Re-balance Cycle Reminder

Based on our monthly re-balance calendar, the next re-balance time will be on Next MondayAugust 6, 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 Asset Allocations & Lazy Portfolios Review

Investors these days can find many asset allocation templates on the internet. Among them, lazy portfolios are perhaps the most popular. However, many brokerages and advisory firms also offer asset allocation templates. We will try to summarize and discuss these templates in this newsletter. 

Lazy Portfolios

Lazy portfolios are suggested by famous investment gurus. MyPlanIQ lists many lazy portfolio based investment plans. On each plan page, you can find model portfolios using MyPlanIQ equal weight SAA (Strategic Asset Allocation), TAA (Tactical Asset Allocation) and original lazy portfolio (if any) under ‘Other Related Portfolios‘.

See Lazy Portfolios page for more details. On this page, you can also find the latest SAA and TAA performance comparison links. 

The following are asset allocations suggested by some lazy portfolios. Due to space limit, we only list five of them. 

Major Assets Assets Swensen 7Twelve Harry Browne FundAdvice Coffee House
Risk Assets US Stocks 30% VTI

LC 8.3%

MC 8.3%

SC 8.3%

LC 25%

S&P 500 6%

LV 6%

SC 6%

SV 6% 

LC 10%

LV 10%

SC 10%

SV 10%

Intl Stocks 15% VEA 8.3%  

 Val 12%

Core 12%


Em Stocks 5% VWO 8.3%    6%  
REITs 20% VNQ 8.3%    6% 10%

8.3% Commodities

8.3% Resources Stks

25% Gold    
Fixed Income Long 15% TLT   25% LT Trs    
Core (Interm)   8.3%    20% Trs 40%
Short        12% Trs  
TIPS 15% TIP 8.3%    8%  
High Yield          
Foreign Bond   8.3%      
Cash   8.3% 25%    

Note: L,M,S represent Large, Mid, SmallCap respectively. C,V,G represent Core (Blend), Value, Growth respectively. LT: Long Term. 

David Swensen’s lazy portfolio is one of the cleanest (only 6 ETFs) with very sound reasoning, especially in fixed income: both inflation protected bonds and long term treasury bonds serve their insurance purpose for inflation and deflation respectively. Harry Browne’s permanent portfolio has strong basic hedging concept built in. Both of them fit into our four corner portfolio framework very well. Other portfolios all have their own rationale. 

The performance comparison among these original lazy portfolios and their SAA moderate portfolios are:

Portfolio Performance Comparison (as of 7/30/2012)

Portfolio/Fund Name 1 Week
1Yr AR 1Yr Sharpe 3Yr AR 3Yr Sharpe 5Yr AR 5Yr Sharpe
7Twelve Original Portfolio 2.0% 5.3% -1.7% -11.7% 10.6% 70.2% 2.9% 13.4%
David Swensen Six ETF Asset Individual Investor Plan Strategic Asset Allocation Moderate 1.7% 7.9% 6.8% 50.0% 12.9% 103.0% 5.1% 25.9%
Fund Advice Ultimate Buy and Hold Lazy Portfolio 1.9% 5.9% 1.6% 10.0% 9.4% 76.8% 3.0% 16.1%
FundAdvice Ultimate Buy and Hold Lazy Portfolio Strategic Asset Allocation Moderate 1.8% 6.8% 1.4% 9.0% 10.0% 78.9% 3.7% 18.8%
Harry Browne Permanent Portfolio 1.1% 5.4% 9.6% 133.7% 12.5% 182.7% 9.0% 104.9%
Israelsen 7Twelve Strategic Asset Allocation Moderate 1.8% 5.2% 0.7% 7.6% 10.9% 90.2% 4.7% 26.0%
P David Swensen Yale Individual Investor Portfolio Annual Rebalancing 1.7% 9.2% 8.1% 55.7% 15.0% 113.0% 5.1% 24.1%
Permanent Portfolio ETF Plan Strategic Asset Allocation Moderate 1.5% 6.5% 1.9% 10.1% 15.2% 124.8% 8.0% 49.1%
The Coffee House Lazy Portfolio ETF Version Strategic Asset Allocation Moderate 1.7% 7.5% 2.9% 17.7% 12.7% 90.5% 4.2% 18.6%
The Coffee House Lazy Portfolio ETFs 1.4% 7.1% 4.8% 32.8% 12.3% 98.9% 4.5% 25.2%
Wasik Nano Plan Strategic Asset Allocation Moderate 1.6% 7.5% 4.5% 30.0% 12.5% 95.1% 3.6% 17.2%
Wasik`s Nano 1.6% 7.9% 4.3% 28.9% 11.7% 90.2% 2.7% 12.8%

