How does it work?
In one way or another, almost every person asks this question at some point in our conversation, when they see the chart of how well the asset allocation theoretical backtests have performed versus the individual components of the portfolio models (such as the S&P500). In current investment jargon, you could call it a modified risk parity approach. I’ve described it lots of ways, but you can see it for yourself by linking to the charts of the Portfolio Wisdom 12 Asset Growth Model asset allocations from 1994-2011. From the home page, just click on the picture above, for the full page…
Here are the steps you must follow to see the changes properly displayed. Starting clockwise at the top of the chart below:
- Along the top of the chart, toward the right corner, click on the middle tab signifying a bar chart.
- Along the right side of the chart, near the top, click on the COLOR drop down selector and choose “UNIQUE COLORS”.
- Along the right side of the chart, just above the middle, check all of the asset classes shown.
- Along the bottom of the chart, click on the ORDER drop down selector, and choose “ALPHABETICAL”.
- Along the bottom of the chart, near the left corner, there is a small PLAYBACK SPEED arrow. Click and pull it down to the slowest setting.
- Along the bottom of the chart, at the left corner, click on the “PLAY” arrow.
- Enjoy! Notice how the allocations, especially CASH changed during and after the crash at the end of 2008!
Here is the Portfolio Wisdom 12 Asset Conservative Model
If you want to open this gadget in a separate browser window, use the following link and navigate to the spreadsheet tabs named Growth Model 1994-2011 and Conservative Model 1994-2011. The actual allocation data produced by the Portfolio Wisdom algorithms for each week during 1994-2011 is shown on the other sheets.