Asset allocation for the long-run - Diversify with alternatives and factors and dynamically adjust exposures

Different forms of asset allocation show different approaches to generating efficient returns over the long run. See A Century of Asset Allocation Crash Risk. The authors look over a long data set and across sub-periods for a 60/40, global 60/40, risk parity, diversified, endowment, factor-based, and dynamic models. The results suggest two major take-aways: 1. always diversify especially with factor and alternatives as displayed in the endowment and factor models, and 2. be dynamic through the use of momentum and volatility risk adjusting. The three best strategies are the endowment, factor, and dynamic asset allocations. 

The endowment model includes alternatives and private equity while the factor model focuses on a diversified set of factors. while not shown, the diversity with style and factors with dynamic adjustments will prove to be especially effective for efficient allocations that will maximize return. Using these strategies will minimize the maximum loss for investors and will also allow for significant upside. The 60/40 may have been effective in certain environments but focusing on broadening the allocations and making systematic adjustments is superior.