Re-balance Cycle Reminder

Based on our monthly re-balance calendar, the next re-balance time will be on MondaySeptember 10, 2012. You can also find the re-balance calendar of 2012 on ‘My Portfolios’ page.

As a reminder to expert users: advanced portfolios are still re-balanced based on their original re-balance schedules and they are not the same as those used in Strategic and Tactical Asset Allocation (SAA and TAA) portfolios of a plan.

Also please note that we now list the next re-balance date on every portfolio page.

New Features

As promised, we continue to roll out new features.

Get Started Now

We have completely revamped our ‘Get Started Now’ flow to make it much easier for beginners to use our system: our goal is that it will take a user less than 10 minutes to start to set up and follow a portfolio for a retirement (401k) plan or a brokerage ETF/mutual account. 

The biggest difference between our old system and the new one is on the portfolio monitored. In the new flow, when you ‘get suggestions’ for your portfolio through ‘Get Started Now’ flow, you will get a set of recommended holdings using the latest market information.  Furthermore, a new portfolio is created for tracking purpose starting on the day you get suggestions. In our old system, the customized model portfolio (or the followed portfolio) is always assumed to start on 12/31/2000 and back tested up  to now. This portfolio itself has the holdings that might have been purchased before (such as 1 month ago or so). This immediately creates  ‘infamous’ out of sync problem between the model portfolio and your actual account — your holding periods are usually not the same as those of the model portfolio. 

In a word, when you customize or get suggestions through ‘Get Started Now’, you get a completely personalized portfolio that actually counts the holding period next day. 

The following shows the recommended holdings for a new portfolio created in the new ‘Get Started Now’ flow:

You can also see that we now separate back-testing from ‘live’ and ‘on going’ portfolio that is monitored. To see back testing results, you need to look at the moderate model portfolio created and monitored for the current plan (if you are an expert user, the system will carry out back testing simulation on the fly for the specific risk profile of the portfolio, not necessarily limited to the moderate (40) level as in the basic subscriber case). 

The new ‘Get Started Now’ also features a new questionnaire to help you to decide the risk profile for the money you are investing. 

Try it and give us feedback. 

Expense and Dividend Info for Plans and Portfolios

We now show expense information for each fund in an investment plan. You can see fund expense ratios on a plan page by clicking on ‘Show All Funds & Details -> Show More Fund Parameters & Ratings’. 

On a portfolio page, click on ‘Expense And Dividend Yield’ button, you will see expense ratios for all the current fund holdings and the portfolio’s total expense and dividend yields. For example, the following shows the expense and yield info for portfolio Retirement Income ETFs Strategic Asset Allocation Moderate :

Low Cost ETFs Are For Prime Time

Users might have noticed that recently, model portfolios from plans with low cost ETFs have done well. These include Vanguard ETFsSix Core Asset ETFsSchwab ETF Select List and David Swensen Six ETF Asset Individual Investor Plan

In Vanguard ETFs case, this plan’s model portfolios have solid 1 and 3 year performance records. Notice since many Vanguard ETFs were just made into markets in the past 3-5 years, performance beyond 5 years is not very meaningful. 

Coupled with Vanguard’s long history and expertise in indexing, performance of its low cost ETFs are now validating the low cost indexing approach. Low cost ETFs are now covering many important asset classes and investing styles. The increased and comprehensive coverage, low cost and proven indexing are now making us feel very comfortable to build solid asset allocation portfolios using them. 

The following shows how some of our favorite ETF plans compared against some mutual fund plans. Readers are advised to pay more attention to last 3-5 year performance as 5 years ago, many ETFs were not available thus making the back tested performance beyond 5 years less meaningful. 

Tactical Portfolio Performance Comparison (As of 8/31/2012)

Portfolio/Fund Name 1 Week
Return*
YTD
Return**
1Yr AR 1Yr Sharpe 3Yr AR 3Yr Sharpe 5Yr AR 5Yr Sharpe
Vanguard ETFs Tactical Asset Allocation Moderate 0.4% 8.3% 8.7% 163.4% 11.1% 94.0% 8.1% 61.2%
Fidelity Extended Fund Picks Tactical Asset Allocation Moderate 0.3% 5.1% 2.0% 34.4% 12.7% 126.9% 13.3% 131.0%
Six Core Asset ETFs Tactical Asset Allocation Moderate 0.5% 5.6% 0.3% 5.2% 7.5% 65.8% 8.1% 66.9%
Etrade All Star Funds Tactical Asset Allocation Moderate 0.5% 6.8% 8.7% 170.8% 13.0% 127.7% 12.4% 123.4%
MyPlanIQ Diversified Core Allocation ETF Plan Tactical Asset Allocation Moderate 0.4% 5.9% 1.8% 27.0% 8.8% 75.9% 9.0% 75.9%

