Asset Allocation Model Software with Mutual Fund Picks

This page is not for individual investors, because they wouldn't pay these money manager fees.

Below are the actual returns for the same model portfolios assuming total annual investment management fees and trading expenses are 1.0%, which is considered average. This is not the mutual fund/life insurance company management fee, it's the fees you as an investment advisor that actively manages the money would charge.

Investment management fees are assumed to be deducted from the cash account on the first trading day of every new quarter. For example, if the total annual fee (total fee plus total trading costs) is 1.00%, then 0.25% of the account's balance on the last trading day of the previous quarter, is deducted from cash. There is no cash in the Aggressive Investment Model, so some of the bond fund is sold to pay fees.

These returns are not "hypothetical" as they are shown in the "demo." These are the actual returns from inception (January 1999) showing the returns as if you invested in January 1999, then made no more deposits or withdrawals, reinvested all capital gains and dividends, rebalanced on the first trading day of every new quarter and when allocation weights changed, and switched all of the funds on the first trading day of the month after the switch was announced.

You'll receive the spreadsheet showing all fund switches and return data (so you can audit them yourself) when you purchase the Asset Allocation Model. These three Excel spreadsheets are called Linked Model Returns.xls. Input your assumed annual investment management fees, and assumed annual trading costs, into the far left sheet of the Fee-Based Model, and all of the returns are automatically adjusted.

The most Real World thing to do is compare the Moderate Model with the S&P 500. The longer the time frame, the more pronounced the benefits of asset allocation.

See returns assuming no annual management fees

See returns assuming 1.0% annual management fee (average)

See returns assuming 1.5% annual management fee (high)

See returns for the No-Load mutual fund Model (for investors mostly)

See returns for the Load Model (for pros working on a commission basis)

See returns that show how the negative correlation coefficients of asset allocation work so well

Time Frames	Conservative Model	Moderately Conservative Model	Moderate Model	Moderately Aggressive Model	Aggressive Model	DJIA	S&P 500	NASDAQ	Russell 2000	MSCI EAFE	BarCap Agg Bond
1999	25.83%	37.21%	48.69%	64.62%	85.37%	25.22%	19.53%	85.59%	21.26%	27.30%	-0.83%
2000	4.50%	-1.04%	-6.10%	-7.53%	-9.80%	-6.18%	-10.14%	-39.29%	-3.02%	-13.96%	11.63%
2001	3.66%	2.62%	2.97%	1.91%	1.42%	-7.10%	-13.04%	-21.05%	2.49%	-21.21%	8.42%
2002	-3.03%	-11.04%	-19.80%	-26.75%	-32.01%	-16.76%	-23.37%	-31.53%	-21.58%	-17.52%	10.27%
2003	21.88%	30.24%	35.80%	39.56%	40.41%	28.28%	28.68%	29.28%	47.25%	17.41%	4.11%
2004	11.71%	13.79%	14.95%	15.88%	15.21%	5.32%	10.87%	8.59%	18.33%	10.18%	4.34%
2005	9.84%	11.63%	13.10%	14.21%	13.86%	1.72%	4.91%	1.37%	4.55%	25.96%	2.43%
2006	11.69%	13.66%	15.59%	16.56%	16.60%	19.05%	15.79%	9.52%	18.37%	13.81%	4.33%
2007	15.45%	20.26%	21.88%	22.72%	22.24%	8.89%	5.49%	9.81%	-1.57%	11.17%	6.97%
2007	15.45%	20.26%	21.88%	22.72%	22.24%	8.89%	5.49%	9.81%	-1.57%	11.17%	6.97%
2008	-9.38%	-19.07%	-25.44%	-31.29%	-34.25%	-31.93%	-37.00%	-40.54%	-33.79%	-45.09%	5.24%
2009	16.49%	21.18%	26.52%	31.04%	34.71%	22.68%	26.46%	43.89%	27.17%	27.75%	5.93%
The Month of June '10	-1.32%	-2.62%	-2.99%	-3.75%	-4.38%	-3.43%	-5.24%	-6.55%	-7.75%	-1.16%	1.57%
2008 YTD (31 Dec '09 to 30 June '10)	-0.35%	-1.98%	-3.34%	-4.32%	-5.11%	-5.00%	-6.65%	-7.05%	-1.95%	-14.72%	5.33%
Last 12 Months	11.98%	13.96%	14.52%	15.66%	16.44%	18.94%	14.43%	14.94%	21.49%	3.13%	9.50%
Last 3 Years Annualized Average	4.03%	1.43%	-0.33%	-2.24%	-3.09%	-7.39%	-9.81%	-6.77%	-8.60%	-15.85%	7.55%
Last 5 Years Annualized Average	6.82%	6.72%	6.81%	6.32%	5.85%	1.66%	-0.79%	0.50%	0.37%	-1.77%	5.54%
Last 10 Years Annualized Average	6.84%	6.13%	5.11%	3.84%	2.40%	1.68%	-1.59%	-6.12%	3.00%	-2.17%	6.47%
Annual Average Since Inception (31 Dec '98 - Monthly compounding)	8.22%	8.28%	8.05%	7.98%	7.85%	2.81%	0.23%	-0.34%	4.61%	-0.36%	5.88%
	Conservative Model	Moderately Conservative Model	Moderate Model	Moderately Aggressive Model	Aggressive Model	DJIA	S&P 500	NASDAQ	Russell 2000	MSCI EAFE	BarCap Agg Bond