*: NOT annualized

**YTD: Year to Date

The latest detailed comparison link>>

Readers are advised that some of portfolios might have different risk profile. For example, Swensen’s lazy portfolio has only 30% in fixed income. Readers should take this factor into account for the above performance results. Furthermore, some portfolios are using ETFs and others are using mutual funds. This again can cause some inaccuracy for the comparison. 

As a side note, MyPlanIQ SAA portfolios usually outperform their original lazy portfolio counterparts. This is especially true for longer period of time. Readers are encouraged to look at the latest detailed comparison link to compare the results for longer periods such as since inception. This is again indicate that  MyPlanIQ’s fund selection improve performance. For example, in MyPlanIQ SAA, all four funds in US stocks for FundAdvice lazy portfolio belong to the same major asset, US stocks. At a monthly rebalance time, two out of these four funds are selected. Effectively, MyPlanIQ’s fund selection serves as fund rotation for US stock funds in this portfolio. 

Brokerage Suggested

Most brokerages also have tools that help their clients to figure out their asset allocation. The following table lists four brokerage moderate risk portfolios (i.e. 60% risk asset and 40% fixed income):

Major Assets Assets Schwab Fidelity Amerivest Vanguard
Risk Assets US Stocks

LC 22%

SC 6%

MicroCap 1%




Intl Stocks

Intl LC 17%

Intl SC 3%

18%  21%


Em Stocks 5%      
REITs 5%    11%  

 Energy 2%

Precious Metals 1%

Agriculture 2%

Industrial Metals 1%


Fixed Income Long        
Core (Interm)

Treasury 9%

Agency Bonds 2%

Securitized bonds 11%

35%  29%  40%
Short   5%    
TIPS 2%      
High Yield  1%      
Credit  4%      
Foreign Bond  1%      
Cash  5%   1%  

Both Schwab and Amerivest (asset management unit of TDAmeritrade) have the most complicated allocations. Fidelity’s allocations are more simplified. Vanguard does not really give the detailed suggestion through its investor questionnaire so we are using Vanguard’s standard 60% US stocks and 40% US bonds balance index fund VBINX as the proxy. 

The following table compares the above allocations: 

Portfolio Performance Comparison (as of 7/30/2012)

Portfolio/Fund Name 1 Week
1Yr AR 1Yr Sharpe 3Yr AR 3Yr Sharpe 5Yr AR 5Yr Sharpe
Amerivest Guided Portfolio Growth 2.0% 7.8% 3.8% 22.7% 11.9% 82.8% 3.1% 14.1%
VBINX 1.4% 8.0% 8.1% 41.5% 11.6% 109.2% 4.0% 17.6%
Fidelity Managed Accounts Growth with Income 1.7% 6.7% 3.6% 26.5% 9.5% 83.2% 2.9% 17.0%
Schwab Managed ETF Portfolios Balanced with Growth 2.0% 6.1% 0.7% 2.9%        

*: NOT annualized

**YTD: Year to Date

More detailed comparison >>

It should be noted that as US stocks have done so well in the past 5 years, the comparison has been very skewed. Furthermore, we believe Schwab and Amerivest portfolios are overly complicated while the other two are too simplified to be useful. 

Advisory Firms Suggested

There are many investment advisory firms that also provide asset allocation suggestions. The following table shows the suggestions given by Morningstar’s Ibbotson unit, Wealthfront and AssetBuilder. 

