In meetings with clients and prospects, I have been asked by several people about the rationale for building the Asset Inflation-Deflation Timer Model. The simple answer is, "I built it because balanced fund diversification failed so miserably in 2008."
Consider this chart showing a 60% stock (SPY) and 40% bond (AGG) mix, rebalanced daily. The theory behind Modern Portfolio Theory is that such a diversified portfolio is supposed to give you growth but protect you on the downside should something go wrong. Simply put, diversifying between stocks and bonds mean that when one thing goes up, the other either stays the same or goes down, and vice versa. That way, you get a much steadier rate of return than by holding one asset class.
When balance funds failed
July 05, 2011 at 03:36 AM EDT
