A more adaptive model, that I strongly advocate, increases the stock weights by 15%-points for every consecutive negative year on the stock market: 25%, 40%, 55% etc all the way up to 100% after five consecutive negative years (at which point you would have zero weight for the other three asset classes). Halve the stock weight after the first up-year but with a floor at 25%.
Another (daring) amendment could be reducing the stock weight by 6% points for every consecutive up-year that returns above 25%. After five such years you would be 5% net short in stocks. Or, set a floor at 0%, prohibiting yourself from going short.
What do you think about this?
Is there an easy way to backtest this?
Last edited by lordmetroid on Sat Jan 23, 2016 5:54 am, edited 1 time in total.
You could hand simulate on the Dow averages in the years of the Great Depression. No better test. Problem is I don't have cash and bond returns for those years.
