The 12% Solution (Carter)
Calculate 3-month total return for all 7 ETFs. Equity sleeve (60%): best 3-month return from {SPY, QQQ, IWM, MDY, SHY}. Backtest max drawdown: -32.5%.
Strategy & methodology
Calculate 3-month total return for all 7 ETFs; Equity sleeve (60%): best 3-month return from {SPY, QQQ, IWM, MDY, SHY}; Bond sleeve (40%): best 3-month return from {TLT, JNK}; Allocate 60% to equity winner and 40% to bond winner.
- Strategy type:
- Tactical asset allocation
- Rebalance frequency:
- Monthly
- Original publication:
- 2017-01-01; results after that are out-of-sample for the original research. All results are backtest simulations.
- Data through:
- Backtest data through 2026-10-02.
Simulated history
Stand-in funds and until when (4)
- JNK: HYG before Dec 4, 2007
- TLT: VUSTX before Jul 26, 2002
- SHY: VFISX before Jul 26, 2002
- SPY: VFINX before Jan 29, 1993
Before these dates the backtest uses a stand-in, not the fund itself, so the results over those stretches show how the rules would have behaved, not what the fund returned.
Research data and disclosures
Calculate 3-month total return for all 7 ETFs. Equity sleeve (60%): best 3-month return from {SPY, QQQ, IWM, MDY, SHY}. Backtest max drawdown: -32.5%. This is a tactical asset allocation strategy. BestFolio supplies the public rule or approach and backtest context; current signals, allocations, and paid interactive data remain restricted to Pro access. Users review the published signal and place any resulting trades in their own brokerage. Displayed returns remain hypothetical and do not represent a customer's brokerage record. The facts above show how current the data is.
- BestFolio supplies
- The monthly signal email and this strategy page; current signals and email alerts require Pro access.
- Customer action
- Review the published signal and place any required trades in your own brokerage. BestFolio does not execute orders.
- Costs and exclusions
- Backtests are net of a modeled one-way transaction cost (10 bps, scaled up to 3x under stress); taxes, fund-expense drift, or market impact are not modeled. No tax, no slippage beyond the stated cost. Methodology limitations
Published result: Engine drift-until-flip-v1, data version ac79f9ae, published 2026-10-01
Is The 12% Solution (Carter) still working in 2026?
The 12% Solution (Carter) returned 3.91% over the trailing 12 months and 25.33% over 36 months through 2026-10-02, compared with a full-backtest annualized return of 11.11%. Its full-backtest maximum drawdown was -32.45%. The full sample contains 10432 daily NAV observations from 1985-05-31. These are model results, not investor account returns or a promise. As of 2026-10-02 it is -5.00% below its high-water mark of 2026-06-02, 4 months ago, and its longest run below a previous high was 3.8 years. Recent returns do not establish that the strategy will keep working.
| Period | Return | CAGR | Max drawdown | Observations | Dates |
|---|---|---|---|---|---|
| Trailing 12 months | 3.91% | Not annualized | -7.33% | 252 | 2025-10-02 to 2026-10-02 |
| Trailing 36 months | 25.33% | Not annualized | -9.24% | 754 | 2023-10-02 to 2026-10-02 |
| Full backtest | 7686.87% | 11.11% | -32.45% | 10432 | 1985-05-31 to 2026-10-02 |
Last verified
Common questions about these results
Are these live investor returns?
No. These are the latest model NAV results from the published backtest. A recent date alone does not make a result an independently observed live record. Investor costs, taxes and execution can differ.
Why can a strategy lag for a year?
A tactical model can hold defensive assets during a rally or change positions during reversals. A short window can differ substantially from its full history. Compare cumulative returns over matching dates and inspect drawdowns as well.
How long has it spent below a previous high?
Its last high-water mark was 2026-06-02, 4 months before 2026-10-02, and it is -5.00% below that level now. The longest run below a previous high in the full backtest was 3.8 years. Recovering from a drawdown can take years, and a strong trailing return does not mean a past high has been regained.
