How it works

Our model draws on decades of academic research in momentum investing, trend following, and behavioral finance to construct a rules-based allocation system.

The foundation of our approach

For 401k users, one of the biggest questions is “What should I invest in”? In the past the default option was cash, earning almost no interest. But more recently, target date funds have become the default option. But they have a flaw – as people live longer, they need their money to work longer. Target date funds automatically shift into bonds. But bonds are no longer the buffer they once were. When long term interest rates trend up, bonds lose value. You also lose out to potential gains in the stock market during strong uptrends.

Momentum is your friend

Decades of academic research — from Jegadeesh & Titman to Asness, Moskowitz & Pedersen — document that assets with strong relative performance over the past 3–12 months tend to continue outperforming over the next 1–6 months. Our model measures momentum monthly and tilts allocations accordingly.

Trend Following for Drawdown Control

401k investors are in it for the long term, and that’s why being on the right side of the trend for the majority of the time is important. We use trend filters to cut equity exposure during sustained downtrends — managing drawdowns systematically.

We reduce risk when it gets stormy

Market volatility is like the bodies pulse. When things are running smooth, the pulse is normal. When volatility is elevated that can signal something is wrong. We adjust risk by reducing market exposure when things get volatile.

Monthly Rebalance Cadence

Rebalancing too frequently generates excess trading; too infrequently lets drift erode the model’s signal. Monthly cadence balances responsiveness with stability — and maps cleanly to the rebalance windows most 401(k) plans allow.

Our strategy vs buy and hold

If you were close to retirement at the beginning of 2000, you would had to endure a brutal 50% market drawdown, and it took 13 years for it to recover back to its former high. Our method would have limited the downside to less than 14% with essentially the same long term return. In 2000, the market was severely overvalued, and we find ourselves in the same position now. We can’t predict or avoid the next major market downturn, but we can minimize risk if and when it does come.