I recently finished the beta version of a web app I’ve been building, a web app that brings adaptive asset allocation to the masses.
What is adaptive asset allocation?
I’ve written about it in several previous posts. Essentially, it’s the idea that traditional Markowitz mean-variance asset allocation can be improved–generating portfolios that have better risk-adjusted performance–by making the models more adaptive to market changes.
What’s the point of the web app?
adaptivwealth’s goal is to make models that try to improve upon the weaknesses of traditional asset allocation more accessible to individual investors.
Asset allocation–allocating one’s money to different asset classes such as equities, bonds, and commodities–often produces more diversified portfolios than, for example, just picking stocks. Portfolios constructed using asset allocation can have decreased risk and increased returns (see the above screen shot of the performance of the Minimum Variance Portfolio vs. the performance of the S&P 500 for an example). A portfolio’s holdings can be optimized such that return is maximized given a level of risk. Asset allocation is powerful: the famous Brinson, Hood, and Beebower study showed that asset allocation is responsible for 91.5% of pension funds’ returns. Not stock selection, not market timing.
Asset allocation is traditionally not very accessible to individual investors. Individual investors have data, computation, knowledge, and/or time constraints that prevent them from running asset allocation algorithms to optimize their portfolios; asset allocation services are usually performed by financial advisers for individual investors, and large institutions like pension funds and hedge funds obviously have the resources to do it for themselves. Companies like https://www.wealthfront.com/ are closing this gap, taking out the middle man, financial advisers, and lowering the costs of implementing asset allocation for the individual investor.
Companies like wealthfront implement traditional asset allocation algorithms. adaptivwealth differentiates itself by using models that try to improve upon the weaknesses of traditional asset allocation, and by making these models more accessible to individual investors. One approach to addressing the weakness of traditional asset allocation is by making the models more adaptive to market changes.
A call for help
adaptivwealth is still very rough around the edges, and I have a whole list of features that I want to implement, ideas for growth, etc. But I wanted to get a minimum viable product out there and collect feedback as quickly as possible. Let me know your thoughts! Questions, suggestions for features, advice, criticisms, anything and everything helps. Thank you.