The 3 Principles of Economic Regime based Asset Allocation

Everything written on this site about economic regimes and asset allocation can be distilled down into 3 simple principles:

  1. Asset returns are dependent on underlying economic conditions. We can classify these conditions into regimes.
  2. No single asset class shows strong performance across all regimes. Therefore, there isn’t a static portfolio weighting that is optimal across all regimes.
  3. Regime change signifies that the future is going to change. It is time to shift into asset classes that are best suited to the active regime.

Simple, but not easy.

We can apply these rules to any asset allocation strategy for superior risk adjusted returns.