Major Assets Assets Morningstar Ibbotson Wealthfront AssetBuilder Model Portfolio 09
Risk Assets US Stocks

LC 10%

LV 10%

MG 5%

MV 5%

SG 3.5%

SV 3.5%






Intl Stocks

Intl LC 10%

Intl SC 3%




Em Stocks 4% 10%


6% Value DFEVX

REITs 3% 7% 8% DFREX


5% DJP**

7% DBC
Fixed Income Long      
Core (Interm)



20% Global Fixed Income DFGFX

Short 8%   19% 1Yrd Fixed Income DFIHX
TIPS 5%    
High Yield 4%    
Foreign Bond      
Cash 2%    

Note: L,M,S represent Large, Mid, SmallCap respectively. C,V,G represent Core (Blend), Value, Growth respectively. LT: Long Term. 

** Wealthfront website derives 6% for natural resources (DJP) but they do not add up to 100%. We thus take the liberty to reduce DJP to 5%. 

It comes no surprise that we favor Wealthfront’s simple but diversified allocations. It is very similar to our Six Core Asset ETFsMorningstar’s allocations are very detailed and tend to capture various smaller sub asset classes. AssetBuilder model portfolio tries to utilize DFA (Dimensional Fund Advisors) funds in emerging market and global bond markets to distinguish itself. Unfortunately, recent strength in the US has distracted its performance: 

The following table compares the performance: 

Portfolio Performance Comparison (as of 7/30/2012)

Portfolio/Fund Name 1 Week
1Yr AR 1Yr Sharpe 3Yr AR 3Yr Sharpe 5Yr AR 5Yr Sharpe
Wealthfront Moderate Portfolio 1.8% 6.2% 1.1% 7.7% 9.4% 78.1% 3.4% 17.0%
AssetBuilder Model Portfolio 09 1.7% 4.9% -2.7% -18.4% 7.7% 60.5% 1.4% 5.7%
Morningstar Ibbotson Balanced ETF Portfolio 1.6% 6.4% 1.9% 12.9% 10.4% 83.6%    

*: NOT annualized

**YTD: Year to Date

More latest detailed comparison>>


We have tried to be thorough to cover various asset allocation suggestions. From the above exercise, we would like to draw two conclusions:

  1. There are many ways to come up with asset allocations. Most of them are different. Some of them claim that they use optimal Black Litterman model with mean variance optimization (MVO), some of them just simply use basic rule of thumbs or experience. Internally, we have MVOs and Black Litterman’s model and our biggest problem using them is still that their results rely on expected returns input, which are totally subjective and can change dramatically over time (for example, for US stocks expected returns, right now, based on various models such as John Hussman’s, S&P 500 is going to return 4-5% annually in the next 10 years while at the bottom of 2008, the 10 year annual return approached to 10%). Any estimates of long term expected returns for asset classes are subject to change and thus have limited value for long term strategic asset allocations. 
  2. Equal weights can do as well as those portfolios that have been calibrated using more advanced techniques, a surprising phenomenon that has been discussed in academic research. 
  3. Using major asset class allocations and then applying fund selections (for style rotation) might be the best approach. 

Current Markets

Our cautious stance towards the economies and markets has not changed. We believe investors are overly fixated on the coming QE3 or European Central Bank (ECB)’s possible bond purchase to help Spain and other troubled countries.  Thi s can be best illustrated by  some quotes from the recent John Hussman’s weekly commentary

The current, widely-embraced message is that there is no such thing as an economic problem, and no such thing as risk. Bernanke, Draghi and other central bankers have finally figured it out, and now, as a result, economic recessions and market downturns never have to happen again. They just won’t allow it, printing more money will solve everything, and that’s all that any of us need to understand. And if it doesn’t solve everything, they can just keep doing more until it works, because there is no consequence to doing so, and all historical evidence to the contrary can finally, thankfully, be ignored. How could anyone ever have believed, at any point in history, that economics was any more complicated than that? 

The simple intuition for us is that debt will need to be repaid, one way or the other. 

US stocks again rose above total bond index (BND) in the major asset trend table on 360° Market Overview. We don’t know how long this rally will continue. At the moment, we are very skeptical but ultimately, we will stick to our pre defined strategies to execute our investment decisions. 

Finally, some allocation funds started to change their risk asset allocation in some meaningful ways. For example, on SmartMoneyIQ Managers, we can see that Ivy Asset Strategy fund has reduced its risk asset allocation by more than 10%.  We encourage our readers to watch this page to get more informed information on how these smart allocation managers manage through this difficult situation. 

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