June 11, 2012: Strategic, Tactical and Permanent: Putting All Together
06/11/2012 0 comments
Re-balance Cycle Reminder
Based on our monthly re-balance calendar, the next re-balance time will be on Monday, July 2, 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.
Strategic, Tactical and Permanent: Putting All Together
We have so far discussed several important portfolio building strategies. These include
- Strategic Asset Allocation
- Tactical Asset Allocation
- Permanent or Four Corner Investment Framework
We have also introduced a key concept: core-satellite portfolio in
As what we mentioned in February 27th 2012: Core Satellite Portfolios And Static Portfolios, you can use static portfolio utility to build a composite (i.e. a portfolio of portfolios) easily. This presents many possibilities to construct a portfolio that is suitable to your risk and growth expectation while minimizing your overall investment risk.
For taxable or IRA investment accounts that can access to ETFs or many mutual funds, you can construct a core satellite portfolio using strategic and tactical model portfolios featured on pages
- Overview & Featured ETF Portfolios (this is also the tab "ETFs, Mutual Fund Portfolios")
- Brokerage Specific ETF Portfolios
- Lazy Portfolios
- Brokerage Mutual Fund Portfolios
For core portfolios, you can either choose strategic asset allocation portfolios or a lazy portfolio. The following are some of our favorite lazy or strategic portfolios, in addition to those on Overview & Featured ETF Portfolios :
- Harry Browne Permanent Portfolio
- Permanent Income Portfolio
- P David Swensen Yale Individual Investor Portfolio ETFs Annual Rebalancing
Again, there are many variations in the above. Furthermore, in a defined-contribution retirement plan such as a 401K plan, you are limited to certain funds. You can either follow the strategic asset allocation model portfolio or for a user who is willing to tweak and use our system (you don't need to be a paying user, just a registered user), use the four corner concept introduced in April 23, 2012: All Weather Portfolio Construction to build a diversified portfolio.
If your plan is not in our database, please let us know or just build a predefined plan using this link input the investment options. You can then use the fund ratings to select funds in each of the category you choose.
For tactical portfolios, similarly, you can use those suggested on ETFs, Mutual Fund Portfolios, As an expert user, you can also use
- P Goldman Sachs Global Tactical Include Emerging Market Diversified Bonds ETFs
- P Doug Roberts Follow the Fed Add Treasury Note One Month Simple Indicator Moving Average 64 Days
- P Bond Funds Momentum Based on Upgrading Fixed Income Managers of the Year`s Funds Monthly
- P High Yield Bond Alpha VWEHX
to construct your portfolios.
Finally, we would like to mention a way for a subscriber (basic included) to construct a hedged portfolio based on a preselected allocation such as the permanent (or four corner) portfolio. By 'hedged' we mean that you can use a a tactical (TAA) portfolio in place of a risk asset or corner allocation. For example, for each corner in a four corner portfolio,
- Growth or prosperity corner: use a TAA portfolio that is of risk profile 0 from a plan that has only equity (without commodities) and bond candidate funds. For example, you can customize a risk profile 0 TAA portfolio from Five Core Asset Index ETF Funds for this corner.
- Deflation: you can customize a risk profile 100 TAA portfolio from a plan that has comprehensive bonds such as MyPlanIQ Diversified Core Allocation ETF Plan for this corner.
- Inflation: For a basic subscriber, you can either ignore this (i.e. combine this with deflation) or just use gold and inflation-protected bonds (TIPS) combined. For an expert user, you can create a plan that has only gold (silver), TIPS and other inflation instruments and then replace the funds in P Goldman Sachs Global Tactical Include Emerging Market Diversified Bonds ETFs with these funds.
- Cash: still use cash or short term bond funds.
The above process will result in a portfolio of portfolios that is guarded or hedged. You can then treat this portfolio as a tactical portfolio or use it with another strategic portfolio.
Portfolio Reviews
We compare brokerage specific commission free ETFs based tactical portfolios:
Portfolio Performance Comparison (as of 6/11/2012)
| Portfolio/Fund Name | 1Week Return | YTD Return | 1Yr AR | 1Yr Sharpe | 3Yr AR | 3Yr Sharpe | 5Yr AR | 5Yr Sharpe |
|---|---|---|---|---|---|---|---|---|
| Vanguard ETFs Tactical Asset Allocation Moderate | 1% | 4% | 4% | 28% | 11% | 95% | 8% | 57% |
| Etrade All Star ETFs Tactical Asset Allocation Moderate | 1% | 3% | 6% | 53% | 13% | 109% | 12% | 91% |
| Fidelity Commission Free ETFs Tactical Asset Allocation Moderate | 1% | 3% | 4% | 35% | 9% | 88% | 7% | 53% |
| TD Ameritrade Commission Free ETFs Tactical Asset Allocation Moderate | 0% | 1% | 0% | -10% | 8% | 73% | 5% | 37% |
| Schwab Commission Free ETFs Tactical Asset Allocation Moderate | 1% | 3% | 7% | 78% |
For more detailed comparison, see Latest Brokerage Specific ETF Tactical Portfolio Performance Comparison >>
Other than TD Ameritrade Commission Free ETFs Tactical Asset Allocation Moderate, which took a hit last year due to our handling of country specific stock funds and international bond funds (which has been fixed since), all other portfolios have performed as expected. We believe these plans are very reasonable as they are of no trading cost and many of them have very low cost funds.
Market Overview
Markets have gyrated recently because of European bailout negative and positive news. At the moment, stocks and bonds are all traded based on central banks' decision. For example, we saw briefly that both REITs (VNQ) and US stocks (VTI) were ranked higher than the total bond index (BND) as of last Friday (6/8/2012). Today's stock weakness again brought down VTI's ranking. See 360° Market Overview for more details.
Regardless how markets react to 'kicking the can down the road' news, we maintain vigilant stance. As we mentioned many times, until we see positive actions taken to resolve structural problems in the global economy, we believe the economy and markets are very vulnerable for future shocks.
On a side note, we do note that the majority of smart asset allocation mutual funds tracked on SmartMoneyIQ Managers are maintaining fairly meaningful risk allocation at this time. See Smart Allocation Managers Are Still Unfazed: Central Banks' Put In Place?
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