One Approach To Rational Retirement Plan Investment Allocations

Of course, advice from LI was not available at the time, and the risk and return results shown discussed here are hypothetical, based on the principles that underlie the LI strategy currently. FFFDX was a real fund with real managers and has real results in the real world. So these numbers come with all the caveats related to reporting back-tested results and warnings about theoretical portfolios in history, still the results are pretty impressive. 

Here’s a summary risk/return comparison of our retirement plan’s default FFFDX and the hypothetical Max CAGR Vol<7%.

Investment Comparison from the Financial Crisis Period




Change 4/2008-3/2009

Max DD during  period

Drawdown Duration

Return by 09/19/2016





-43% (3/9/2009)

2 1/2 years







60 days


In both cases, FFFDX as well as the LI Max CAGR Vol<7%, staying the course during and through the financial crisis was clearly a better choice than bailing out on March 9, 2009. 

Of course, there are many other scenarios we could examine, but this one serves as a representative example, I think. The future is inherently uncertain, maybe momentum strategies will fail and uncorrelated assets will start correlating for some reason. Who knows what happens next, and “past performance is no guarantee of future results” as the commercials say.

But the idea of maintaining a conservative portfolio and practicing adaptive asset allocation based on momentum modeling appeals to me as more rational than either applying an allocation scheme from an investment book, sector or stock picks from a newsletter or letting an adviser or a target date fund do it for me.

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