*: NOT annualized

**YTD: Year to Date

See latest year by year tactical portfolio performance>>

 

Strategic Portfolio Performance Comparison (As of 8/31/2012)

Portfolio/Fund Name 1 Week
Return*
YTD
Return**
1Yr AR 1Yr Sharpe 3Yr AR 3Yr Sharpe 5Yr AR 5Yr Sharpe
MyPlanIQ Diversified Core Allocation ETF Plan Strategic Asset Allocation Moderate 0.0% 7.2% 4.0% 37.5% 9.3% 87.3% 3.3% 19.3%
Vanguard ETFs Strategic Asset Allocation Moderate -0.1% 6.7% 5.2% 41.3% 10.0% 72.8% 3.4% 15.9%
Etrade All Star Funds Strategic Asset Allocation Moderate -0.2% 7.6% 5.0% 53.0% 8.4% 84.8% 3.2% 20.5%
Fidelity Extended Fund Picks Strategic Asset Allocation Moderate 0.1% 5.7% 3.3% 47.8% 9.4% 133.1% 3.6% 30.5%
Six Core Asset ETFs Strategic Asset Allocation Moderate 0.1% 7.3% 5.5% 46.2% 9.6% 80.6% 4.2% 22.6%

*: NOT annualized

**YTD: Year to Date

See latest year by year strategic portfolio performance>>

From the above, one can see that ETF based portfolios are doing very well, especially in the recent years. 

As a result, we are in the process of updating some of our ETF plans.

In the following, we show the recent change we made for MyPlanIQ Diversified Core Allocation ETF Plan, one of the flagship plans MyPlanIQ designed. 

  • Global Real Estate: we are replacing RWX with Vanguard Global ex-US Real Estate ETF VNQI. VNQI out performed RWX with its low expense ratio and return performance. 
  • Emerging Market Stocks: we are adding WisdomTree Emerging Markets Equity Income (DEM) to this category. We feel that in the coming years, even once torrid emerging market economies will slow down their growth significantly, making income oriented stocks more  attractive. 
  • Gold: we replacing GLD with iShares Gold Trust IAU. IAU’s much lower expense ratio  (0.25% vs. 0.4%) makes this switch as a no brainer. 
  • Inflation protected bonds: we view this is one of the major asset classes that will become very critical in the coming years when inflation picks up. We are adding short term PIMCO 1-5 Year US TIPS Index ETF STPZ and long term PIMCO 15+ Year US TIPS Index ETF (LTPZ). The long term TIPS will serve as a powerful hedge when inflation (expectation) becomes serious. 
  • Short term bonds: adding Vanguard Short-Term Corp Bd Idx ETF (VCSH) and Vanguard Short Term Bond Index (BSV) in addition to current 1-3 Year Credit bond index CSJ. Short term bonds are safe enough to have several of them in the plan. 
  • Mortgage back securities: replacing MBB with lower cost Vanguard Mortgage-Backed Sec Idx ETF (VMBS). 
  • Mid-cap stocks: replacing IJK with Vanguard Mid-Cap Growth ETF (VOT), replacing IJJ with Vanguard Mid-Cap Value ETF (VOE). 
  • Dividend ETFs: we are adding Vanguard Dividend Appreciation ETF (VIG) and Vanguard High Dividend Yield Indx ETF (VYM) and First Trust Value Line Dividend Index (FVD). 
All in all, we are expanding this comprehensive plan that is designed to cover important major asset classes, minor asset classes and styles. The changes will be effective for the next re-balance cycle (9/10/2012) on next Monday. 

Market Overview

Markets continued their non-uniform risk on mode. From the major asset class trend ranking table on 360° Market Overview, one can see that U.S. stocks and REITs are still at the top positions. However, emerging market stocks (VWO) had apparent weakness: it lost over 2% last week. Though gold (GLD) started to rise strongly, it is still ranked at the very bottom of the table, making it to be a wait and see case. 

We copy our position statements (from previous newsletters): 

Our position has not changed: We still maintain our cautious attitude to the recent stock market strength. Again, we have not seen any meaningful or substantial structural change in the U.S., European and emerging market economies. However, we will let markets sort this out and will try to take advantage over its irrational behavior if it is possible. 

We again would like to stress for any new investor and new money, the best way to step into this kind of markets is through dollar cost average (DCA), i.e. invest and/or follow a model portfolio in several phases (such as 2 or 3 months) instead of the whole sum at one shot. 

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