| Hello, Ed D’Agostino here, publisher of Mauldin Economics. As we begin Thanksgiving week and the holiday season, if you’re like me you’re looking forward to a respite from watching the roller-coaster markets we’ve faced in 2022. More to the point, CNBC reported in October the 60/40 portfolio remains on track for its worst year ever. As recently as last week, Reuters reiterated J.P. Morgan’s call for a recession in early 2023. Yes, inflation may be moderating, but even this sliver of good news doesn’t make up for the pain of 2022. As I know you’re well aware, the S&P 500 is down 17.8% for the year. If you manage your own portfolio or client portfolios… If you're in retirement, or about to be, 2022 has revealed challenges most of us have only experienced a handful of times in our investing careers. 2022 is the kind of year when one allocation decision well timed, or poorly timed, can affect your returns for years to come. For many of us, holding on tight and hoping for the best is not an acceptable strategy. The perspectives I share with younger generations of my family, for instance, are not applicable to the time horizon you or I are working with. Simply put, stress in the markets often creates a “do something” mentality, which leads to faulty thinking and execution, which in turn exacerbates losses and can hurt returns for years, even decades into the future. I’ve been there. You’ve been there. We’ve just about seen it all, we know better, but still we face the same hard questions at times like these. Now what if we could turn back the clock to January, anticipate Fed policy decisions, rampant inflation, and the market carnage of the last 10+ months? What if we could position our portfolios ahead of bear markets, effectively opting out of the subsequent declines. While you consider that possibility, allow me to pivot to a quick story about my colleague Dan Steinhart at research firm RiskHedge. When Dan launched RiskHedge in 2018, he did so with the background of a CPA who valued diligence, transparency, and safety above all else. The analyst team he’s trained, much like the group we have at Mauldin Economics, is immensely talented. That’s why I was surprised recently when Dan mentioned that since 2016, he’s used an allocation model developed by a respected quant for a portion of his own family’s money. Intrigued, I asked him to explain the basis of the model. What he showed me impressed me so much I decided to use it myself with a portion of my own account. My point is, Dan’s as sober and reasonable a researcher as you’ll meet. When he told me he used a specific allocation model to avoid bear market losses… while also capturing S&P-beating bull market upside, I took him at his word. I evaluated the backtest and even participated with Dan in a call with the quant who developed the system. I was impressed enough to try it myself. When I put it to use myself, any lingering skepticism was put to rest. What Dan and his team at RiskHedge have uncovered is, in my opinion, a smart way to take the stress out of investing your “core portfolio.” I encourage you to take a few moments and review the video Dan made from his home office to describe how this allocation model works. It could prove beneficial to you in the months ahead. You can watch Dan’s video by clicking here.
Ed D'Agostino
Publisher, Mauldin Economics
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