Vanguard Funds With Dynamic Asset Allocation: Which Allocation Is "Right for Your Situation"?

September 11, 2014

by Georg Vrba

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High returns can be obtained from actively managed Vanguard funds when a dynamic asset allocation strategy is employed. However, models using index funds with dynamic asset allocation also produce better returns than models with static asset allocations. Performance and risk measures are given for six iM(MAC-Vang) models with various asset allocations, which use a combination of Vanguard bond- and stock-funds, and switch assets according to stock-market climate.

Stock-market timing model

The dynamic asset allocation strategy requires some stock-market timing. During up-market periods more money is allocated to stock funds than bond funds, and during down-market periods more money is allocated to bond funds than stock funds.

The up- and down-market periods come from the MAC-US (backtested over 65 years), or alternatively the Best(MAC-UPRO) will provide nearly the same signal dates: up-market periods are indicated when the model is invested in UPRO. From 2000 to 2014 the models signaled only 5 down-market periods and 6 up-market periods, including the current up-market period.

Performance, risk measurements and asset allocation

In the tables below one can compare returns and risk measurements for six models using Vanguard index- and actively managed funds with different asset allocation percentages. It is apparent that the (MAC-Vang)20/80managed shows the best performance and has the lowest risk measurements.

If one wanted for convenience only use the two index funds, the Total Bond Market Index Fund (VBMFX) and the Total Stock Market Index Fund (VTSMX), then (MAC-Vang)20/80index would appear the best choice.

If one were uncertain whether the MAC-US will perform as well in the future as it did in the past, then one could consider the (MAC-Vang)40/60managed or the (MAC-Vang)40/60index models. They have a dynamic 40/60 bond/stock mix and their performance and risk measurements can be directly compared with those of the Vanguard LifeStrategy Fund VSMGX, which has a static 40/60 bond/stock mix.

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Investors in Vanguard funds can achieve good returns with less risk by following a simple market timing strategy to decide on the asset allocation for their investment. A dynamic asset allocation strategy dependent on stock-market climate is the key to better returns.

So what is the asset allocation “that’s right for your situation”? The (MAC-Vang)20/80 appeared at first glance to be the most risky model, but in fact has the best risk measurement. Nobody can recommend a model “that’s right for your situation”, but the more information presented about a fund the better. None of the risk measurements provided here are available from financial service organizations for their funds or ETFs, although they are quite easy to calculate.

Following the iM(MAC-Vang) dynamic asset allocation models

Monthly updates of asset allocation and performance for the all the iM(MAC-Vang) models, will be posted on our website.

Georg Vrba


Georg Vrba is a professional engineer who has been a consulting engineer for many years. In his opinion, mathematical models provide better guidance to market direction than financial "experts." He has developed financial models for the stock market, the bond market, yield curve, gold, silver and recession prediction, all published in Advisor Perspectives. The models are updated weekly at

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