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, August 11, 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.
As stocks are now at all time high territory persistently, we are seeing investors are becoming more and more attracted to stock markets. Along with this trend, we have observed some ‘irrational’ behaviors or arguments. Here are some examples:
- You are missing a gigantic fortune in the stock market. BusinessInsider.com has this article How Millennials Missed Out On A Gigantic Fortune In The Stock Market, for example. All of this type of articles will make people truly regret about their investments. Some of them might hold out because of fear, some of them have never thought about investing in stocks. All of sudden, you have this urge to invest and go all in to stocks so that you won’t miss out a big fortune.
- Some users told us that they aren’t sure what values our service brings to them anymore: for them, a strategic portfolio like Six Core Asset ETFs Strategic Asset Allocation – Optimal Moderate does not even out perform a simple balance fund such as VBINX (Vanguard Balance (60% stocks/40% bonds), let alone investing in a single S&P 500 index fund such as VFINX (Vanguard (S&P 500) Index)!
- Some users who are more advanced are also puzzled. They begin to question the need of Tactical Asset Allocation strategy: the strategy has been busy monthly for the past 5 years but portfolios like Six Core Asset ETFs Tactical Asset Allocation Moderate has lagged behind the simple balanced fund VBINX (Vanguard Balance (60% stocks/40% bonds). It is really “much ado about nothing“!
Here is what we would like to respond:
- Missing out a gigantic fortune! Well, it turns out that if you have held out merely because of fear of stock markets, this article does have its valid point: investing in stocks for a long period of time is always rewarding as long as you are clear about what the ‘long period of time’ means. See, for example,
However, if you are only reading articles or claims like this at this moment when the stock markets are highly overvalued, chances are that your long term period will need to be extended by another 5 or even 10 years, if you decide to get into the markets only right now. For example, for people who invested in S&P 500 in August 2000, for almost 14 years up to today on 7/28/2014, their annualized return is just about 3.8%! If an investor invested in S&P 500 in October 2007, the annualized return would be 5.7%, for almost 7 years. These two periods happen to the two peaks of S&P 500:
- Regarding whether there is a need to use a diversified portfolio instead of just investing in US stocks and bonds, let’s look at the following chart:
It is clear that in all other periods, VBINX had under performed the portfolio until July 2013!
- Regarding “much ado about nothing” on our tactical portfolios, we believe that anyone who would like to use tactical should recognize that the out performance and risk reduction a tactical portfolio delivers (see the following chart) come with a price: more frequent (we estimate on average, one needs to perform 4 to 5 times rebalances a year, even for a tactical portfolio with monthly rebalance schedule). We suggest our previous newsletter July 22, 2013: Tactical Asset Allocation: The Good, The Bad And The Ugly.
- Do your home work, preferably as early as possible. Isn’t that what we keep telling our kids?! You won’t rather be a reader who has properly setup her/his portfolios and just enjoys the show instead of being lured or pushed at this very moment (which we view as more dangerous than ever to invest, contrary to many euphoric views).
- Ignore the noises. Learn and find out more using data objectively instead.
All good times will end eventually. At the moment, stocks and bonds are enjoying their record breaking feats. For us, the best way is to stay on the course we have selected. That means diversification, regular rebalance and respond to markets accordingly instead of second guessing them. We are encouraged by the recent strength of emerging market stocks. However, we are concerned about the recent weakness (or divergence) of high yield (or junk) bonds. Such a divergence can not go on for a long time and will be resolved one way or the other.
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.
- July 21, 2014: Permanent Portfolios & Four Pillar Foundation Based Framework
- July 14, 2014: Composite Portfolios Review
- July 7, 2014: Portfolio Behavior During Market Corrections
- June 30, 2014: Half Year Brokerage ETF and Mutual Fund Portfolios Review
- June 23, 2014: Newsletter Collection Update
- June 16, 2014: There Are Always Lottery Winners
- June 9, 2014: The Arithmetic of Investment Mistakes
- June 2, 2014: Tips On Portfolio Rebalance
- May 26, 2014: In Praise Of Low Cost Core Asset Class Based Portfolios
- May 19, 2014: Consistency, The Most Important Edge In Investing: Strategic Case
- May 12, 2014: How To Handle An Elevated Overvalued Market
- May 5, 2014: Asset Allocation Funds Review
- April 28, 2014: Now The Economy Backs To The ‘Old Normal’, Should Our Investments Too?
- April 21, 2014: Total Return Bond Investing In The Current Market Environment
How can we improve this newsletter? Please take our survey
–Thanks to those who have already contributed — we appreciate it.