How would tactical asset allocation have done in the last secular bear market?
Quite well, hypothetically of course, and you will see some figures in a bit. I will also show how it would have worked during the last secular bull market because it is important to understand the trade-offs involved with any investment approach. Keep in mind that the primary purpose is risk reduction rather than higher returns. However, I think higher returns in bear markets are likely, but not in bull markets. To keep things fairly simple, I will only present returns for periods of whole years. Accordingly, the last secular bear was from 1966 to 1981, the last secular bull from 1982-1999, and 2000-03 probably are the first four years of a current secular bear market. I will use these three periods in comparisons. As another step towards simplicity, I will consider portfolios with three asset classes: stocks, bonds, and cash equivalents. Such basic portfolios provide suitable diversification and could be considered practical in most cases. Many investors will likely want additional a
