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, January 13, 2014. 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.

Website Update

We have released our first batch of the updated website. The new web pages are designed to help users to easily to navigate through various contents and features. The following are some of major changes/additions: 

  • Home page: it now categorizes our offerings into brokerage investors, (401k) retirement plan investors, advanced investors and hands-off investors. We encourage users to browse these new set of pages. We of course will appreciate any feedback. 
  • Favorite or Watch List: as part of the ongoing efforts to make our dashboard more user friendly, we have made the feature of ‘Favorite’ more usable: now if you are interested in monitoring a portfolio, you can click on the star next to a portfolio or a plan title. You can then see how these portfolios have performed and compared as follows: 
  • Plan and portfolio update: As part of the ongoing efforts to update the plans and portfolios we support, we now replace Vanguard ETFs with a new plan called Vanguard Liquid ETFs that consists of a subset of selected Vanguard ETFs. We believe that instead of just feeding all of the existing Vanguard ETFs to our algorithms,  it is better to only use a selected subset of ETFs. Similarly, we have replaced Vanguard All Index Funds Investor Class (a mutual fund based plan) with Vanguard Select Mutual Funds. We will detail the rationale and the change in the following. We have also updated the list of the ETFs in the popular Retirement Income ETFs plan. 

In the coming weeks, we will continue to release more changes. Please let us know what you think so that we can better service you. 

Vanguard Liquid ETFs Plan

We are a fan of Vanguard ETFs: they are mostly the least expensive (lowest expense ratios) in the markets. On the other hand, most of Vanguard ETFs are better implemented, benefiting from Vanguard’s long running expertise in providing index mutual funds. However, some of Vanguard ETFs are still thinly traded. Some of them are redundant. We thus decided to replace the existing ETF plan Vanguard ETFs with a new plan called Vanguard Liquid ETFs. Here are the detailed rationale behind the change: 

  • We eliminated any  ETF whose daily average trading volume is less than 100k. Several users have pointed out this problem that made rebalance sometimes hard. 
  • Each of the three major asset classes Emerging market stocks, Developed foreign stocks and REITs is represented by only one ETF VWO, VEA and VNQ respectively in new plan Vanguard Liquid ETFs. These three ETFs are the best of class. 
  • In the US stocks asset class, among the 9 stock styles (i.e large, mid cap or small cap in combination with blend, growth and value), only mid cap growth ETF (VOT) is eliminated due to its low volume. Furthermore, we include the two highly regarded Vanguard dividend ETFs (VIG and VYM). 
  • In the fixed income, in addition to Vanguard Total Bond Market ETF (BND), we also include Vanguard Short Term Inflation Protected Securities Index ETF (VTIP), as well as the well known Vanguard corporate short and intermediate bond ETFs. 

Here are the comparison for these two plans:

Portfolio Performance Comparison (as of 12/23/2013)

Ticker/Portfolio Name YTD
1Yr AR 3Yr AR 5Yr AR 5Yr Sharpe 10Yr AR 10Yr Sharpe
Vanguard ETFs Tactical Asset Allocation Moderate 9.3% 9.7% 9.3% 5.6% 0.47 8.9% 0.66
Vanguard Liquid ETFs Tactical Asset Allocation Moderate 9.8% 10.5% 9.1% 11.4% 1.05 10.3% 0.86
Vanguard ETFs Strategic Asset Allocation – Equal Weight Moderate 6.0% 6.8% 5.6% 10.4% 0.7 6.8% 0.4
Vanguard Liquid ETFs Strategic Asset Allocation – Equal Weight Moderate 6.0% 6.8% 5.6% 11.9% 0.8 6.9% 0.39
Vanguard ETFs Strategic Asset Allocation – Optimal Moderate 9.4% 10.2% 6.9% 12.6% 0.93 7.1% 0.44
Vanguard Liquid ETFs Strategic Asset Allocation – Optimal Moderate 8.7% 9.1% 6.7% 12.3% 0.87 5.9% 0.34

**YTD: Year to Date

The new tactical portfolio outperformed the old one while in the optimal SAA case, the old one betters the new one. However, we believe it is worth to switch to the new plan as the old one might use some of very illiquid ETFs. We will continue to monitor these ETFs and update the list accordingly as time goes. **YTD: Year to Date

Vanguard Select Mutual Funds

Even though we initially constructed the existing plan Vanguard All Index Funds Investor Class three years ago, we didn’t promote this plan as at the time, Vanguard had too many redemption (minimum holding period) requirements. Vanguard removed the minimum holding period requirements for all but a few funds last year. We believe for a user who has an account in Vanguard, using its mutual funds could be a viable and excellent choice to construct a good portfolio. On the other hand, we are also aware the fact that it is not always the case to have more funds in a plan as too many funds might actually confuse our algorithm. 

We thus construct Vanguard Select Mutual Funds that consists of all of Vanguard Select Funds Investor Class. These funds are suggested by Vanguard. However, the important REIT asset class is not covered  in the list and we thus add Vanguard REIT Index Inv (VGSIX) fund. These funds are all in investor class. Investors who are qualified should invest in lower cost Admiral class shares instead.  They have 1 month minimum holding period requirement for all of the funds. 

