Re-balance Cycle Reminder All MyPlanIQ’s newsletters are archived here.

For regular SAA and TAA portfolios, the next re-balance will be on Monday, July 22, 2013. You can also find the re-balance calendar for 2013 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.

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

New Feature

We are pleased to announce that we have a new page Fixed Income Bond Fund Portfolios that features 5 major bond fund portfolios. All of the bond fund portfolios were discussed in our previous newsletters: 

They are fully customized to major brokerages such as Fidelity, Schwab and TDAmeritrade. Consistent with our previous messages, we believe it is even more critical for us to provide these types of portfolios for conservative and income investors who are now facing a much hostile investing environment in the current extremely low rate environment. 
Again, this page can be found by clicking on ‘What We Do -> ETF, Mutual Fund Portfolios-> Fixed Income Bond Fund Portfolios (on the right panel)’.  In the coming weeks, we will re-organize and consolidate our portfolios to make them easier to look up and simpler to use and compare. Watch our website!

How Bear Markets Affect Your Retirement Income And Spending

How much can you spend during retirement is always an important topic for many retirees or people who are close to retirement. A rule of thumb is that one can withdraw safely 4% of your investments annually for a moderate or conservative portfolio to last for about 30 years. Many other safe withdrawal methods have been proposed and/or used by retirees. MyPlanIQ has an extensive collection of various withdrawal strategies and they can be tested, coupled with a portfolio for withdrawal and deposit to account for a portfolio’s cash flow.

For example, the strategy Floor and Ceiling Retirement Strategy with 4 Percent Fixed Percentage is one of variable withdrawal strategies in order to maximize withdrawals while at the same time incorporating some provision to reduce withdrawals.

The withdrawal amount is calculated as a percentage of the portfolio total value. The withdrawal amount is allowed to rise or fall with the performance of the portfolio. However, the withdrawal will neither fall below a floor nor rise above a ceiling.

As an example, the initial floor can be set at 3.6% and rise with inflation. And the initial ceiling can be set at 5% and rise with inflation. The withdrawal amount can be set initially at a fixed percentage like 4%. On a $1,000,000 portfolio, the withdrawal will not fall below an inflation-adjusted amount of $36,000. Nor will the withdrawal rise above an inflation-adjusted amount of $50,000.

However, another critical factor that is often ignored is the timing to retire. In light of 2000-2002 technology induced bear market, there were several published studies that showed the time to retire can have serious impact on the success of retirement income and spending.  Among them, T. Rowe Price’s Strategies for Coping After Retiring Into a Bear Market, published in April 2008, right before the financial crisis of 2008-2009 found the following: 

  • The assumption is that a portfolio that began on 1/1/2000 and lasted till 1/1/2008 had 55% equities/45% bonds allocation (equities are represented by S&P 500 and bonds are represented by total bond index). The annual withdrawal rate was 4%. 
  • At the beginning, based on the Monte Carlo simulation of 10,000 scenarios, it was predicted the investor had 89% success rate for the money to last for 30 years. 
  • The subsequent bear market caused serious damage to the portfolio: 

    At the bottom of this three-year bear market in 2002, the retiree’s portfolio had declined 15.3% due to investment performance, and the original $500,000 balance (after that decline and three years of withdrawals) stood at about $374,000. At this point, the analysis shows that the chances of continuing the original withdrawal strategy throughout the remaining 27 years in retirement without running out of money had declined from 89% to only 57%.

  • The report continued to explore various ways to savage the portfolio. That includes cutting 25% spending right away at the bottom of the beat market on September 30, 2002 and another method that sells all of stocks at the bottom of the bear market. It then went on to study what would happen by 1/31/2008. It concluded that the best option is to adopt the 25% spending cut till 1/31/2008 and then raise the spending back to 4% afterwards. 

One of the drawbacks in the study is that it conveniently assumes that the sell at the bottom of the bear market method never got into stock market again, let alone it assumes that it sells right at the bottom of the bear market. This example (and the report) has been used to advocate buy and hold strategic asset allocation strategy. As much as we are a believer in strategic buy and hold strategy for its important role in investments, we think the example itself is not a good argument against a sound and systematic tactical approach. 

Nevertheless, the report does provide valuable insights into the seriousness of the timing impact on retirement income and spending success. What it depicted is that a retiree or a person who is close to retirement should be extremely conscious about the risk of his/her retirement portfolios, especially when markets are approaching to the start of a bear market. Notice this is applicable to in retirement as much as to retirement, think about the T. Rowe Price’s portfolio example that just ended right before 2008’s debacle! Even for the hypothetical retiree who had fully recovered back from the 2000-2002 bear market, he was about to get hit again by the upcoming Lehman event and 2008-2009 big drawdown. 

