“It can be very expensive to try to convince the markets you are right.”

Ed Seykota

Even When Traveling Through a Storm, Some Paths Are More Pleasant Than Others

We can’t control the market. No one can. This should be self-evident, but it doesn’t always feel that way. 

How often are you convinced that the market will do X, only to have it do Y? 

The cost of this inherent flaw in humans is not just to their egos; their future financial well-being is also at stake. 

Many investors likely did not expect the market environment we saw in 2022. It also probably didn’t fit nicely within most conventional financial plans. 

As many of you have heard from us when asked about the future of markets: we and our investment process make no predictions. In fact, our only expectation is that our process will be executed with intense discipline and focus. 

This doesn’t mean we don’t mind bear markets. The reality is we, as humans, are just as prone to emotional biases about the market as everyone else. Fortunately, anything we feel or think has no bearing on our systematic investment process. That process will always be executed without bias or emotion.

In this Monthly Note, we discuss our systematic investing process in the context of 2022’s market environment. While the short-term destination is out of our hands, we expect to have more control over the long-term outcome and the ride to get there. In our estimation, utilizing a rules-based process provides investors with a more pleasant experience and path.

Below are the asset classes utilized in our portfolios and their model-driven exposure heading into January.

Disclaimer: This note is for general update purposes related to the general strategy and approach of Spartan Planning portfolios. Every client’s situation including Risk Profile, Time Horizon, Contributions, and Distributions is different from other clients. Your exposure to any given asset class will depend on your goals, risk profile, and how tactical or static your risk profile calls for. Adjustments can vary across strategies depending on each strategy’s objectives. What’s illustrated above most clearly reflects allocation adjustments for the Growth Strategy. If there have been changes to your risk profile and/or goals or if you wish to discuss them in more depth, please contact your advisor.



Equities & Real Estate

In last month’s Note we cautioned that despite increases off the October low, U.S. equities had not yet broken the declining trendline of 2022 and thus it would be difficult to classify any rally as significant. Indeed, the promise of a prolonged “Santa Claus rally” was dashed after November’s strong close resulted in yet another failed high in December. The December decline was  enough to send U.S. equities back into a downtrend across both timeframes. Our portfolios will move further underweight in response. 

International equities also declined in December, but developed markets managed to maintain their intermediate-term uptrend for now. Thus, exposure in our portfolios will not change. 

After flirting with a trend change, emerging markets continued to experience downtrends, directing our portfolios to remain at or near their minimum allocation.

Our portfolios continue to hold minimum allocations to real estate securities, as they continue to be weaker than their equity counterparts both domestically and internationally. Until some light is visible at the end of the rate hike tunnel, it will be a challenge for this asset class to produce meaningful positive attribution.

Fixed Income & Alternatives

Many bond instruments briefly produced their first uptrends in 2022 over relatively shorter timeframes. However, that quickly faded with declines forcing downtrends as we end the year. International bonds continue to maintain an intermediate-term uptrend but will remain underweight in the portfolios given their long-term downtrend.  

Gold continues its steady climb from early November lows and is at its highest level since around summertime. Last month we increased exposure due to the emergence of an intermediate-term uptrend, which continued in December. If the trend continues, gold is on pace for a long-term uptrend at some point in January. For now, exposure remains unchanged and underweight but poised to increase further.


    Three potential macro catalysts for the recent market moves:


    • Declining Population Growth: America’s population grew 0.4% this year, per Census Bureau figures released this month. The latest data shows a continuation of historically slow growth, which adds pressure to tight labor markets. The U.S. added 1.3 million people in the year that ended July 1 for a total population of 333.3 million. That includes 245,000 more births than deaths, a surplus that has long supplied much of the nation’s growth. The other component is net migration, which measures people moving in and out of the country. This figure grew by 1 million. Long-term economic growth is heavily dependent on population growth.
    • Declining Spending: Consumer spending and business demand softened late this year, while inflation eased, indicating a slowing U.S. economy. Personal spending increased 0.1% in November from the prior month, which is a significant pullback from the 0.9% increase in October. Households increased spending on services while decreasing on goods. After adjusting for inflation, the spending was essentially flat.
    • Declining Home Sales: Existing-home sales in the U.S. slid in November for a 10th straight month. The latest data extends a record streak of declines. Sales of previously owned homes declined 7.7% in November from the prior month, which is a 35.4% decline from a year prior. This streak of declines is the longest on record since 1999. The Federal Reserve has raised rates seven times this year to combat high inflation by slowing spending, hiring, and investment. As a result, mortgage rates have climbed to above 7% in early November from 3.1% at the end of 2021.

    If Trend Following is So Great, Why Doesn’t Everyone Do It?

    “You do not rise to the level of your goals. You fall to the level of your systems.”

    –James Clear

    Most of the time we use this section of the Monthly Note to explain current events in the financial markets in the context of how a systematic investing approach can benefit our clients in real-time. However, approximately once a year we use it to remind our readers about the challenges of a systematic investing process. We do this for two reasons:

    1. Credibility and trust are arguably the most important currency we hold. Regardless of its merits, all investment processes have imperfections and, at times, challenge the conviction of their investors and creators. Acknowledging this reality is part of the journey to successful implementation, in our view. 
    2. The most common question we receive when sharing our process with investors is, “If it’s so great, why doesn’t everyone do it?” Regardless of the question’s underlying motives, it demands a response that we are happy to provide. Very early on at Spartan we decided it is better to go deep than wide. We would rather serve a smaller group of clients who embrace our process than a larger group with many who are only mildly committed. Consequently, answering this question becomes a litmus test for whether an investor can be committed enough to our process to maximize the long-term benefits for their financial life. 

