No. of Recommendations: 3
no longer use QTAA, but it was the base from which I began that part of my investments.
I thought that after much analysis this was one of your preferred selected strategies. What has changed, if I may ask? Have you found a better substituted?

IMHO, Faber's QTAA is a solid base to start on. Faber himself said, though, that it is somewhat simplistic.

What are the basic characteristics of QTAA?
1* Spreading your money among several assets classes, which are on the whole not highly correlated.
2* Keeping your asset class allocation percentages roughly equally balanced over time.
3* A simple non-emotional, non-subjective rule to tell you when to move between being invested and being in cash.
4* Applying that in/out rule to each asset class independently.

The key thing to keep in mind about QTAA is that it is not meant to increase your return. Its primary benefit is that it gets approximately the same return but with substantially reduced volatility, so you get an improved risk-adjusted return.

I think the most important of these is #3. If that works right, you get a rachet effect. When the market goes up, you ride up with it. When the market goes down, you stay pat.

All this is really important to a beginner. When you are a beginner you don't know anything and it's very easy to unknowingly take on a huge risk. Like Alicia in a recent thread.

What has changed, if I may ask? Have you found a better substituted?
Read all of Faber's blog, and especially read the links he has to Top 10 papers that won various contests. Most of those papers are too complex and/or obscure for me, but a few seemed simple enough for a mere mortal to implement. More importantly, I did what I could to backtest some of them that looked attractive to me. Of the very few remaining, I added that strategy to my portfolio.

Originally I used plain vanilla 5 ETF QTAA with about $2000-$3000 for each of the 5 classes. At $4000-$5000 per class ($20K-$25k) it becomes feasible to split into sub-classes. For example, instead of 20% EFA, use EWU 5%, DJX 5%, EWQ 3%, EWL 3%, EWG 2%, EWA 2%.

When you get above $40K-$50K, I think it's better to add another strategy, so you reorganize to $25K in QTAA and $25K in strategy X.

Based on the OP, I'd suggest combining the accounts and running a straight 5 ETF QTAA. Do this for at least a year. And generate the SMAs and signals yourself, don't depend on other people doing the work for you. Continue your education/reading.

If after a year you haven't done this, and it's still suffering from neglect, throw in the towel and put it into an index fund.
Print the post  


What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.