Management


Technical analysis provides powerful methods (e.g. moving averages) for entry/exit


Psychology of booms/busts have not changed

Trend following using technical analysis tools (e.g. 100 day moving average) is a great way to invest

What did we learn?


Psychology of booms/busts have not changed

Trend following using technical analysis tools (e.g. 100 day moving average) is a great way to invest

Cannot assume that the market will be higher in the future

What did we learn?


Psychology of booms/busts have not changed

Trend following using technical analysis tools (e.g. 100 day moving average) is a great way to invest

Cannot assume that the market will be higher in the future

Markets have changed

electronic trading became dominant and financial markets seem to be more volatile now

the buy-and-hold strategy that worked so well in the 1980s and 1990s has resulted in extremely high risk and small real return for investors since 2000

What did we learn?


Psychology of booms/busts have not changed

Use technical analysis tools

Cannot assume that the market will be higher in the future

Markets have changed

Avoid the buy-and-hold

  • Multi-year bull markets represent the best opportunities for investment gains

  • Avoid being invested during a downtrend

  • Identify “intermediate-term” uptrends and reallocate core investments to adopt to and take advantage of uptrends

Investment approach for core holdings

Intermediate term uptrend started in December 2012


Why do we need to adapt our asset allocation mix to the market environment?


Long-term study of returns by Ed Easterling


3 years

Fidelity Real Estate Income, FRIFX yield 4.38%


Raising cash reserves as a simple, but effective adaptive strategy

10 years

Fidelity Real Estate Income, FRIFX yield 4.38%


FidelitySignal.comis an investment newsletter that makes it easier to start and manage your portfolio of Fidelity mutual funds.


Model portfolios with buy and sell signals


Focused strategy portfolios


Diversification strategy portfolios


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