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Bloodied Broken Models

May 02, 2022 11:29 AM ET5 Comments
Ronald Surz profile picture
Ronald Surz


  • So-called "low risk" investment models are losing as much and could lose even more than high risk models.
  • Most models rely on bonds for protection. That’s why they no longer work: bonds are not protecting.
  • New and better models protect with cash and TIPS. The Nobel Prize winning Capital Asset Pricing Model demonstrates why risk is best controlled with cash.

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Several years ago, I wrote Broken Models that advises the integration of age into model portfolios. The following article deals with risk control and warns that bonds are now risky, so they are not a good risk

This article was written by

Ronald Surz profile picture
I'm president of  Target Date Solutions, developer of the patented Safe Landing Glide Path , Soteria personalized target date accounts, and Age Sage do-it-yourself investing. I;m also co-host of the Baby Boomer Investing Show.   My passion is helping his fellow baby boomers at this critical time in their lives when they are relying on their lifetime savings to support a retirement with dignity, so he wrote a book Baby Boomer Investing in the Perilous 2020s and he provides a financial educational curriculum I'm author of 3 books: Baby Boomer investing in the Perilous Decade of the 2020s, & 2 books on target date funds I’m smart with 2 Masters degrees and 55 years in financial consulting. I’m semi-retired, and prefer helping my fellow baby boomers rather than playing golf. I’m worried that our country, & most others, is playing with fire in its money printing. I’m here to help – that’s my legacy space.I help investors deal with life’s investment challenges, with the objective of enjoying a comfortable long retirement. I’m passionate about questioning and improving upon entrenched stale practices like jamming everyone into cookie cutter model portfolios. That's why I produce the Baby Boomer Investing Show live on Youtube and Facebook every other Tuesday at 10:00 PST. Watch live or replay by searching for "Age Sage Robo" on Facebook or Youtube. Please watch and support our Boomer Investing Show on Patreon ( https://www.patreon.com/user?u=35204315&fan_landing=true ) and visit our SA Blog at https://seekingalpha.com/account/authorboard/instablog . As president of Age Sage Robo (please Google), and CEO of GlidePath Wealth Management, I’m responsible for model development using my patented process . I have more than 50 years of financial service experience and hold a U.S. Patent for a time-tested glide path investment process that helps investors navigate the complicated financial decisions they face as they accumulate and preserve assets for their retirement years. Age Sage & GlidePath use this process to build Target Date, Special Purpose, and Life Span Portfolios that are tailored to the specific requirements of clients. My extensive financial career began at A.G. Becker Pension Consultants where I advised on the investment policies of several trillion dollars of retirement plan assets. After Becker I started my own consulting firms that developed innovative services for investors and the financial advisors who serve them. I’ve earned a BS and MS in Applied Mathematics from the University of Illinois and an MBA in Finance from the University of Chicago. I am author of the book "The Remarkable Metamorphosis of Target Date Funds" and co-author of "The Fiduciary Handbook for Understanding and Selecting Target Date Funds"Please visit https://babyboomerinvesting.show

Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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Comments (5)

""The problem is that the 40% in bonds is not safe.""
""Interest rates are going up and they will keep going up for a long time.""
""2022 could be the first year ever when bonds do not protect in a falling stock market.""

Hi Ronald, I couldn't agree more! Right on target.

Below is a very long term chart of 10 yr bond yields. It has trend channels defining the last time we had a long term rise in interest rates, and a trend channel defining the downtrend in interest rates since 1982.


The uptrend shown started in the 1940's at 1.90, and ended in 1982 at 16.56%.

The downtrend shown started in 1982 at 16.56 and ended in Mar 2020 at 0.42%. Notice how the top of the channel has served to turn back multiple attempts to make a new high in interest rates over the past 40 years. It;s too early to tell for sure, but it looks like this rally will be the time the rates break out above the top of the downtrend channel. It is slightly above the top of the channel now. If it does break out here, I believe we will see much higher interest rates into the next decade(s).

This supports your idea that we may now be entering a long term rise in interest rates that could last for a long time -- [probably decades]. And being in bonds is not safe. And 2022 could be the first year ever when bonds do not protect a falling stock market.

What is happening now is reminiscent of what happened from 1968 to 1981 -- when Inflation was high, Interest rates went up, and Commodities had a very long bull market. The effect on most stocks was a VERY LARGE retraction in PE, with sideways correction of over 10 years with multiple BIG corrections.Commodity related stocks, on the other hand, did OK to Good. Note that debt levels were very manageable back there. Rates were driven VERY HIGH by the Fed to break the inflation trend. Moderate increases did not work.

The fly in the ointment NOW is the high levels of Govt debt and the enormous cost of carrying that debt as interest rates rise. There will probably be an effort to control inflation with only modest increases in short term rates. When that doesn't work they will be forced to try other things. But -- if rates get high enough -- watch out! Higher interest rates and debt costs will force pressure on the dollar and drive rates even higher. Hopefully, that;s a few years away.
""The "new" protection is the "old" protection - Cash and TIPS (Treasury Inflation Protected Securities). But you won't get this protection in most TDFs nor most model portfolios. You'll need to do it yourself.""

""Dr. William F. Sharpe won a Nobel Prize for his Capital Asset Pricing Model that demonstrates why risk is best controlled with good old-fashioned cash. Advisors have shied away from using this model because clients don't want to pay an advisory fee for cash""

Hi Ronald,

I copied a couple clips from your article above. I heartily agree that cash -- or moneymarket -- will be a good place to put your sold assets if we get the bear market I expect.

I recently developed an analysis that shows you when to be in or out of the market -- over the very long term. It calls for putting your sold assets into moneymarket. The excel based analysis generates OBJECTIVE buy/sell signals -- no subjective decisions to make. I tested the system on the S&P500 back to 1900.

Results: If you invested $10.000 in SPX in Jan 1900
** Buy and Hold -- Account value today = $6.3million
** Buy and Sell per my analysis -- Account value today = $43 million
And don't worry. It won't leave you hanging when the market turns up. It tells you when to get back in.

Current status: SPX -- out of market -- April 2022; NDX -- out of market -- Jan 2022; Broad Commodity Index -- In market -- Jly2020 -- and very profitable.

Because commodities are in a bull market now, commodity related assets should also be considered for investment here. Energy and metals are candidates.

I published a detailed description of this elsewhere on S A - with long term charts. Here is the link:

Bruce Roberts profile picture
TIPS or the "TIP" iShares fund? The fund is down 8.17% year-to-date.
Well, my SCHP, which I moved into over a year ago, has dropped from $64 to 58.....down 4.28YTD......comparatively, feels like I'm winning......sort of......moved half of equities to cash last December.......but at 7% inflation......yikes.....thanks for the article......for grins, my Bond King ETF's are down 7% and my PTTRX has lost a 6.2% YTD........the old Bond King's baby
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