My target portfolio

Fair, wealth managers are pros.

They might be pros at at managing money, but …

… from my personal insights of currently working myself at an asset management company with many billions under management, I would claim they’re even better pros at something different: selling you their products / funds / ETFs.

The explanation is quite simple, actually. As always, it’s all about the incentives: they earn fees on assets under their management which determines their company’s income and ultimately determines the advisor’s raise and/or bonus.
Thus, ideally, you (their customer) buy their products; in the worst case, they sell you competitor products and garner a kick-back from the competitor for that. Even if they don’t have any products of their own, they might still aim for selling the 3rd party products with the largest kick-backs to themselves.
These incentives explain why they’ll propose to you solutions that are optimized for their return instead of yours. IMO this is why some of their proposals might look a bit funky to someone with a slightly above basic financial background.

I didn’t do a lot of research, but at the time (couple of years ago) I only came across one independent advisor near me that offers wealth management, doesn’t have their own products, and re-imburses kick-backs of 3rd party products they purchase for you.

I consulted with them and paid dear money for that (mostly on financial planning, less on wealth management). I honestly don’t think you’ll get independent advice without paying for it.

Going back to the start of this question: you probably are better off by asking this forum about your target portfolio rather than one of those not-sure-how-exactly incentivized wealth managers.
(I’d personally still go to a truly independent advisor with the limited knowledge I had a few years ago. These days I feel comfortable enough making these decisions myself - famous last words … ;-).


Why quiet? Thanks for your contributions!

I’d very much recommend this podcast. Traditional stock/bond only portfolios are a thing of the past imo, because historically, they have been largely correlated.

Whether you own small/large, US only/global, REITs, private equity, corp bonds etc.: It’s basically all highly correlated and therefore, highly risky



thanks for the input - what does he suggest, in short?

It’s worth listening to. In short: Stock/bond portfolios suffer from recency bias due to the bond bull market (falling rates) since the 80ies. Bonds can yield negative real returns for decades. More often than not in history, stocks and bonds have been positively correlated, not negatively (bonds providing bo downside protection). Stock/bond portfolios perform poorly in stagflationary periods. Hence, the goal is to construct a portfolio that can cope with all four market environments: rising/falling growth, rising/falling inflation.


Here’s some further food for thought, explains it better than I ever could :grin:


looks tempting on a first glance

a) what’s a good investable instrument (cta trend)?

b) what’s the allocation you’d personally go with?

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Depends on your net worth. If you’ve got significantly more than 25x of your annual expenses, your sequence of returns risk (risk of portfolio crash shortly after retirement, getting you on a long-tern low return path) is pretty small. So I think you should be fine with as little as 10% non long-only stock/bond assets. Cheapest would probably be gold or commodities. Personally, I’ve come to like pure trend strategies due to their ability to go long or short on bonds, commodities and currencies. This makes them less path-dependent and able to opportunistically profit from both favourable and unfavourable market environments. They basically open up a second dimension to classic long-only investing: shorting. Disadvantage: It’s a relatively niche strategy with high costs. People don’t like it, because it can underperform for years (lots of small pain, then possibly big gains, aka positive skewness or right tail).

You could have a look at the SG trend index to check if you like the results. Important: Don’t look at the performance of trend alone, but how it enhances performance of your total portfolio (avoid line-item thinking). What matters is total portfolio CAGR and/or Sharpe, not single asset CAGR/Sharpe. Also: There’s a nice rebalancing premium to be gained in a total portfolio context, which does not show up when looking at single-asset performance.

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And how do I invest Intro an SG Trend Tracker / ETF?

You can’t directly invest in an index, but there are some relatively new ETFs you could have a look at: KMLM, DBMF and CTA. I prefer KMLM because it’s based on a passive index that’s been around since the 80ies. Also, it does not contain equities, which makes it a better diversifier to your long equity allocation.

For backtests with Portfolio Visualizer, you might want to use some of the long-standing (and more expensive) trend mutual funds, such as AMFAX, MFTFX etc.

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I want to begin by thanking you for the information provided. Now on to more critical words:

They seem to be hard selling CTA Trend strategies. Especially the hypothetical All-Terain graph at the end - smooth as a baby’s bottom and with a CAGR double of 60/40 - reeks. They don’t happen to sell such products?

I don’t claim I understand what is happening here. I saw that AMFAX had high returns where stocks had losses and okeyish CAGR. MFTFX had bad CAGR.

It is important to note that producing uncorrelation or anti-correlation with stocks is not hard (just use cash or buy an inverse S&P500 etf). Doing so whilst having good returns is. So good that you can beat other portfolios in returns and risk (potentially by using some leverage).

Diversification for diversifications sake doesn’t bring much to the table. Tail risks that bring the MSCI World to zero should be hedged with ammunition. For everything else focusing too much on reducing risk destroys return. You can stomach bad years if the good years make it worth the wait.

They also provide monthly index data from 1988. (link to FAQ) :grin:

I didn’t have time to analyze it, but if someone wants to make some pretty graphs with comparison to other asset classes…

As far as I understood returns are generated by absorbing the price risks of others, market irregularities, and more. Of course someone must do this arbitrage. I’m just not sure how lucrative this is for an investor.


@Helix’s take is mostly the same as mine. i also get some of @johndoe1’s points tho and will add some thoughts. an interesting table from the kmlm investor deck is that one:


if we simply compare annual returns of mlm index (9.3%) vs. 60/40 (8.8%), they are quite close, and max drawdowns are also not that far from each other. of course, gross return isn’t net return, so after fees 60/40 is the slightly better one, not sure about after tax. the other interesting part is volatility, clearly much higher for mlm. but due to the uncorrelation, let’s call it ‘positive volatility’, which makes this part even possible:


vola’s been heavily reduced (e.g. 60/30/10), even slightly lower than 60/40. and there’s some potential to benefit from clever rebalancing.

@oslasho Yes, I think you get my point, it’s modern portfolio theory. The question is: Will adding a certain asset improve overall portfolio CAGR and/or Sharpe. The beauty of trend is: It’s been very much uncorrelated to both stocks and bonds (more so than gold or commodities). And yes, it lowers total portfolio vol, which is great for decumulation.

@Helix Take MFTFX, add 10-20% to your favourite portfolio instead of bonds, and then tell me if you like the results

Of course, I don’t like anything but stocks, but that’s not the point here. I need diversifiers because I’m heading towards FIRE. And adding bonds alone to my equity is far too risky imo, there’s inflation and interest rate risk people tend to forget. And I understand why: bonds have had an unprecedented run since the 80ies, combined with deflation. Of course, you don’t need trend, gold or commodities might do just as well.

And that’s all for now, need some digital detox :stuck_out_tongue_closed_eyes:

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I do, but 10 years are not much for a backtest. Could simply be luck that it complements stocks nicely during the last decade. I mean longterm Treasuries are dubious in 40 year backtests. Interest rates have been going down since the early 80s, undeservedly skewing everything in their favor.

KMLM has longer data. Good looking one too. I might consider it after some further due diligence. Tracking error due to cost, and any strange risks (they are leveraged 3x), the profit of the strategy comes from absorbing risk during market panic.

Still, I’m very interested in how and why did you find this fund?

some charts on reddit

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also adding this article/interview (allow for marketing talk) for reference, if others are interested in kmlm / managed futures