Trade Management Service

Last week, New York Times featured a story Help in Planning Investments Meant to Outlive You on how our long time user Earl is piloting a program that provides trade management service to our users. We thank Earl and his wife Sharon for their efforts in helping to start this program. Here are the background and details of the program: 

Over the years, many users have asked us to provide a service to help execute rebalance trades for the portfolios they are following. As we have gathered more experience, we believe such a service can be useful for the following two situations:

• For experienced investors like Earl, they have done well in their investments. They are concerned about how to manage and preserve their wealth when they age. Executing rebalance instructions in their accounts regularly is one thing, providing regular professional support is another. Getting a financial advisor to manage trades at a low cost is an ideal option for them. 
• For other investors, a disciplined external professional help to manage their accounts using MyPlanIQ’s approach can be a big help to overcome weakness when they themselves do it. This can be due to strong emotion driven human nature, second guessing or hyper active personality or just merely lack of time. For these users, they approve MyPlanIQ’s approach, they just need professional help in managing the trades. 

Brokerage Account Management

As someone who are also using MyPlanIQ’s portfolios in our own brokerage accounts, we understand our users’ frustration on managing brokerage accounts. In the following, we would like to discuss these issues related to specific brokerages. 

For general brokerage related portfolio management issues in brokerages, please refer to our previous newsletter April 22, 2013: Portfolio Rebalance – Ease of Use. 

Fidelity

• Commission free ETFs portfolios: Fidelity Commission Free ETFs provides 65 commission free iShares ETFs. These ETFs are broad enough to cover the 5 major asset classes and 9 styles of US stocks. Their fixed income ETFs are also complete enough. You can use these ETFs to implement our featured portfolios MyPlanIQ Diversified Core Allocation ETF Plan  and Six Core Asset ETFs  by finding similar ETFs as substitutes. iShares ETFs have long history and stable enough. However, they are in general more expensive than Vanguard and Schwab ETFs. 

• General ETFs portfolios: Fidelity’s standard commission $7.95 is not the cheapest. But you can try to negotiate with them if you have a large account. 

• Mutual Fund Trade Limitation and Commission: Fidelity has many excellent no load and no transaction fee (NTF) mutual funds. Short term redemption fee: $49.95. Minimum holding period: Non Fidelity funds: 60 days. Fidelity funds: 30 days. 

• Mutual Fund Portfolios: Fidelity Extended Fund Picks is by far one of the most popular plans. However, we believe their ETF portfolios are now very comparable with the mutual funds. For those who don’t want to be bother with the redemption issues as well as one day wait to buy new Non Fidelity funds (after you sell mutual funds, the proceeds can only be available next day), commission free ETFs are good choices. 

• Income and Conservative Portfolios: Both Fidelity Total Return Bond and Fidelity Conservative Fund Upgrade are good enough to be used. 

Schwab

• Commission free ETFs portfolios: Schwab Commission Free ETFs provides 105 commission free ETFs. For each major asset class other than commodities, Schwab’s low cost broad base ETFs are included in this list. However, we find other ETFs are way too specific or overlapped (similar to many 401k plans we have covered). Some of these ETFs are definitely not recommended. Fixed income ETFs are OK. Some style ETFs can have low volume, which is a concern. You can use these ETFs to implement our featured portfolios MyPlanIQ Diversified Core Allocation ETF Plan  and Six Core Asset ETFs  by finding similar ETFs as substitutes. Even though Schwab ETFs have relatively short history, their low cost (usually rivals that of Vanguard ETfs) and good fund management skills make Schwab broad base ETFs good enough for constructing a portfolio. However, we don’t like some of those non Schwab low volume or too specific ETFs in the list.  

It is also worth mentioning that Schwab commission free ETFs include Guggenheim’s defined maturity ETFs mentioned in our previous newsletter October 14, 2013: Manage Cash Investments Smartly for bond laddering purpose. 

• General ETFs portfolios: Schwab’s standard commission $8.95 is not cheap. However, Schwab has been well known for its service and flexibility in pricing when you have a reasonably large account. It is one of the most popular discount brokerages for large accounts. You should try to  negotiate with them if you have a large account. 

• Mutual Fund Trade Limitation and Commission: Schwab has reasonable no load and no transaction fee (NTF) mutual funds. Short term redemption fee: $49.95. Minimum holding period: 90 days. Worse than Fidelity. 

• Mutual Fund Portfolios: Schwab OneSource Select List Funds has not done as well as we hope. We believe some of the issues were caused by our mishandling of international bonds and international equities, which have been fixed since.  Another plan Schwab Income Mutual Fund Select List has done better, especially in terms of maximum drawdowns. It can be a good choice for safety concern investors. We feel Schwab commission ETFs are good enough for those who don’t want to be bothered by mutual fund restrictions. 

• Income and Conservative Portfolios: Schwab Total Return Bond has done ok so does Schwab Conservative Fund Upgrade. 