    If someone were looking for a period to define why our style of systematic investing can at times challenge your discipline, 2022 might be a good example:

    • Closing 2021 at all-time highs in U.S. equities meant maximum exposure for our strategies entering the new year. 
    • As is often the case, when markets subsequently declined, our strategies participated in stage 1 of that decline before cutting exposure. 
    • From the middle of the first quarter until the fourth quarter, the strategies spent their time in minimum exposure, protecting capital and outperforming respective benchmarks. 
    • The fourth quarter brought a rally from lows in October, followed by another decline in December. Last month our strategies went from being fully defensive to having marginally higher equity exposure during the final month of the year. The end result is that calendar year returns generally exceed benchmarks but not by the margins seen earlier this year at the Q3 lows in equities.

    A skeptic might look at the final calendar year 2022 performance print and ask, “What’s the big deal about trend following?” 

    Looking at one snapshot in time, they might have an argument. But it’s a little like judging a painting that is still in progress. 

    A more granular view of 2022 reveals that a trend following process, even one with a long bias like ours, spent much of the year outperforming benchmarks – by significant margins at times. Consider the following graph, which displays the rolling 3-month total equity exposure for the model Tactical Balanced Strategy against its baseline allocation.

    Once downtrends emerged as a result of January, the Strategy steadily reduced equity exposure and spent almost the entire year well below its baseline allocation. 

    Even in a year when the ride wasn’t great (i.e., negative returns), the ride was much better for investors than a traditional approach, in our view. 

    The data below demonstrate “the ride” in terms of the relative equity exposure of the Tactical Balanced Strategy during the S&P 500’s worst 10 performance days of 2022.

    Tactical Balanced Strategy

    Positioning During S&P 500’s Worst 10 Days of 2022

    Source: ICE and Spartan Planning Group, 1/3/2022 to 12/28/2022

    As we have written before, the worst days in equities tend to occur after downtrends emerge. 2022 was no exception. As we’d expect in these conditions, the 10 worst days coincided with our strategies being either underweight or fully defensive in equity exposure. 

    When the markets were at their worst, we were able to keep clients buffered, with proactively determined “de-risking”.  Because our risk management process is intellectually honest, we were able to clearly communicate measures taken to keep you on the best path toward your goals. The ability to take decisive actions and communicate them rationally is a tremendous benefit of our approach because it can give you confidence rather than hearing the typical advisor’s mantra of, “Hang in there! The market always comes back!”

    We can’t promise what the future holds.  We can’t accurately predict what will happen in a year, a month, or a week.  We will however always be rational, dicsiplined, and unbiased in the way we help steward your financial life.  As we enter 2023 we will continue to execute our strategies and look for innovative ways to guide you.  


    David Childs, Ira Ross, and Eric Warren

    Disclaimer: this note is for general update purposes related to the strategy and approach of Spartan Planning portfolios. Every client’s situation including Risk Profile, Time Horizon, Contributions, and Distributions is different from other clients. Your particular exposure to any given asset class will depend on your goals, risk profile, and how tactical or passive your risk profile calls for. If there have been changes to your risk profile and/or goals or if you wish to discuss them in more depth please contact your advisor. This email and the data herein is not a solicitation to invest in any investment product nor is it intended to provide investment advice. It is intended for information purposes only and should be used by investment professionals and investors who are knowledgeable of the risks involved. No representation is made that any investment will or is likely to achieve results comparable to those shown or will make any profit at all or will be able to avoid incurring substantial losses. While every effort has been made to provide data from sources considered to be reliable, no guarantee of accuracy is given. Historical data are presented for informational purposes only. Investment programs described herein contain significant risks. A secondary market may not exist or develop for some investments portrayed. Past performance is not indicative of future performance. Investment decisions should be made based on the investors specific financial needs and objectives, goals, time horizon, tax liability, risk tolerance and other relevant factors. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Investors should consider the underlying funds’ investment objectives, risks, charges and expenses carefully before investing. The Advisor’s ADV, which contains this and other important information, should be read carefully before investing. ETFs trade like stocks and may trade for less than their net asset value. Spartan Planning Group, LLC (“Spartan” or the “Advisor”) is registered as an investment adviser with the United States Securities and Exchange Commission (SEC). Registration does not constitute an endorsement of the firm by the SEC nor does it indicate that the Adviser has attained a particular level of skill or ability. Indexes are unmanaged and do not incur management fees, costs, and expenses. Spartan’s risk-management process includes an effort to monitor and manage risk, but should not be confused with and does not imply low risk or the ability to control risk. There are risks associated with any investment approach, and Spartan strategies have their own set of risks to be aware of. First, there are the risks associated with the long-term strategic holdings for each of the strategies. The more aggressive the Spartan strategy selected, the more likely the strategy will contain larger weights in riskier asset classes, such as equities. Second, there are distinct risks associated with Spartan Strategies’ shorter-term tactical allocations, which can result in more concentration towards a certain asset class or classes. This introduces the risk that Spartan could be on the wrong side of a tactical overweight, thus resulting in a drag on overall performance or loss of principal. International investments may involve additional risks, which could include differences in financial accounting standards, currency fluctuations, political instability, foreign taxes and regulations, and the potential for illiquid markets. Investing in emerging markets may accentuate these risks. Diversification strategies do not ensure a profit and do not protect against losses in declining markets