I have enjoyed reading your posts, and I'm an avid reader of value-oriented investing books like the Intelligent Investor. One question I've always wanted to ask is how taxes affect the overall return. For the example in this post, if you are trading the bond and stock indices on a regular basis, then one's gains would be taxed at the regular income tax rate, substantially eroding the real return of the strategy. So, for the paragraph below from your post, does the strategy outperform the Vanguard Balanced Index fund on an after tax basis, or just on a straight valuation basis?

"Even with these high transaction costs, this simple tactical allocation fund outperformed the Vanguard Balanced Index fund by 0.6% per annum during the last five years, and by 1.5% per year over the last 10 to 15 years. And this performance could have been achieved in practice because the required sub-funds tracking these indices are available at extremely low costs from different providers."

Thanks for taking the time to read my comment and I look forward to your reply!

- Jason