SIMPLE ASSET ALLOCATION (SAA)
SAA invests 100% in VFINX, the S&P 500 index fund OR 100% in FSICX/FADMX, a strategic income fund.
If the VFINX opening price exceeds its 200 day simple moving average [Definition] , SAA is 100% VFINX. Else VFINX is sold and reinvested in FSICX/FADMX.
FSICX/FADMX is a flexible bond blend which began life as FSICX and has been renamed FADMX and we treat it as a single continuous fund with data back to 7/31/1998. It is chosen because it has a long history and has maintained simultaneously a high yield and stable price.
If the VFINX opening price exceeds its 200 day simple moving average [Definition] , SAA is 100% VFINX. Else VFINX is sold and reinvested in FSICX/FADMX.
FSICX/FADMX is a flexible bond blend which began life as FSICX and has been renamed FADMX and we treat it as a single continuous fund with data back to 7/31/1998. It is chosen because it has a long history and has maintained simultaneously a high yield and stable price.
WHAT IS THE IDEA?
- Fixed allocations do not perform well during recessions. As the table repeated below notes, VBINX, a fixed balanced fund has the poorest long term results of our examples and it is due to two 50% stock market drops. A fixed allocation of all stock suffered the same fate.
- Fixed allocations which are overly diverse do not perform well during bull stock markets. Investing in classes other than the stock market during a bull market costs you money. Stocks have double digit gains routinely (13 out of 22 years) and for many years in a row.
- The timing portfolios AAA and IVY are similarly too diverse in that too little is invested in stocks during a bull market.
- The stock market is where Ordinary Investor makes his money. Is there a simple way to be 100% stock market for certain periods and 100% FSICX/FADMX in other periods? Can this be beneficial or is the adage that you can't time the market true?
HOW DOES SAA PERFORM?
These impressive results result from two deep recessions in the 2000-2010 decade as SAA was out of the market and back in at advantageous points. Recent history has resulted in several timing missteps which has cut SAA returns. So if you believe recessions are feature of the past, SAA will not be a good approach to investing. It could be the bull market will continue indefinitely and/or the market will stagnate for years at a time. However,if recessions and their 50% stock market drops continue, SAA will continue to deliver superior results.