Countercyclical rebalancing to manage behavior

In this episode of Excess Returns, we sit down with Cullen Roche to discuss his new book Your Perfect Portfolio and the deeper principles behind building a portfolio that actually fits your life. Rather than starting with asset allocation models or return forecasts, Cullen reframes investing around risk, time horizons, and lifetime consumption. We explore how to think about stocks, bonds, factor investing, international diversification, private assets, inflation hedges, and more through the lens of financial planning and asset liability matching. This is a practical, wide ranging conversation about portfolio construction, behavioral risk, and how investors can align their investments with real world goals.

Main topics covered:

• Why you are a saver, not an investor, and why that distinction matters

• Defining risk as uncertainty of lifetime consumption

• The temporal conundrum and matching investments to time horizons

• Human capital as your most important asset and how it impacts portfolio risk

• The pros and cons of a 100 percent stock allocation

• Rethinking the 60 40 portfolio after inflation and rising rates

• International diversification and valuation differences between US and global markets

• Factor investing as a time horizon tool rather than an alpha strategy

• The forward cap portfolio and skating to where the market cap puck is going

• Inflation protection strategies including stocks, TIPS, gold, and the permanent portfolio

• Risk parity and the tradeoff between diversification and return

• Countercyclical rebalancing and managing behavioral risk

• Private equity, venture capital, and the illiquidity premium

• Defined duration investing and asset liability matching for individual investors

• The real impact of inflation, taxes, and fees on long term returns

Timestamps:

00:00 Risk as lifetime consumption and asset liability matching
01:03 Introduction to Your Perfect Portfolio
05:25 You are a saver, not an investor
08:24 Defining risk and uncertainty of lifetime consumption
10:15 The temporal conundrum and time horizons
12:38 Using past performance and forecasting responsibly
15:00 Human capital and portfolio construction
17:12 The case for a 100 percent stock allocation
19:50 Rethinking the 60 40 portfolio
24:00 Adding international diversification
29:43 Factor investing across time horizons
35:00 The forward cap portfolio concept
38:27 Inflation hedges and the permanent portfolio
42:27 Risk parity explained
44:49 Countercyclical rebalancing
47:17 Private assets and illiquidity
51:25 Defined duration strategy and Discipline Funds ETFs
56:00 Real returns after inflation, taxes, and fees

If you are interested in portfolio construction, asset allocation, financial planning, factor investing, inflation protection, or building a long term investment strategy that matches your goals, this conversation offers a thoughtful framework for thinking differently about risk and returns.