TuringTrader's Easy-Peasy

Strategy Rules

The operation of Easy-Peasy can be summarized as follows:

• as Heine's Bond Model to switch between long-term and short-term treasury bonds.
• use Market Vane to switch between a stock-market index and the managed bond sub-strategy.
• blend the two sub-strategies in a 60/40 fashion
• rebalance on a weekly schedule, unless Market Vane triggers an early exit

With this mechanism, the portfolio combines the long-term stability of a strategic portfolio with the advantages of reducing drawdowns caused by market meltdowns or interest-rate hikes.

The strategy trades only three ETFs representing the US stock market, intermediate-term US Treasury bonds, and the US money market. Almost all retirement plans should offer either the ETFs we have chosen, or funds that can act as drop-in replacements.

Some retirement funds are restricted to trade only monthly. The portfolio reacts gracefully to delaying the trades to the end of the month, with only a small hit to its performance.

Diversification

Easy-Peasy typically invests 60% of its capital in the stock market, and 40% in long-term bonds. As a result, the strategy has the same level of diversification as the Classic 60/40.

On top of this, the strategy aims to avoid underperforming assets, leading to an overall more docile behavior and the ability to cope with a broader range of market regimes than the passive benchmark. However, Easy-Peasy's active management may lead to investing 100% in the bond market when the stock market's outlook is bearish.

The Monte Carlo simulation illustrates the strategy's reduced risk profile, which can easily rival that of many more complicated strategies. The returns at the 5th percentile help investors achieve their critical financial goals sooner and with higher certainty.

Returns & Volatility

In most years, Easy-Peasy provides returns on-par with the 60/40 benchmark. However, when contemplating the full economic cycle, the strategy beats its benchmark by a significant margin.

The rolling returns illustrate how Easy-Peasy tracks its benchmark, and nicely improves periods where the benchmark underperforms or shows negative returns. The tracking chart supports these claims, showing an overall flat chart, with the outperformance mostly stemming from the 2008 recession.

Overall, Easy-Peasy delivers remarkably smooth returns for a portfolio of such simple construction, making it an easy choice for a wide range of financial objectives.

Account & Tax Considerations

Even though Easy-Peasy rebalances on a weekly schedule, it is relatively tax efficient. In typical bull-market periods, it will hold its exposure to the stock market throughout, resulting in a good probability of achieving long-term treatment of capital gains. In contrast to this, the strategy's bond market exposure is rotated relatively frequently. However, this is less of a concern, because interest payments are always taxed at the income tax rate. Nonetheless, the strategy works best in tax-deferred accounts.

To allow for proper position sizing, Easy-Peasy requires a minimum investment of $5,000.