TDAmeritrade

• Commission free ETFs portfolios: TD Ameritrade Commission Free ETFs provides 101 commission free ETFs. We especially like the fact that this list includes many low cost Vanguard ETFs. In fact, you can virtually just use Vanguard ETFs in this list to build a solid portfolio. However, we find other ETFs are way too specific or volatile. Some of these ETFs are definitely not recommended. Fixed income ETFs are plenty. You can use these ETFs to implement our featured portfolios MyPlanIQ Diversified Core Allocation ETF Plan  and Six Core Asset ETFs  by finding similar ETFs as substitutes (in fact, for Six Core Asset ETFs, you can pretty much find those Vanguard ETFs in the commission free list). We used to have some issues in handling international bonds and country specific funds (similar to Schwab OneSource Select Mutual Fund plan). These issues have been fixed. We will continue to filter out those low quality ETFs for this plan. 

• General ETFs portfolios: TDAmeritrade’s standard commission $9.99 is the most expensive among the big three.  This is because TDAmeritrade tends to attract more low amount accounts. If you have a large account, you should definitely negotiate. They are usually very accommodating. 

• Mutual Fund Trade Limitation and Commission: TDAmeritrade has a large selection of good no load and no transaction fee (NTF) mutual funds.  The only major (and important) issue: Minimum holding period: 180 days, which is the most restrictive one.  Short term redemption fee: $49.95. The 6 month minimum holding period makes it almost not practical to construct a good portfolio, especially a tactical one. 

• Mutual Fund Portfolios: We do not recommend the mutual fund portfolios from TDAmeritrade, due to its excessive minimum holding period requirement. TDAmeritrade clients can use commission free ETFs instead. 

• Income and Conservative Portfolios: Though we are wary of TDAmeritrade’s 180 days minimum redemption period, for investors who can withstand more volatility, both TDAmeritrade Total Return Bond and TDAmeritrade Conservative Fund Upgrade have done reasonably well, especially the former. 

ETrade

• Commission free ETFs portfolios: ETrade recommends a list of commission free ETFs. However, these ETFs either are low volume or narrow sector based. We don’t recommend using these ETFs to construct an asset allocation portfolio. 

• General ETFs portfolios: Etrade charges one of the highest commission $9.99. We have no idea whether they are flexible for negotiating commissions. If you have information, please write on the comment section to share your experience.  Etrade All Star ETFs  portfolios have done very well. If commission is not a concern, you can use these ETFs to construct a good portfolio. 

• Mutual Fund Trade Limitation and Commission:  Minimum holding period: 90 days. Short term redemption fee: $49.99. 

• Mutual Fund Portfolios: Etrade All Star Funds consists of some good no load and no transaction fee (NTF) mutual funds. They have done very well. 

• Income and Conservative Portfolios: Etrade Total Return Bond and ETrade Conservative Fund Upgrade have done well. 

 Other brokerages

• Vanguard: Excellent commission free Vanguard ETFs in a Vanguard brokerage account (though you can almost get most of them from a TDAmeritrade account too). Their index mutual funds are also solid and low cost. If you don’t care about other flexibility for your brokerage accounts, opening a Vanguard account and build a low cost solid portfolio is a good move. 
• Merrill Edge: If you have a combined balance of $50,000 in their brokerage and Bank of America banking accounts, you are qualified for 30 commission free ETFs every month (see this). This makes Merrill Edge as one of the best places to implement various MyPlanIQ’s ETF or even CEF featured portfolios. Merrill Edge’s no load and no transaction fee mutual funds have 90 days minimum holding period. They only have very limited REITs funds. If there is a good demand, we can support Merrill Edge’s ETF portfolios. 
• FolioInvesting: We have some working relationship with FolioInvesting.com (see MyPlanIQ on FolioInvesting.com ). What we like FolioInvesting is their basket ETF trading capability which allows you to rebalance a portfolio with one order (in contrast to many individual sell and buy orders). Its $290 unlimited window trading fee is somewhat expensive for a small account but very reasonable for a large account. For more information, see April 22, 2013: Portfolio Rebalance – Ease of Use.

To summarize, if you do enough homework, you should be able to construct a portfolio of ETFs or Mutual Funds commission free. We believe it is well worth your effort to pursue this. 

Portfolio Performance Review

The following table shows how the Fidelity commission free ETF portfolios are compared with Fidelity Extended Fund Picks portfolios. We encourage readers to do the same thing by utilizing the compare tool we offer. You can click on latest detailed comparison >> below  or go to your dashboard and click on Performance Comparison on the left to access to this tool. 

Portfolio Performance Comparison (as of 10/21/2013)

*: NOT annualized

**YTD: Year to Date

See latest detailed comparison >> 

Fidelity commission free ETFs portfolios are very competitive. The Equal Weight portfolios have been affected by the under performance of emerging market stocks and commodities. We also caution that for the ETF portfolios, 10 year data are not very meaningful as most of ETFs only started in the last 5 years or so. 

Market Overview

Since the shutdown and debt crisis have bee ‘resolved’ (more precisely deferred), investors have been in a state of euphoria. In fact, from US stock market’s performance, it feels like we are back to those go go days before 2007 or before the internet bubble in 2000. Looking underneath, however, we find markets are still not uniform, especially commodities and emerging market stocks. Commodities are still ranked below cash in our trend ranking table on 360° Market Overview. We caution our readers to beware of the danger of the markets and stay the course. 

We again 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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