Adaptive Asset Allocation

adaptivwealth.com: sign up now for free trade alerts, other features

www.adaptivwealth.com

Sign up now before the month’s end: free monthly trade email alerts, both position entry and position exit reminders, have been implemented. The emails are sent out automatically by the backend a day before entry or exit. Positions are exited on the last trading day of every month; new positions are entered on the first trading day of the new month.

Note: the historical performance results on adaptivwealth are based on using market on close orders, an order type that allows you to buy/sell stocks right as the market closes.

Other features include the ability to view the adaptive Minimum Variance Portfolio’s historical allocations. One can see the benefits of being dynamic (vs. static, such as wealthfront.com or betterment.com) during the last few months of 2007, going into 2008: the MVP during this time period was around 80% in US intermediate term bonds (IEF), which largely protected the portfolio from the precipitous losses experienced by the stock market in the next year.

The MVP vs. VTI performance table (shown below, or when you mouse over the performance time series chart on the main adaptivwealth page) also show the benefits of an adaptive/dynamic allocation model.

mvp_vti_performance

The Minimum Variance Portfolio has a comparable compound annualized growth rate (since June 2006, when the ETFs it uses came online) to that of VTI, the Vanguard Total Stock Market ETF, a proxy for the overall US stock market. The MVP has a much lower maximum drawdown (-16.5% compared to VTI’s -55%), and almost double the Sharpe Ratio (0.62 vs. 0.35): in essence, it seems that the adaptive Minimum Variance Portfolio achieves stock-market like returns over the long-run with much lower volatility than the stock market.

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8 thoughts on “adaptivwealth.com: sign up now for free trade alerts, other features

  1. Thank you for the insightful blog and web app. Can you explain the advantages of a min var portfolio in relation to higher risk portfolios on the efficient frontier, coupled with a nearly risk-free asset? In particular, I’m curious about the tangent (max slope) portfolio, diluted with a nearly risk-free asset. Thanks!

    • Good question. As you pointed out, theoretically the tangent portfolio should perform better as it maximizes the (theoretical) Sharpe Ratio. The main advantage that the min var portfolio has over higher risk portfolios on the efficient frontier is that it completely ignores estimates of expected returns (i.e. the investor’s risk tolerance factor is 0, in the matrix formulation). Practitioners have found that higher risk portfolios on the efficient frontier perform poorly out of sample, because expected returns are hard to forecast accurately (harder than the covariance matrix). As such, they have found that asset allocation models that ignore estimates of expected returns completely (like minimum variance, and risk parity), perform pretty well out of sample.

      Hope that helps, let me know if it doesn’t 🙂

    • Hello,

      You can go to the adaptivwealth.com website, which will display a pie chart showing you the optimal ETF allocation for the current month. If you subscribe/submit your email, you will receive monthly email alerts reminding you to close your positions on the last trading day of the month, and then another email alert reminding you that new ETF allocations have been posted to the site.

      Hope that helps, let me know if things are still unclear.

    • All subscribers should be receiving an email the morning of November 1, 2013 (Eastern Standard Time) with the new monthly allocation of ETFs. I am not actively managing the site anymore, so code could be broken; if you don’t receive an email by the market open of November 1, let me know.

  2. Jeff says:

    it will be nicer if use can select their own ETF,stocks .for example, i want to use only five ETFs, VTI  EWJ  RWX  IEF  TLT  IAU , and select top two ETFs every month ( weekly/quarterly/yearly)

    • Nice idea. Unfortunately I’m working on other projects and have stopped developing adaptivwealth, but more customization is definitely on the to-do list if I start again. Thanks!

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