In the following, we show simulation results on using the 4% floor and ceiling withdrawal strategy on various portfolios. 

In this study, we applied the floor and ceiling withdrawal strategy to the following portfolios/funds

Portfolio Performance Comparison (as of 7/8/2013)

Ticker/Portfolio Name Current Value Last Withdraw Total Spent 1Yr IRR 3Yr IRR 5Yr IRR 10Yr IRR
P Floor and Ceiling 4 Percent On VBINX Moderate Portfolio $1,052,010
6.9% 10.1% 5.5% 6.1%
P Floor and Ceiling 4 Percent On Six Core Asset SAA Optimal Moderate Portfolio $1,325,790  $55,433 $583,868 2.3% 6.8% 3.8% 7.9%
P Floor and Ceiling 4 Percent On Vanguard 500 Equity VFINX $706,020  $52,307 $539,695 13.2% 14.5% 4.3% 6.0%
P Floor and Ceiling 4 Percent On Six Core Asset TAA Moderate Portfolio $2,210,000  $72,649 $716,827 1.7% 5.4% 5.5% 11.4%
P Floor and Ceiling 4 Percent On Six Core Asset SAA Equal Weight Moderate Portfolio $1,454,000  $61,479 $634,433 -0.0% 5.9% 1.8% 8.3%



  1. IRR means Internal Rate of Return (see Internal rate of return – Wikipedia definition). It accounts for the cash withdraw at the end of every year to measure the portfolio compound returns. 
  2. All portfolios started on 1/3/2001 with $1,000,000 initial investments. 
  3. No tax impact is included. Tax should be paid out of the withdrawal amount. 
  4. We use Six Core Asset Index Funds instead of the ETF plan so that we can get more accurate data as some of ETFs didn’t exist in early 2000’s. 
  5. Total Spent: the last withdrawal is on 12/31/2012 and it represents the accumulated withdrawal amount. 
  6. Last Withdrawal: on 12/31/2012
The following shows how these portfolios are compared since their inception on 1/3/2001:
From the above, one can see
  1. The TAA moderate generated most income $716K while the full equity VFINX portfolio had the least income $539K. 
  2. The TAA is very well positioned to the future retirement spending: it now has accumulated over $2 million while allowing spending of $72K a year. 
  3. The full equity portfolio VFINX is at the worst danger of losing its money rapidly: it has only $706K left. The retiree has to cut spending dramatically (a 30% reduction or if consider inflation, 40-50% reduction compared with that in 2000), as suggested in the T. Rowe Price study. That would mean annual spending $24K about 1/3 of TAA’s current $72K. Or translated in other words: the full equity retiree has to resort to 1/3 of spending compared with the TAA retiree.  This is also evident in the current value comparison: it is about 1/3 of the TAA. 
  4. Notice even the stock market has recovered and VFINX achieved a very respectable 7.1% annualized return (vs. VBINX’s 6.8%) in the last 10 years, the equity VFINX retiree is much poorer than the balanced retiree (VBINX): in fact, 30% poorer ($702K vs. $1.05Million)!  This is a very important factor in retirement investing: even though 100% stock portfolio might show overall better performance than a balanced approach, it can end up much worse in terms of retirement spending and future retirement success. This is due to the spending in the serious down years of stock market that aggravated the already severely damaged portfolio. Again, drawdown and volatility matter, unlike many ‘experts’ would have told you! 


We can draw two important conclusions from the above study: 

  • When to retire is extremely critical for the portfolio’s lasting value.
  • It is even more important for strategic portfolios that can have big drawdown. In fact, one should not blindly follow the compound return in this case: a volatile portfolio, coupled with withdrawal needs, can be very prone to bear market damage. It is not just the compound return that matters, it is also the risk of the portfolio that matters. 

What To Do

The above study again reminds investors how dangerous a bear market can have on your retirement investments. At the moment, with markets at persistent high valuation and many uncertainties remain or emerge, we strongly suggest:
  1. Trim down your risk tolerance to acceptable level. This is especially important for retirement portfolios. 
  2. On the other hand, with whatever strategies you use, prepare to adhere to it, riding it out. For Tactical Asset Allocation (TAA), that would mean to prepare for loss from current level (a TAA can not avoid loss, in fact, it is the loss that will enable TAA to reduce stock exposure) and also prepare for a long term engagement: the T. Rowe Price study discussed above shows that if you sell stocks when they go down but do not fully engage back when they rise, it will be detrimental to your retirement portfolio. For Strategic Asset Allocation (SAA), it would mean you need to understand fully that this portion of money will not be used for a long time (minimum 5 years, preferably 10 years) while you are comfortable with withdrawing from other sources with tapping into this long term portfolio. 

