Asset Rotation Model (ARM)

The Asset Rotation Model (ARM) helps you determine how to position your investments to capitalize on growth in both stocks and bonds, while largely avoiding those unfortunate periods of major market declines.

The ARM uses a dynamic approach to asset allocation. It examines the performance of both stocks and bonds, and positions itself accordingly to generate maximum growth for a portfolio. Under adverse economic conditions, when stocks are losing value, the ARM will shift to bonds to avoid the major losses associated with market crashes.

The chart below shows the backtested performance of the ARM over the last 23 years. For
comparison, the performance of SPY (an index fund that tracks the performance of the S&P 500),
AGG (an index fund that tracks the Barclays U.S. Aggregate Bond Index), and a 60/40 blend of
those two funds are included in the chart. By using a dynamic approach to asset allocation, the
ARM was able to generate significantly higher returns than both stocks and bonds, while avoiding
major losses during the last three market crashes.

Model performance represents total returns and includes reinvestment of dividends and
interest. No management fees or transaction costs are included. Historical performance is not an indication or guarantee of future performance.

The Asset Rotation Model selects the top performing asset class each month (between stocks and
bonds) and shifts its investment accordingly. Often, the model remains in a particular asset
class for months or years at a time.

The strategy behind the Asset Rotation Model allows it to avoid severe market declines. In the
early 2000’s the ARM was able to sidestep the dot-com collapse by moving to the safety of bonds.
When stocks began to recover, the ARM shifted back into stocks and rode the bull market higher
until the beginning of the financial crisis. At that point, the deteriorating returns in stocks
caused the model to shift back into bonds, safely riding out the financial crisis with minimal
losses. When stocks resumed their ascent once again, the ARM switched back into stocks to take
advantage of their strong growth.

This unique approach to asset allocation contradicts much of the standard industry dogma when it comes to choosing
between stocks and bonds. However, many investors immediately recognize the benefit of only being exposed to a
certain asset class when it exhibits positive price performance. Why sit with stocks through a market crash? And why
hold bonds if their total returns are negative for extended periods of time? Click here for an explanation on why dynamic asset
allocation is a better alternative to the standard fixed-allocation approach.

The ARM not only delivers higher returns, it also substantially reduces overall portfolio risk.
The table below contains a series of performance metrics that allow you to compare the ARM
against portfolios of both stocks and bonds.

Key Performance Highlights:

• Over the last 23 years the ARM’s compound annual return has significantly outpaced that of
  both stocks and bonds, as well as a blended portfolio.
• When compared to stocks, the ARM generates strong excess returns (alpha) while experiencing
  much less volatility (risk).
• The reduced volatility and enhanced returns provide for notably higher risk-adjusted
  returns, as evidenced by the Sharpe, Sortino and Treynor ratios, and a positive alpha.
• Stocks lost over half their value during the financial crisis. The ARM was able to sidestep
  those losses by repositioning the portfolio into bonds.

The ARM utilizes two exchange-traded funds (ETFs), which are listed below. SPY is the largest and
most widely used ETF for exposure to the S&P 500. AGG is the largest and most widely used bond
ETF; it tracks the Barclays U.S. Aggregate Bond Index

The current ARM selection and ongoing monthly updates are accessible with a premium subscription. Updated recommendations are
provided on the
first day of each month.

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Asset Rotation Model FAQs

• What is the Asset Rotation Model?

  The Asset Rotation Model (ARM) is our flagship Investment Model, designed to provide a complete portfolio management solution for individual investors.

• How does the Asset Rotation Model work?

  The Asset Rotation Model dynamically switches between stocks and bonds to achieve outstanding returns while exposing your portfolio to significantly less risk than traditional investment approaches. Learn More

• Who should use the Asset Rotation Model?

  The ARM is designed for anyone who is investing outside the confines of an employer-sponsored retired plan. It’s low turnover makes it ideal for those investing through taxable accounts, IRAs, Roth IRAs, 529 plans or HSAs. 401(k) investors who have a “brokerage option” may also want to follow the ARM instead of the 401 Model.

• What role should the ARM play in my overall portfolio?

  The Asset Rotation Model is designed to be the backbone of your investment portfolio. The majority of your investments should follow the ARM due to its strong performance characteristics and low risk profile. Then you can take a more speculative approach with your remaining funds.

• Where can I see the ARM’s historical performance?

  You can view the ARM’s historical backtested performance here. Pay special attention to the table of risk metrics, it’s important to understand that the ARM’s outperformance does not come as a result of taking on more risk. In fact, the ARM exposes your money to significantly less risk than traditional investment approaches.

• How does the ARM achieve such high performance?

  The ARM uses a completely different approach to investing than traditional portfolio management. Instead of splitting your money between stocks and bonds and staying invested regardless of market conditions, the ARM selects either stocks or bonds to invest in, based on the current and expected performance of each asset class. Learn More

• Where can I see the latest ARM recommendations?

  You can see the latest ARM recommendations here. Access requires a premium subscription.

• How do I use the ARM?

  Using the ARM is simple. Each month you will receive an alert when the latest ARM recommendations have been posted. Simply log in to your brokerage account and make the appropriate changes to your investments. Learn More

• I’m already retired, can I still use the ARM?

  Yes. People are living longer these days and it’s important that your money continues to work for you during retirement. Because the ARM has been able to generate higher returns than both stocks and bonds, and also avoid major losses during market crashes, we feel comfortable recommending it to all investors. For more information on how to de-risk your portfolio during retirement, please see this article.

• Will I incur transaction costs while using the ARM?

  Yes, but they should be negligible. We designed the ARM to use low cost ETFs and make a minimal number of trades each year. This helps you reduce expenses, which can make a big difference over the long run.

• What happens to the ARM if the stock market crashes?

  The ARM is able to recognize developing periods of stock market weakness and will typically move the portfolio to bonds during the early stages of a crash. This limits losses and is one of the primary benefits of the ARM. When the stock market begins to recover, the ARM will move back into stocks.

• Does the ARM provide any international exposure?

  Yes, the ARM provides indirect international exposure when invested in stocks. Whenever the ARM selects U.S. stocks, it uses the exchange-traded fund SPY for exposure to the S&P 500. As a group, the S&P 500 companies receive between one-third and one-half of their revenues from overseas.