Interesting Use Of Someone Else's Strategy

Late Wednesday I sat in on a finance committee meeting for the animal rescue where my wife has been active for 20 years and has been the president for an extended period. They have a piece of money managed by a local advisor who came to gave a presentation about maybe changing the investment policy. I can't be the one to manage it for several reasons that all make sense to me. I said no to managing it five years ago before they really understood why it shouldn't be me, even for free.

Without going into too much detail, it was a bad meeting. All I'll say is stop loss orders and buffer funds but not really buffer funds, more like structured products that do essentially the same thing but which I assume are more expensive than an ETF. 

But we can have some fun with their asset allocation idea. I disagree with their opinions about what to own but the allocation is interesting. They proposed a strategy with three "buckets," short term, medium term at 3-5 years which would be "conservative-moderate" and long term/aggressive which they peg at 5-10 years. The respective weightings proposed were 15%, 44% and 41% (rounded numbers). 

Using funds we often use for blogging purposes, I built out the following for each bucket;

They didn't get specific about what funds would be included with the structured products. To be clear, the above are funds I chose to build their allocation. Then blending them altogether in the "Whole Thing;"

In real life, the short term bucket would have individual issues; T-Bills and the like. When blended altogether, the weightings aren't so big that I think the risk is undue. MERIX, BTAL and USFR are in my ownership universe. And the result;

The line for short term makes sense, that should be a cash proxy. In addition to T-Bills, having some of it in an equivalent to SWVXX at Schwab or SPAXX at Fidelity would be appropriate for immediate liquidity needs but the result would probably be identical. The medium term bucket has a higher CAGR than the long term bucket but that is probably misleading due to the medium term sleeve being up 1.51% in 2022 versus a 5.36% decline for the long term bucket. 

The backtest is also skewed negatively from the weighting to ACWX. If you don't already have foreign, I think it is a good time to add some but looking back, ACWX has trailed the S&P 500 by almost 700 basis points annually. 

I don't believe it makes sense to count on the result of the medium term bucket to be as good going forward. I think expectations regarding volatility, correlation and how the holdings might all interact can stand up but that doesn't mean the growth rate will be as good. I threw in BALT because the advisors are really big on the defined outcome strategy.

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