Portfolio Review

The follow shows the performance of some 401k portfolios:

Portfolio Performance Comparison

Ticker/Portfolio Name 1 Week
1Yr AR 1Yr Sharpe 3Yr AR 3Yr Sharpe 5Yr AR 5Yr Sharpe 10Yr AR 10Yr Sharpe
CHEVRON EMPLOYEE SAVINGS INVESTMENT PLAN Strategic Asset Allocation – Equal Weight Moderate 0.5% 4.4% 9.3% 1.49 9.0% 0.96 5.7% 0.43 6.9% 0.56
CHEVRON EMPLOYEE SAVINGS INVESTMENT PLAN Tactical Asset Allocation Moderate 0.7% 5.5% 8.5% 1.34 8.3% 1.2 8.3% 1.08 8.7% 1
CONOCOPHILLIPS SAVINGS PLAN Strategic Asset Allocation – Equal Weight Moderate 0.4% 1.7% 7.1% 1.14 8.9% 1.07 5.5% 0.49 6.9% 0.64
CONOCOPHILLIPS SAVINGS PLAN Tactical Asset Allocation Moderate 0.5% 3.0% 6.1% 1 9.3% 1.18 7.4% 0.85 7.8% 0.82
Ford Motor 401K Strategic Asset Allocation – Equal Weight Moderate 0.3% 2.2% 8.1% 1.15 10.0% 1.1 6.2% 0.45 7.9% 0.63
Ford Motor 401K Tactical Asset Allocation Moderate 1.2% 3.0% 8.0% 1.11 6.5% 0.75 6.7% 0.73 9.5% 0.99
General Electric 401K Strategic Asset Allocation – Equal Weight Moderate 0.8% 5.7% 11.8% 1.76 10.4% 1.07 4.8% 0.36 6.1% 0.48
General Electric 401K Tactical Asset Allocation Moderate 1.2% 6.5% 10.1% 1.56 8.6% 1.31 6.9% 0.97 8.0% 0.96
Hewlett Packard 401K Strategic Asset Allocation – Equal Weight Moderate 0.2% 1.6% 8.0% 1.3 9.9% 1.13 5.7% 0.39 9.2% 0.72
Hewlett Packard 401K Tactical Asset Allocation Moderate 0.2% 0.8% 5.3% 1.01 10.9% 1.43 11.1% 1.26 12.4% 1.33
The Bank of America 401(k) Plan Strategic Asset Allocation – Equal Weight Moderate 0.8% 4.7% 7.2% 1.24 10.5% 1.17 7.0% 0.46 7.4% 0.53
The Bank of America 401(k) Plan Tactical Asset Allocation Moderate 1.0% 4.0% 6.0% 1 10.4% 1.17 12.2% 1.23 11.1% 1.13
Wal-Mart Profit Sharing and 401(k) Plan Strategic Asset Allocation – Equal Weight Moderate 0.4% 2.5% 7.9% 1.35 9.8% 1.22 6.7% 0.63 8.2% 0.83
Wal-Mart Profit Sharing and 401(k) Plan Tactical Asset Allocation Moderate 0.8% 4.8% 9.3% 1.71 9.4% 1.42 8.6% 1.17 9.8% 1.15

*: NOT annualized

**YTD: Year to Date

Overall, 401k portfolios, which are mostly using mutual funds, have been doing better than our ETF portfolios so far. Our guess is that in current market environment, mutual funds have been better for portfolio re-balance, especially considering the slippage paid by ETF portfolios (which in MyPlanIQ’s portfolios, are counted using ETFs’ opening prices). 

Market Overview

Even though our standard trend scores shown on 360° Market Overview or Asset Trends & Correlations show US stocks, international stocks and REITs are better than cash, our internal shorter term trend scores show that, other than US stocks, everything else is in downtrend to various extent. We are not optimistic at all in current situation and call for maximum caution. 

Please refer to  360° Market Overview or Asset Trends & Correlations for various asset class trend rankings. At current level, Treasury bonds are in a better valuation. 

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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