Updated July 24, 2019

Actual Performance Tracks The Model

I have been using the TAAS Strategies to manage a major portion of my family's investments since December 2014. Monthly results have tracked within 0.01%-0.02% of the TAAS Strategy model.

The tight tracking between model and actual cash results is by design. There are three reasons why the tracking is so tight:

Avoid Slippage

The TAAS Strategies stick to large, established Exchange Traded Funds and we use Market On Close orders to insure that buy and sell orders are executed at the same closing prices used in the Model.

Market On Close (order type MOC) can be entered hours or even days in advance of the close for execution during the closing process at each exchange.

Distributions

I track distributions against the ETF provider's website to insure accuracy. The amount and ex-date of each distribution is included in the monthly Rebalance Notice so subscribers can verify that they received the correct distribution.

Ultra-low Trading Costs

When the markets are choppy, the Strategies tend to change positions frequently. When the markets are trending well, the Strategies often hold positions for months or even years (with minor size adjustments). Overall, the trading costs are quite low.

My actual commission costs at Interactive Brokers average between .03% and .06% of account size per year depending upon market conditions. Folio Investing offers an Unlimited Plan at $290 annually - one fee covers all accounts held by a single owner even where types are mixed: taxable, retirement, trust, custody.

Variations, when they occur, are most often due to:

  1. timing of distributions which the model accounts as earned on ex date while cash accounting records when paid
  2. decision to skip a rebalance because the change in allocation is too small to justify a trade
  3. changes in price between the placement of orders and the close can minimally affect the share counts required to meet the allocation percentages

TAX EFFICIENCY

Buy and Hold is extremely tax efficient; however it can produce very large drawdowns. Tactical Asset Allocation mitigates risk and reduces losses by adjusting the portfolio to market conditions and thereby loses some tax efficiency. However paying modestly higher taxes on gains is a far better alternative to using large losses to offset gains.

Non-taxable accounts

Tactical Asset Allocation mitigates risk and reduces losses by adjusting the portfolio to market conditions with no loss of tax efficiency in non-taxable accounts.

Taxable accounts

Investors who prioritize tax strategies over sound investment strategies often learn to their regret that it would have been more prudent to pay the taxes and avoid the capital losses. The rationale is quite simple ... the preservation of gains and protection of investment capital bring far more benefit to long term investment results than the avoidance of taxes.

I prioritize capital protection and adaptation to market conditions ahead of minimizing taxes. While all of our strategies have turnover that can lead to short-term capital gains tax for taxable accounts, I am confident that the Strategies will produce returns that overcome the tax drag across a full market cycle. I believe strongly that providing a stable investment environment that avoids large losses enhances investor staying power and thus long term investment results.

While the TAAS Strategies are rebalanced monthly, they have, to the degree possible, been designed to optimize tax efficiency. Portfolio turnover rates are higher than "buy and hold" strategies but significantly lower than many "actively managed" portfolios.

One of the newest features in our Tactical Model reduces the number of trades. Before replacing an existing position with a higher trend scoring fund, the Model checks to see if can hold the existing position without compromising expected performance.