Benchmarks and Target Asset Allocation



Target asset allocation is a critical strategy to maintaining diversification. To do this we explicitly identify our benchmarks (glue) and asset allocation strategy (aqua). Both work together to help our team improve performance. Here is how...


Benchmarks tell us how well we are doing. They represent what the broader investing community believes to be the "Default" allocation given our time horizon and risk tolerance. We don't have to agree with this. We don't actually. That is why we don't hold the benchmark. But we do want to be aware of how our views differ from investing professionals. When we are taking a different view then we want to do so explicitly and evaluate how this decision impacted our performance. Our time horizon is very long, and our risk tolerance is very high...so we use the Vanguard Target 2050 as our primary benchmark.


Our "Strategies" are our target asset allocations. These are the long and short positions that we generally want to hold over the long term. These allocations differ significantly from our benchmark. Where these allocations differ we are taking a broader strategic view that is different from that which investing professionals generally recommend. We typically run the active long/short portfolio.


Key differences in our strategy compared to Vanguard's 2050 target fund include the following:


  1. Overweight foreign developed and emerging market equities

  2. Short US treasury and corporate bonds

  3. Overweight crypto asset

  4. Overweight precious metals and industrial commodities


Our actual portfolio holdings will often diverge from our strategy. That's because of tax considerations, individual stock exposures, and tactical short term strategies. To the extent that our actual holdings differ from our long term strategy...we are attempting to generate alpha on a short term basis through macro trading, individual stock selection within asset classes, and reducing our tax burden.


To see our latest updates on our actual holdings and performance check out the "Portfolios" page.


Sincerely,

Bernard Baruch

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