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 2026-07-03 (41.1 years): 10.9% CAGR, 0.96 Sharpe, -31.8% max drawdown, 12.0% volatility.
- Type
- Tactical (TAA)
- Author
- David Alan Carter
- Rebalancing
- Monthly
- Risk
- Moderate
- Period
- 1985-05-31 to 2026-07-03
- CAGR
- 10.9%
- Sharpe
- 0.96
- Max Drawdown
- -31.8%
- Volatility
- 12.0%
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 2026-07-03, The 12% Solution (Carter) returned 10.9% CAGR with a -31.8% maximum drawdown and a Sharpe ratio of 0.96. 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 2026-07-03)
| Metric | The 12% Solution (Carter) |
|---|---|
| Compound Annual Growth Rate (CAGR) | 10.9% |
| Maximum Drawdown | -31.8% |
| Sharpe Ratio | 0.96 |
| Sortino Ratio | 1.28 |
| Annualized Volatility | 12.0% |
| Calmar Ratio | 0.34 |
| Total Return | 6975.3% |
| Backtest Period | 41.1 years |
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.
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