The following lists the 17 funds in the plan: 

Total Available Funds: 17
Asset Class Ticker Description Rating
REAL ESTATE VGSIX Vanguard REIT Index Inv    
Emerging Market      
DIVERSIFIED EMERGING MKTS VEIEX Vanguard Emerging Mkts Stock Idx   
Foreign Large Value VTRIX Vanguard International Value Inv    
Foreign Large Growth VWIGX Vanguard International Growth Inv    
Foreign Large Blend VGTSX Vanguard Total Intl Stock Index Inv  
LARGE BLEND VFINX Vanguard 500 Index Investor     
LARGE BLEND VTSMX Vanguard Total Stock Mkt Idx Inv     
SMALL BLEND NAESX Vanguard Small Cap Index Inv     
MID-CAP BLEND VIMSX Vanguard Mid Cap Index Inv    
LARGE VALUE VWNFX Vanguard Windsor II Investor    
Small Growth VEXPX Vanguard Explorer Inv   
LARGE GROWTH VMRGX Vanguard Morgan Growth Inv   
Short-Term Bond VFSTX Vanguard Short-Term Investment-Grade Inv    
Intermediate-Term Bond VFICX Vanguard Interm-Term Invmt-Grade Inv   
Intermediate-Term Bond VBMFX Vanguard Total Bond Market Index Inv  
WORLD BOND VTIBX Vanguard Total Intl Bd Idx Investor  
Inflation-Protected Bond VTIPX Vanguard Shrt-Term Infl-Prot Sec Idx Inv

We note that in this list, Vanguard’s dividend funds are missing. It is also noticeable that Vangaurd didn’t select its famed Inflation Protected fund (TIPs) VIPSX in the list. On the other hand, in the international stock asset, both growth and value styles are covered. 

Here is the comparison among these portfolios: 

Portfolio Performance Comparison (as of 12/23/2013)

Ticker/Portfolio Name YTD
1Yr AR 3Yr AR 5Yr AR 5Yr Sharpe 10Yr AR 10Yr Sharpe
Vanguard Select Mutual Funds Tactical Asset Allocation Moderate 11.0% 12.1% 9.0% 12.4% 1.34 11.7% 1.14
Vanguard All Index Funds Investor Class Tactical Asset Allocation Moderate 6.3% 7.1% 4.6% 9.3% 0.9 10.3% 0.92
Vanguard Select Mutual Funds Strategic Asset Allocation – Equal Weight Moderate 6.1% 6.6% 5.3% 12.6% 0.89 7.8% 0.48
Vanguard All Index Funds Investor Class Strategic Asset Allocation – Equal Weight Moderate 5.5% 5.8% 4.0% 10.2% 0.84 6.8% 0.48
Vanguard Select Mutual Funds Strategic Asset Allocation – Optimal Moderate 8.4% 8.8% 6.2% 12.4% 0.93 7.5% 0.49
Vanguard All Index Funds Investor Class Strategic Asset Allocation – Optimal Moderate 6.1% 6.4% 5.4% 11.4% 0.87 7.3% 0.49

**YTD: Year to Date

See more detailed comparison >>

Unlike the ETF based plans, in this case, all of the select mutual fund based portfolios are better than the all index fund based portfolios. 

Both of the new plans are now featured on Vanguard Brokerage Investors page. These two plans can be used for other brokerage accounts too, as long as you are fine with the specific requirements the brokerage has. 

Retirement Income ETFs Update

We also updated Retirement Income ETFs plan. The main purpose for doing so is to

  • Remove any ETF that has low trading volume (< 500k daily average volume)
  • Remove redundant ETFs
  • Add new ETFs

More detailed change:

  • Remove global real estate, international and emerging mkt bonds. They are still low volume and too volatile to handle (in the case of emerging market bonds). 
  • Remove low volume TIPS funds which we really like to have them there. We will include them back when they garner more volumes. 
  • Add European stock index VGK to international stocks. VGK has 3.15% annual yield and 2.7 million average trading volume. 
  • Add two defensive sectors:  consumer staples XLP and utilies XLU to US stocks side. We have to let go FVD which we consider a good fund due to its low volume. Instead, we add DIA and USMV (both have 2.2% annual yield). 
  • In fixed income, we add SJNK (short term high yield) and bank loan (BKLN), both can be useful in the coming rising rate environment. 

The new plan has better performance for its portfolios if back tested throughout the years. We believe this is a solid investable plan for reasonable size accounts. 

Earl Adamy put quite some efforts to help in this plan. We appreciate his help. 

Market Overview

As we entered the final days of 2013, markets have been in a euphoric mood, especially in the US stocks, international developed market stocks. Other than this, there hasn’t been much to brag about. 

For more detailed asset trend scores, please refer to  360° Market Overview

We would like to remind our readers that markets are more precarious now than other times in the last 5 years. It is a good time and imperative to adjust to a risk level you are comfortable with right now.  However, recognizing our deficiency to predict the markets, we will stay on 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. 

Best Holiday Wishes!

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