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Diversified Timing On Endowment Asset Allocation Model

This strategy applies a long term timing rule over each asset in a properly planned asset allocation portfolio. It reduces the overall portfolio risk while still maintaining (or even increasing) the return.

This strategy is based on Mebane T. Faber's article in It uses a 10 month simple moving average in each asset in the portfolio. A so called Endowment model portfolio is maintained here. This strategy shows that by applying market timing as simple as a moving average could enhance a portfolio's risk adjusted return while avoiding big loss during a market crisis such as the one in 2008. Notice by using market timing, one could choose a once considered 'risky' long term treasury bond in place of the fixed income asset.

Endowment Model

20% US Stocks (S&P 500)                VFINX or  SPY or VTI
20% Foreign Stocks [MSCI EAFE]    VGTSX or 
20% US 10Yr Gov Bonds                     VUSTX or IEF or EDV
20% Commodities [GSCI]                  QRAAX or DBC or GCC
20% Real Estate [NAREIT]                 VGSIX or  IYR or VNQ

Notice it is not a good idea to directly invest in index funds as, VGSIX (Vanguard Real Esate Index Fund) has 1 year minimum holding period. It is best to use Vanguard ETFs or other low cost ETFs to implement this model. 

See Also


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