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Welcome! This guide will show you how to implement the Asset Rotation Model (ARM) in your investment account. Whether you’re new to the model or simply need a refresher, we’ll cover everything you need to know – from understanding the monthly recommendations to updating your allocations in your brokerage or investment platform.
Applying the Asset Rotation Model to your investment account is simple and takes just a few minutes:
If you’re familiar with managing your portfolio, the process should take less than five minutes. New to this? Don’t worry – keep reading for a detailed step-by-step guide on how to use the Asset Rotation Model effectively.
The Asset Rotation Model (ARM) employs a dynamic asset allocation strategy designed to enhance your portfolio’s performance while reducing exposure to market risks. By shifting between stocks and bonds based on changing market conditions, the ARM delivers a strategic combination of growth and protection, making it ideal for taxable accounts, IRAs, 529 plans, and more.
The ARM is updated monthly, with recommendations posted on the first trading day of each month. These updates, available exclusively to premium members, provide precise guidance for positioning your portfolio for the month ahead.
You can access the updated recommendations on the Current Recommendations page, located at the top of the homepage after logging in. To ensure you never miss an update, we send out monthly email notifications with direct links to the latest recommendations. Acting promptly to update your holdings each month is key to getting the most out of the ARM.
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Note: If you invest primarily through a 401(k) or the Federal Government’s Thrift Savings Plan (TSP), we recommend following the respective models for those accounts. While based on similar logic to the ARM, the 401(k) and TSP models are customized to align with the unique investment options and requirements of those plans.
The Asset Rotation Model (ARM) employs a straightforward, data-driven strategy to help you optimize your investment portfolio. Each month, the model evaluates the performance of major asset classes—stocks and bonds—while accounting for broader economic and market conditions. This comprehensive analysis allows the ARM to dynamically allocate your investments to the strongest performing areas of the market.
Unlike employer-sponsored retirement plans, which often offer a specific set of investment funds, the ARM operates on a broader framework designed for flexibility in taxable accounts, IRAs, 529 plans, and other investment accounts. It focuses on maintaining simplicity and low turnover, making it ideal for accounts where tax efficiency or trading restrictions are relevant.
The ARM uses specific ETFs to represent the primary asset classes, carefully chosen for their close alignment with the broader stock and bond markets. These ETFs form the foundation of the model’s recommendations and allow for seamless implementation across a variety of investment platforms.
The specific ETFs used by the model are listed below:
| Asset Rotation Model (ARM) Investment Options | ||
|---|---|---|
| ETF | Description | Asset Class |
| SPY | SPDR S&P 500 ETF | Stocks |
| AGG | iShares Core U.S. Aggregate Bond ETF | Bonds |
Regardless of which type of account you’re using, you should be able to easily purchase both ETFs directly from any online platform or brokerage.
The ARM works by investing 100% of the portfolio in the top ranked asset class – either stocks or bonds, but never both at the same time. Why is this important? Because during economic cycles, one of the two asset classes often underperforms and acts as a performance drag on your overall account. By eliminating this drag and focusing investments in the asset class with the highest probably of appreciation, the ARM can deliver astounding returns while remaining simple to use.
When you log in to view the ARM recommendations, you’ll find a section titled Current ARM Selections, along with a table displaying the top-ranked asset class and the corresponding allocation. Below is an example of the table format; please note that the asset classes shown are for illustrative purposes only.
| Current ARM Selection | ||
|---|---|---|
| Rank | Fund | Description |
| 1 | SPY | SPDR S&P 500 ETF |
This table provides all the information needed to implement the ARM’s current recommendations in your investment account. In the next section, we’ll guide you through the step-by-step process of updating your allocations in your brokerage or investment platform.
Once you’ve accessed the ARM recommendations, you’re ready to make the adjustments in your account. The simplest way to implement the ARM is to follow its recommendations exactly as it rotates between stocks (SPY) and bonds (AGG).
The process for executing trades is simple and can be summarized as follows:
The ARM can remain invested in a single asset class for months or even years at a time. If the recommendation doesn’t change from one month to the next, no action is needed to update your account.
It’s that simple. Continue to monitor the ARM monthly for changes in the allocations and adjust when necessary.
Be Mindful of Trading Restrictions: Some accounts, such as 529 plans, may have limits on how frequently you can make changes. Ensure your updates comply with these rules.
Plan for Sequential Trades: If you’re working through a brokerage account, remember that you’ll need to sell your current holdings first before making the new purchase. Be sure to complete the sale transaction before executing the buy order to ensure a smooth transition.
Stay Consistent: Regularly applying the ARM’s monthly recommendations ensures your portfolio remains aligned with the strategy, maximizing its potential benefits.
For more advanced investors, it’s not necessary to limit your investments strictly to SPY when the model selects SPY or AGG when it selects AGG. The key is to understand that the model uses these funds as proxies for stocks and bonds.
When the ARM selects SPY, it signals that stocks, in general, are performing well and that your portfolio should be positioned in equities. Conversely, when the ARM selects AGG, it indicates that stocks are facing a challenging environment—potentially a market downturn—and that bonds are the most suitable alternative at that time.
This means you can use other forms of stock exposure when the model selects SPY or alternative bond investments when it selects AGG. However, keep in mind that substituting different investments may result in performance that deviates from the ARM’s historical results.
While the Asset Rotation Model is designed to deliver strong performance with managed risk, some investors – such as those nearing retirement or those with a very low risk tolerance – may prefer to further reduce their exposure to market volatility.
A simple way to achieve this is by maintaining a portion of your portfolio permanently allocated to a stable-value fund. The remaining balance of your portfolio can then follow the ARM’s recommendations. For example, if you want to reduce sensitivity to market fluctuations, you might allocate 20% of your portfolio to a stable-value fund and apply the ARM’s strategy to the remaining 80%.
This approach allows you to benefit from the model’s dynamic asset allocation while maintaining a greater degree of security in your overall portfolio.
To provide greater flexibility, the Current Recommendations page for the Asset Rotation Model (ARM) includes an additional table that ranks asset classes—stocks and bonds—based on their relative performance. This table is especially useful for users who may wish to customize their allocations to better suit their personal preferences or financial goals.
The Complete Ranking Table uses a simple color-coding system to highlight the status of each asset class:
| Key | |
|---|---|
| Green | Showing positive price performance and acceptable as an investment |
| Yellow | Acceptable as an investment but significantly better alternatives exist |
| Red | Not recommended at this time |
Asset classes highlighted in green are considered strong performers and suitable investments. However, to achieve optimal results, we recommend following the ARM’s top-ranked selection.
Please keep in mind that deviating from the ARM’s recommendations may lead to performance outcomes that differ from those displayed on our site. All performance metrics and charts are based on strict adherence to the model’s standard allocation methodology, without modifications or permanent allocations outside the model’s guidance.
This concludes the ARM Tutorial.
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The information provided here is for informational purposes only. Model returns do not reflect any management fees, transaction costs or expenses. Investing involves a great deal of risk, including the loss of all or a portion of your investment. Nothing contained herein should be construed as a warranty of investment results. Past performance is not an indication of future results. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. Model Investing maintains positions in the funds discussed within this site according to model recommendations.