We keep getting the same questions/comments about our unusual performance, so here's an e-mail paste that will help:

Yes on one hand, the investment performance is remarkable. On the other hand it shouldn't be, because it's exactly what the CFA program teaches. Iyry small nutshell is this: Individual investors should not be market timing at all, period, as this is worse than futile. Individual investors should also not be trying to pick stocks (bonds or anything else), unless they have quasi-insider information, like they work there, used to work there, or know someone working there that's not technically an insider that's feeding them accurate and timely info. The only "people" that have enough information, resources, and data to profit by picking stocks (and/or time markets) are large institutions like mutual funds.

So once that huge battle is understood and won (99% of investors still don't get it), and since there are only three ways to make investment decisions, and the most popular two are taught to be no-no's by the CFA program, there is only one methodology left - asset allocation. So I took that to mean that this is what I should become an expert on, because my biz is managing money for investors in a RIA and financial planning setting (my job as an employee at the time).

What you're supposed to is determine a mix of viable asset classes that fits an individual investor's life, and then either fund it with something very diversified like mutual funds, ETFs, or index funds (the CFA program likes index funds the best, as most people can't even pick open-ended mutual funds well enough to beat an index fund). So the questions then become, how do you determine what asset classes to use and how much? Well, I did it in both the Comprehensive Asset Allocation software and the Model Portfolios using the best asset-level portfolio optimizer, educated guesses, and way too much trial and error. After doing it a million times, I found what works and am sticking with it. I've looked at every else's harebrained investment strategies since the mid-'80s, and found none to be better (I admit I've stolen many ideas from many people (mostly from the hundreds of job interviews I went on), and so I've tinkered with just about everything everyone else has come up with since 1986. The ideas that work, I keep, and the ones that don't, I poke fun at on the site).

Once that war is over, the battle is reduced to what to use to fund the asset classes with? To make a very long story short: Stocks - no, no diversification compared to a mutual fund that may own 100 stocks. Closed-end funds, no - there's no way to screen them to get any predictive value whatsoever because of the large and random premiums and discounts. ETFs, no they are just lame index funds... with fees (and then on top of that, commissions to pay when you buy and sell them. This is all terrible compared to a no-load mutual fund). Index funds, maybe, but the way I pick open-ended mutual funds creams index funds by way too large of a margin about 90% of the time. So all of these questions are now answered - the way I screen and pick mutual funds adds by far the best value to the investment process than anything else I've ever seen, so I'm sticking it with it to the bitter end.

The magic isn't all in the infrastructure (the software), it has a lot to do with finding predictive value in the mutual fund picks (I look at many things, like historical performance, and try to predict that it will keep up long enough to be useful). After millions of trials and errors, I found a way to pick mutual funds that have a one- to two-year predictive value (all mutual funds crap out eventually and have to be replaced, which is why it's critical to keep the subscription going and rebalance. When I say crapped out, I don' t mean it in a smelly sense, but the casino gambling way). It doesn't always work, but the winning picks beat the duds enough to add more long-term value than any other investing strategy I've ever seen. Plus every month I learn something new, so the screening process is continually refined and saved, so it gets better all the time. I had a major breakthrough in '07 when I figured out how to get around the software stupidity and lousy data Morningstar maintains. It seems to be working so I'm sticking with it.

I used to sell these little Morningstar screening filter mcr files that can be used by others in their offline version of Morningstar, but a big NY firm tried to copy my screening process in '03, so I don't sell them anymore. So if the information about how I pick mutual funds is not on the mutual fund picks page already, then it's a trade secret now. There's no secrets about the software nor models. Just the opposite, every tiny little detail is explained ad nauseum somewhere on the site. And when you buy the allocation software or model portfolios, not much is protected, so you can see exactly what's going on. Plus you'll get the same spreadsheet I use to calculate returns to account for mutual fund switches, fees, rebalancings, and all that since 1/1/99. So you can audit the returns and figure everything out.