Last week we looked at the AIW model and it may be instructive to look at 2 variations of that model to get a better perspective on the true price of risk.
In the first case above we've reduced our portfolio to just 3 components, zeroing IBM & WMT. This looks like the TAQ model now except AAPL has replaced QQQ and we're using a 29% allocation of capital to AAPL in lieu of 45% for QQQ. In the second case below we've pumped the AAPL % up to 45% and we notice a dramatic change in returns (+ and -) in 2008 and 2009. There is also a very modest reduction in max drawdown for the Mosaic model with the 29% AAPL position.
We can craft any level of risk exposure desired based on adjustments to the allocations...what is comes down to is the level of expectation and the comfort level with risk.
These compact versions of AIW....they should probably be termed TAA... (TLT, AGG, AAPL) demonstrate that sometimes the simpler passive portfolios like Mosaic perform just as well as a dynamic rotational multi-sector models.
In coming weeks we'll introduce such a multi-sector rotational model that can be utilized both as a longer term investment and a shorter term trading platform.
