The Defined Duration portfolio is a highly diversified portfolio of global stocks, bonds, commodities, gold, cash and other assets. We run a full financial plan to quantify your liabilities across specific time horizons. We then match those liabilities to specific assets in a customized portfolio. This provides you with a highly diversified "all weather" style portfolio that gives you greater certainty about your assets across specific time horizons while helping you behave better.

As a general framework the Defined Duration strategy can be thought of as existing on a bell curve with three specific buckets:

1) Stability bucket

2) Growth bucket

3) Insurance bucket

The specific portfolio will be implemented using low cost and tax efficient bonds and ETFs.

The nominal stability bucket is comprised of instruments that are designed to give you short-term principal stability and income. This could include money market funds, Treasury Bills and short-term bond ETFs.

The growth bucket is comprised of diversified stock ETFs, REITs, corporate bond ETFs and multi-asset ETFs.

The insurance bucket is dynamic and changes across time to meet your insurance needs. This could include gold, options, commodities and other instruments that have low expected real returns and high potential asymmetric payoffs to help protect you from inflation, market crashes and other uncertainties.

Everyone technically holds their assets as "buckets" within a portfolio. You probably hold a stock "bucket" and a bond "bucket" and a cash "bucket". Traditional bucketing strategies try to build a more structured time-based portfolio, but have three primary flaws:

1) They do not formally quantify the time horizons of all assets in a portfolio. 2) They are overly simplified 2 or 3 bucket strategies using just stocks and bonds.

Problem #1 - Investors who own stocks, commodities, gold, alternative assets or any multi-asset portfolio do not know the time horizon of these instruments and therefore have no foundation from which to judge the performance and purpose of the instrument in their portfolio. Traditional bucketing strategies don't quantify the time horizon of assets and therefore fail to provide investors with a reliable time horizon over which to judge instruments. We solve that issue by quantifying the duration of any instrument and then target a specific duration based on our underlying quant model.

Perhaps more problematic in the traditional bucketing approaches is the idea that duration is static and shouldn't be managed. The result is that your traditional bucketing strategy holds a bond aggregate or a bond ladder with a constant maturity that never evolves for interest rate changes. For instance, in a traditional bucketing strategy an Aggregate Bond Index yielding 1.5% in 2020 with a duration of 5 is viewed as having the same level of risk as an aggregate bond index yielding 4% in 2024 with a duration of 5. We know this is wrong and taking a quantified and dynamic approach to duration management helps clients stay the course while tailoring risks to their needs.

Problem #2 - Overly simplified bucketing strategies can result in high correlations that don't sufficiently diversify a portfolio across all time horizons. Most bucketing strategies are informal and undiversified with just two or three buckets. Any investor who experienced 2022 knows that a two bucket strategy can be problematic when stocks and bonds become highly correlated. The Defined Duration strategy builds on traditional bucketing strategies and provides investors with a portfolio that diversifies across more asset classes AND more time horizons. The Defined Duration strategy uses as many assets and time horizons as the financial plan needs.

Lastly, the Defined Duration strategy is constructed to optimize cash holdings and insurance. This maintains the core simplicity of traditional bucketing strategies, but adds a layer of cash management, insurance and diversification that can help investors better navigate the ups and downs of the market cycle.

Insurance is a prudent part of any financial planning process and we believe that your portfolio needs to be insured from things like recessions, inflation and other outlier events that can disrupt your financial life. We typically use a 0-15% slice of the portfolio to hedge against these risks during unusual periods in the business cycle. In extreme environments this could include alternatives like gold, managed futures or options. But in most environments cash is a perfectly sufficient insurance allocation.

We view the insurance bucket in much the same way that someone might view term life insurance. There are specific periods in someone's life where term insurance is prudent to cover a specific period of unusual risk. We integrate the insurance bucket in a similar manner where insurance is added to portfolios during specific parts of the business cycle. We hope the insurance is never needed, but also know it's better to have it and not need it than to need it and not have it.

Interestingly, the super long duration instruments in the Defined Duration model are all long duration instruments such as commodities, gold, options and long-term bonds. These instruments all operate like insurance over the long-term in that they don't always generate consistent nominal returns, but often provide very high asymmetric returns during unusual financial conditions.

No! The beauty of the Defined Duration strategy is that it's entirely customizable and personalized to the investor's needs. We start with a financial planning foundation and in certain environments and for certain investors, insurance is a prudent part of their financial plan.

We also know that some people do not like gold, commodities or tail risk hedges. And that's fine. We believe that stocks/bonds are the core of any good portfolio construction process and we often use cash and cash equivalents as behavioral insurance for investors who prefer not to use "alternative" investments like gold, commodities and tail risk hedges.

This can vary greatly depending on how the customized portfolio is constructed for you. But in general, we don't believe in the Wall Street mantra of trying to beat the market and get rich quick concepts.

The investment management business has mastered the art of selling high fees in exchange for the hope of high returns. But unfortunately, high fees in no way guarantee high performance. And ultimately, this financial model can lead to a portfolio manager taking additional risk to try to “beat the market.” This creates behavioral risk for the shareholders since they may be subject to big swings in their savings due to this increased risk.

We believe investors deserve a more honest approach to performance. Most investors shouldn't try to beat the market and probably have no need to. Instead, they should focus on reallocating their savings in a manner that is aligned with their personal financial goals and behavioral constraints. This means investing in the appropriate portfolio rather than the illusory perfect market-beating portfolio.

The Countercyclical Indexing and Defined Duration strategies are not "beat the market" strategies. They are strategies that are specifically structured to align with your financial goals and help you behave better. This will not only increase the odds of achieving your financial goals, but it will also help you sleep better and focus on the things that are most important in life.