Re-balance Cycle Reminder

Based on our monthly re-balance calendar, the next re-balance time will be on MondayOctober 15, 2012. You can also find the re-balance calendar of 2012 on ‘Dashboard‘ page once you log in.

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 

We now have 10 year annualized returns on fund quote pages, portfolio pages and portfolio compare pages. Furthermore, we expect to release our new version of performance estimator with tax consideration on a portfolio page in this week. The feature has been requested by many users who would like to find out after tax returns for a portfolio. Please check on our web site late this week for this feature. 

8 Harmful Behaviors For Your Portfolios

Perhaps one of the most astounding open secrets in investment is that it is just so hard for investors (professional and amateur alike) to consistently follow a previously identified strategy or a plan, regardless of what the results are. Warren Buffett has long complained that people don’t follow value investing consistently. Value investing or other strategies aside, he was spot on this human behavior: 

I don’t know! It’s not about high IQ. It just seems not to resonate with some people and talking about it or showing them the performance/results won’t help. They just don’t feel good about it. I am also puzzled by why value investing hasn’t caught on. I mean, what other type of investing is there? You want something other than value? But the things is, people just don’t want to believe. They elect things that are emotionally satisfying.Even if you show them the results, they still don’t believe you. However, eventually proof comes through results.


The very core of this problem certainly comes with the inherent uncertainty in investing: regardless of what strategy you are using, it will have a period of time that it under performs. Such under performance will cause various doubts on the long term viability of the strategy. Many people would argue that if a strategy is performing as well as the now infamous ‘bogus’ one that Madoff showed to his investors: every month it rose steadily and there was no losing year, 10% per year, people would be satisfied and they will stick to that ‘strategy’ consistently. 

There are, of course, two problems with this Madoff’s ‘strategy’. First of all, there is no such a strategy in the world (too good to be true). Secondly, we would claim, even such a strategy exists, human would still suffer from the ‘greed’ and ‘fear’ factors that would drive them to deviate from a well planed route. 

Throughout this service, we have talked to hundreds of users who told us various stories or asked for us what to do. The following are the 8 harmful behaviors we often heard from our investors and, from ourselves. 

  1. I want to wait to get lower entry points to buy a fund. Now the market has shot up even more, what do I do? Share I still get in or risk on being under invested for a (maybe long) period of time?
  2. Similarly, I want to wait to get better (higher) price to sell a fund. But it keeps going down, what do I do? Shall I still sell or wait? 
  3. I will absolutely not sell my fund with a price lower than my purchase price. At least, I want to break even. 
  4. Similarly, since I miss the previous purchase instruction, I will not buy until the price comes down to the same or similar level. 
  5. The market is in bubble, I refuse to get in. I don’t think it will go any higher. Now the market has risen even much higher, what do I do?
  6. I don’t think the market will go much lower, at least it will rebound before it tanks again. 
  7. I want to catch up my previous missed opportunities and/or loss. Since the market is doing well, I’ll increase my risk tolerance for now and adjust that back down later. 
  8. My portfolio has gone down so much, I can’t afford to lose more. I should liquidate my risk assets. Paring down 

Certainly, a behavior can sometimes result in gains which investors deem to be due to the correct behavior. But unfortunately, the more serious question one should always ask is:

What happens if my behavior is wrong (or go against my thinking)? What should I do?

The answer is usually not pleasant and many people choose to ignore it. 

All of the above behaviors will cause your portfolio out of sync with the target allocations of the strategy you are following, being tactical or strategic. These can cause serious damages to your portfolios. 

For example, as recently as 8/6/2012, MyPlanIQ’s TAA had a re-balance instruction on buying U.S. equity (stocks) such as VTI for Six Core Asset ETFs Tactical Asset Allocation Moderate.  S&P 500 (^GSPC) was at 1394.23 and it had a one day 25 point big jump on 8/3/2012. It further rose on Friday, 8/4/2012 and then some on Monday 8/6/2012. 

The problem is that S&P 500 had not fallen down back to 1394.23 since 8/6/2012. So for the investor who didn’t follow through, what can she/he do right now?

We by no means intend to prove that the purchase of US equity on 8/6/2012 is a ‘correct’ trade. It is just a simple analysis that shows how second guessing a strategy can create an out of sync portfolio. 

You can find many many more examples by looking at the historical holdings and transactions of a model portfolio. For example, you can look at the transactions in 2008 to find out again that it does not pay to deviate from a previously selected strategy.

For your convenience, the following shows the historical transactions and holdings on a portfolio page Six Core Asset ETFs Tactical Asset Allocation Moderate. Many users have told us that this is one of the most useful features for them to learn and understand asset allocations: 

The takeaway here is that, as what Warren Buffett and many other great investors personally have experienced, your biggest investing edge is your consistent behavior. Read our previous article 

Consistency: Your Biggest Investing Edge

Market Overview

Bernanke’s QE3 and infinity is probably the last ammunition the Fed can use to inflate risk assets and hopefully stimulate economy. As the Chairman’s wish, global risk assets all rose dramatically last week. From the major asset class trend ranking table on 360° Market Overview, all risk assets including Gold (GLD) and emerging market stocks (VWO) rose above the total bond index (BND). Among risk assets, international equity (EFA) and emerging market stocks (VWO) rose most. 

However, we remain deeply skeptical on this rally. 

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. 

Portfolio Review

We compare the performance of several strategic asset allocation portfolios for brokerage specific mutual fund plans: 

Portfolio Performance Comparison (as of 9/17/2012)

Portfolio/Fund Name 1 Week
1Yr AR 1Yr Sharpe 3Yr AR 3Yr Sharpe 5Yr AR 5Yr Sharpe 10Yr AR 10Yr Sharpe
Schwab OneSource Select List Funds Strategic Asset Allocation Moderate 1.1% 10.0% 8.2% 116.7% 9.4% 118.4% 4.6% 41.7% 8.3% 82.4%
TD Ameritrade Premier List No Transaction Fee Mutual Fund Plan Strategic Asset Allocation Moderate 1.2% 8.8% 8.1% 121.1% 7.4% 103.0% 2.7% 24.8% 7.7% 75.1%
Schwab Income Mutual Fund Select List Strategic Asset Allocation Moderate 1.3% 10.1% 10.2% 130.3% 9.3% 100.5% 3.8% 28.7% 7.0% 59.1%
Etrade All Star Funds Strategic Asset Allocation Moderate 1.1% 9.8% 9.0% 111.5% 7.5% 83.9% 3.2% 23.1% 9.2% 75.5%
Fidelity Extended Fund Picks Strategic Asset Allocation Moderate 1.2% 7.1% 5.6% 91.3% 8.9% 134.5% 3.4% 31.8% 7.9% 80.9%

*: NOT annualized

**YTD: Year to Date

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