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.

Stock Musings

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:

Here is what we would like to respond: 

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: 


At the moment, based on various valuation metrics, S&P 500 is expected to deliver less than 2% annual return (for example, see Hussman’s July 7, 2014 – Quotes on a Screen and Blotches of Ink). Even though no one can predict a top, it is hard to believe that stocks will never correct back to a point lower than today’s level at some time in the future. 
We also encourage readers to read our previous newsletter May 12, 2014: How To Handle An Elevated Overvalued Market on a proper way to step into this kind of markets. 
  • 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.

The takeaway: 

  • 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. 

Market Overview

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. 

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