Who should use this model?
The Generational Wealth Model (GWM) is meant to assist the skeptic investor who wants to participate in the market and is most concerned with large percentage drawdowns in their portfolio.
How does this model work?
The GWM attempts to remove large losses in your portfolio as much as possible. In doing so we utilize proven market signals that often show the slowing, or decline, of the market. The model is either on a “BUY” or a “SELL”. When on a “BUY” the model is 100% invested in SPY. When on a “SELL” the model is completely out of the market and is holding cash only.
What are the strengths?
This model excels at side stepping large drawdowns in the market; avoiding on average over 56% of bear market declines from top to bottom (see Exhibit A).
What are the weaknesses?
Where the Generational Wealth Model falls short is in its underperformance to the market during large bull runs. Although the portfolio value of the model is comparatively massively to the returns of the S&P 500 since the beginning of our data in 1928 until current day, the model has trouble keeping up with the market during these stretches of high percentage gains. This is because there is no alternative investment associated with the GWM; meaning you are either in the S&P 500, or in cash. Despite this, the model has beaten the market every cycle due to the number one rule in investing: “Don’t lose money.”
Source: Hedgehog Investment Research