Our model

Keeping things simple
It is generally our intention to keep the model as our own IP (intellectual property), so we are not going to go into great detail with regard to exactly how the model works. We are also trying to stick with a theme of simplicity, and so we don't want the site to degenerate into lots of detailed material people feel compelled to read prior to using the model. Our goal is to present the modeled results as quickly and cleanly as possible, and let people decide if this is an approach they want to follow.

The allocation model is ONE model that is used for all allocation groups. Simple Allocation has made no effort to tune the model for any specific portfolio, or for any particular individuals needs. You will have to make your own decisions regarding which allocation plan to use, based on the funds that make up the allocation group, and any perceived benefits you see in the historical analysis. 

Details we will share
There are some things that the astute reader can pick up on rather easily by reading the website. We will consolidate those onto this page for the intellectually curious. We will also address a few concerns of quantitative analysis.

Model details:
  • Each plan has many securities from which to choose, but each allocation cycle (monthly or quarterly), it picks a maximum of 6 in which to invest.
  • Our model has the reallocations occur on the last trading day of each month/quarter; the trades are not determined by a security or securities crossing a predetermined level. 
  • We use a 10% tracking stop loss; detailed well here. 
  • When a security hits a stop and is sold, that money remains in cash until the next reallocation cycle. 
  • The (maximum) of 6 securities are not purchased in equal allocations, but allocations of 30%, 25%, 20%, 10%, 10%, and 5%. 
  • The model will under allocate, that is keep you in cash, during what it thinks are down markets. 
  • We use filtering that is more sophisticated than a simple moving average, which is a common filtering method. (Moving averages suffer from "phase loss", which means they are slower to give a signal than more advanced types of filters.)
Quantitative analysis concerns:
  • The model will allocate a maximum of 6 securities, with allocations listed above. Besides those parameters, there is the reallocation plan interval (monthly or quarterly), and less than 5 other inputs. 
  • All parameters are fixed (not variable) parameters. 
  • The same parameters are used for all allocation groups, and reallocation plan intervals. 
  • We have NOT programmatically optimized the model to create the "best" results; which frequently leads to models that never deliver.
  • We have backtested the model against many portfolios, as is evidenced by each of the plans on our Allocations Plan page. Again, we did NOT programmatically run all of the portfolios, adjust parameters, and re-run in order to find the "best" parameters.
Brokerage fees and taxes:
  • Broker trading fees are modeled at $10 per buy or sell; even for stop orders. 
  • Mutual fund fees are NOT included in the Simple Allocation modeled results.
  • Capital gains and income taxes are NOT included in the Simple Allocation modeled results.
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