Where can I check the signals behind these results?
The Signals tab on this page lists each dated model decision for the selected variant; for Pro strategies they are visible to Pro members. The methodology page explains the backtest assumptions.
The 12% Solution (Carter) at a glance
The 12% Solution (Carter) is a tactical asset allocation (TAA) strategy by David Alan Carter across US Equity (Large Cap), US Equity (Mid Cap), US Equity (Small Cap), High Yield Bonds, rebalanced monthly. Backtested 1985-05-31 to 2026-10-02 (41.3 years): 11.1% CAGR, 0.98 Sharpe, -32.5% max drawdown, 11.8% volatility.
- Type
- Tactical (TAA)
- Author
- David Alan Carter
- Rebalancing
- Monthly
- Risk
- Moderate
- Period
- 1985-05-31 to 2026-10-02
- CAGR
- 11.1%
- Sharpe
- 0.98
- Max Drawdown
- -32.5%
- Volatility
- 11.8%
The 12% Solution (Carter) — Tactical Asset Allocation Strategy
The 12% Solution is a monthly rotation strategy from David Alan Carter's book. It splits the portfolio into a 60% equity sleeve and a 40% bond sleeve, using 3-month momentum to select the best asset within each. The equity sleeve chooses from SPY, QQQ, IWM, MDY, and SHY (cash proxy). If SHY wins, the equity sleeve goes to cash; this is the risk-off mechanism. The bond sleeve picks between TLT and JNK.
The 12% Solution (Carter): frequently asked questions
- What is The 12% Solution (Carter)?
- Two-sleeve monthly rotation: 60% in the best-momentum equity ETF (or cash if none outperforms) and 40% in the stronger bond ETF. Uses 3-month return lookback across US large, mid, small cap, and Nasdaq. Monthly rebalancing.
- Who created the The 12% Solution (Carter) strategy?
- The 12% Solution (Carter) was developed by David Alan Carter. It is based on Carter, D.A. The 12% Solution..
- What is the historical return and maximum drawdown of The 12% Solution (Carter)?
- Backtested from 1985-05-31 to 2026-10-02, The 12% Solution (Carter) returned 11.1% CAGR with a -32.5% maximum drawdown and a Sharpe ratio of 0.98. Past performance does not guarantee future results.
- How often is The 12% Solution (Carter) rebalanced?
- The 12% Solution (Carter) is rebalanced monthly. BestFolio publishes the updated allocation signal each period.
- Is The 12% Solution (Carter) a tactical asset allocation strategy?
- Yes. The 12% Solution (Carter) is a tactical asset allocation (TAA) strategy: it adjusts its holdings based on market signals each period rather than holding a fixed allocation.
Backtest Performance (1985-05-31 to 2026-10-02)
| Metric | The 12% Solution (Carter) |
|---|---|
| CAGR | 11.1% |
| Max Drawdown | -32.5% |
| Sharpe | 0.98 |
| Sortino | 1.66 |
| Volatility | 11.8% |
| Calmar | 0.34 |
| Total Return | 7641.1% |
| Backtest Period | 41.3 years |
Every rebalance fills at the signal-day close, net of modeled transaction costs. Followers trade at the next open; the delayed-close line in the Rebalance Frequency Sensitivity card shows the effect of trading one session later. Execution assumption
Strategy Details
- Type
- Tactical (TAA)
- Rebalancing
- monthly
- Risk Level
- moderate
- Variants
- 1
- Author
- David Alan Carter
- Source
- Carter, D.A. The 12% Solution.
Asset Classes
- US Equity (Large Cap)
- US Equity (Mid Cap)
- US Equity (Small Cap)
- High Yield Bonds
- Long-Term Treasuries
- Short-Term Treasuries
Categories
Further reading
New to this approach? Read what tactical asset allocation is and how it works.
Holding The 12% Solution (Carter) alongside another strategy? Use the free portfolio overlap calculator to see how much of the two portfolios actually differs.
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