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Investment Strategy by Regime

Your recession risk score defines the economic regime. Each regime has optimal asset allocation.

Current Regime
55
Caution Zone
Slowdown / Transition
Recommended Strategy
Capital Preservation + Yield
Quality Factor, Defensives
Target Allocation for Score 55
40%
30%
30%
Stocks 40%Bonds 30%Cash 30%

Risk Score Scale

55
025456585100
ExpansionLate CycleCautionRecessionCrisis

All Regimes & Strategies

Expansion

(Risk-On)
Score: 0-25
+

Late Cycle

(Rising Risk)
Score: 25-45
+

Caution

(Elevated Risk)CURRENT
Score: 45-65
−

Warning signals flashing, but labor market hasn't cracked. Hardest phase to trade.

Target Allocation

40%
30%
30%
Stocks 40%Bonds 30%Cash 30%

Focus Sectors

Consumer StaplesHealthcareUtilitiesDefense

Stock Ideas

PGProcter & Gamble
Pricing power, recession-proof demand
JNJJohnson & Johnson
AAA credit, dividend king
UNHUnitedHealth
Healthcare is non-cyclical
COSTCostco
Defensive growth, trade-down winner
WMTWalmart
Scale + essentials
BRK.BBerkshire Hathaway
Cash + optionality

Bond/Fixed Income

SGOVShort-Term Treasury ETF
5% yield, zero risk
BILT-Bill ETF
Paid to wait
SHY1-3 Year Treasury
Low duration risk

Avoid in This Regime

High-multiple growth stocksUnprofitable techHigh leverageLong-duration bonds

The Rule

Barbell Strategy: Safety (T-Bills) + Quality Growth. Avoid duration risk and unprofitable tech.

Recession Imminent

(High Risk)
Score: 65-85
+

Crisis

(Capitulation)
Score: 85-100
+

When to Rotate

Bullish Rotation (Score Dropping)

Score drops below 45
Reduce T-Bills, increase equity exposure
Score drops below 25
Full risk-on: Growth stocks, small caps

Defensive Rotation (Score Rising)

Score rises above 65
Sell growth, add long treasuries (TLT/ZROZ)
Score rises above 85
Maximum defense: Cash + Treasuries only

The Golden Rule

Change allocation only when score crosses a band boundary and stays there for 3+ days. Don't react to daily wiggles. This prevents whipsaw and overtrading.

Investment Philosophy

This Model Does NOT:

  • - Predict specific stock prices
  • - Promise returns or timing
  • - Replace professional advice
  • - Guarantee against losses

This Model DOES:

  • + Define economic regimes
  • + Suggest appropriate risk levels
  • + Provide framework for decisions
  • + Reduce emotional investing

Disclaimer: This is educational content, not financial advice. Past performance does not guarantee future results. Consult a licensed financial advisor before making investment decisions.