This page focuses on a business cycle allocation strategy with FarPlanner. As mentioned on our overall allocation page, this may not be a recommended strategy since it requires a measure of market timing based on consistently studying economic measures. As usual, please run any allocation approaches past your qualified financial and tax planning experts.
As with any allocation strategy, FarPlanner recommends having a separate cash account (e.g., checking, savings, settlement brokerage) for each account group (e.g., 401k, IRA). This is the ‘safe’ account that FarPlanner stages funds to that need to be paid or transferred more immediately in your plan.
For selecting the non-cash accounts in a given account group, the complexity of this strategy is two fold:
- There are 11 GICS market ‘sectors’ to choose from for allocations, and
- The very selection and composition of these sectors has its critics and alternatives, and
- Which of these sectors to invest in varies by which business cycle the economy is perceived to be in at the moment.
The last point is key….while business cycles tend to have a pattern to them that can inform allocations into the 11 sector types, the reality is the cycles are not always clear cut, especially in the shorter run. Because this strategy is a form of market timing, its important to educate yourself and stay abreast of current market events.
Educate Yourself
If you don’t partner with a trusted advisor, you should learn about what business cycles are, and what investments are preferred in any given part of the cycle. It might also be good to understand the long history of economics more deeply as well (and why there are differing opinions about what drives the economy today).
You should start to read financial stories daily, such as Yahoo! finance. After a while you will realize that while market indicators used to determine business cycles are somewhat reliable, not all market experts and economists agree on what these indicators tell us. Are we in a recession or not? Are we in a bear market or not? Have we hit the bottom of the market or not?
So how do you know how to invest across the sectors then? As noted, we aren’t financial experts, but it seems for this strategy it’s important to keep your emotions in check. Don’t make rash decisions based on a day’s or a week’s or even a few months’ market activity. Fidelity issues a quarterly report (such as this one) depicting their viewpoint on where we are in the business cycle, which might be a better cadence to review your allocations in FarPlanner.
After doing your research, and you might be ready to allocate into sector funds. FarPlanner can assist with this process as follows.
Allocate With FarPlanner
Once you’ve decided how you want to allocate across the 11 market sector funds, FarPlanner can help you consider allocations into them. FarPlanner works best with accounts consisting of funds of stocks (e.g., ETFs or mutual funds) versus individual stocks as some experts espouse. For example, Vanguard’s VDC focuses on stocks in the ‘consumer staples‘ sector.
Here’s one example allocation approach you could use in FarPlanner, if you or your qualified advisor believes the US economy is in a recessionary business cycle:
| Account | Up to 6 months | Up to 1 year | 2 years | 4 years | 7 years | 15 years | 25 years | Beyond 25 years |
| Consumer Discretionary | 15% | 18% | 21% | 23% | ||||
| Consumer Staples | 15% | 18% | 21% | 23% | ||||
| Health Care | 15% | 18% | 21% | 23% | ||||
| Utilities | 15% | 18% | 21% | 23% | ||||
| Total Stocks | 20% | 10% | 8% | 6% | 3% | |||
| Total Bonds | 20% | 50% | 80% | 30% | 20% | 10% | 5% | |
| Cash | 100% | 80% | 50% |
Note that only 4 of the 11 GICS sectors are utilized in this example since they historically tend to out perform others during a recession. Observe the gradual increase in stocks versus bonds / cash for longer term needs. The example shows how allocation strategies can be changed up with FarPlanner, with the non-market-timed total stock market fund (e.g., Vanguard’s VTI) favored over riskier market-timed sector funds for intermediate term needs.