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, October 20, 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.

Equity and Total Return Bond Fund Composite Portfolios

We believe that for a taxable brokerage account, the ‘best’ portfolio would be a composite portfolio that consists of two portfolios: one is a pure equity (risk profile 0) portfolio and the other one is a fixed income portfolio that is based on total return bond fund rotation (Fixed Income Bond Fund Portfolios): 

In this newsletter, we want to discuss this approach in some more details. First, let’s review how these portfolios have performed: 

Total Return Bond Fund Portfolios

Ticker/Portfolio Name YTD
1Yr AR 3Yr AR 5Yr AR 10Yr AR
Schwab Total Return Bond 5.9% 9.7% 6.0% 7.6% 7.5%
Fidelity Total Return Bond 5.0% 5.0% 5.6% 7.2% 6.7%
TDAmeritrade Total Return Bond 5.9% 8.4% 7.7% 7.4% 7.2%
FolioInvesting Total Return Bond 5.9% 9.7% 6.0% 7.6% 7.5%
Etrade Total Return Bond 5.9% 9.7% 6.0% 7.5% 7.6%
PTTRX (PIMCO Total Return Instl) 3.0% 5.1% 3.9% 5.2% 6.0%
VBMFX (Vanguard Total Bond Market Index Inv) 3.3% 4.7% 2.0% 3.9% 4.5%

**YTD: Year to Date (as of 9/15/2014)

See more detailed year by year comparison >>

These portfolios continued to out perform, compared with total bond market index fund and other excellent bond funds such as PIMCO total return bond fund. 

 100% Equity (Most Aggressive) Portfolios

We mentioned the following tactical portfolios in the previous newsletters. However, we also add a strategic optimal most aggressive portfolio in the following table: 

Portfolio Performance Comparison (as of 9/15/2014):

Ticker/Portfolio Name YTD
1Yr AR 3Yr AR 5Yr AR 10Yr AR 10Yr Sharpe
Six Core Asset ETFs Tactical Asset Allocation Most Aggressive 4.9% 14.2% 10.4% 10.5% 14.7% 0.8
MyPlanIQ Diversified Core Allocation ETF Plan Tactical Asset Allocation Most Aggressive 4.6% 13.8% 10.8% 12.0% 15.6% 0.9
Retirement Income ETFs Tactical Asset Allocation Most Aggressive 3.4% 12.1% 9.0% 9.9% 14.1% 0.79
Six Core Asset ETFs Strategic Asset Allocation – Optimal Most Aggressive 6.3% 12.7% 13.4% 11.6% 6.6% 0.25
SPY (SPDR S&P 500) 8.8% 20.2% 22.0% 16.0% 8.0% 0.34
EFA (iShares MSCI EAFE Index) 0.8% 9.1% 14.5% 7.1% 6.2% 0.21
EEM (iShares MSCI Emerging Markets Index) 5.6% 8.9% 5.1% 4.8% 10.4% 0.28

See detailed year by year comparison >>

We caution that as many Vanguard ETFs and the commodity ETF in Six Core Asset ETFs have shorter history, the 10 year performance of Six Core Asset ETFs Strategic Asset Allocation – Optimal Most Aggressive is not very meaningful (in fact, it under estimates the 10 year performance), we should use the 5 year performance instead. Interested readers can compare this portfolio with Six Core Asset ETFs Most Popular Strategic Asset Allocation – Optimal Most Aggressive where most ETFs have longer history instead. 

In general, these portfolios are somewhat in the middle among the best performing assets in US equities, international equities and emerging market equities. 

Most Aggressive Equity Portfolio + Total Return Bond Fund Portfolio

 Portfolio Performance Comparison (as of 9/15/2014):

Ticker/Portfolio Name YTD
1Yr AR 3Yr AR 5Yr AR 10Yr AR 10Yr Sharpe
60 Percent MyPlanIQ Diversified Core 40 Percent Schwab Total Bonds 5.1% 12.3% 9.0% 10.3% 12.4% 1.11
MyPlanIQ Diversified Core Allocation ETF Plan Tactical Asset Allocation Moderate 3.1% 8.6% 7.4% 8.7% 10.5% 0.94
60 Percent Six Core Asset SAA 40 Percent Schwab Total Bonds 6.1% 11.6% 10.4% 10.1% 7.3% 0.5
Six Core Asset ETFs Strategic Asset Allocation – Optimal Moderate 4.9% 8.8% 8.3% 8.2% 6.4% 0.41
VBINX (Vanguard Balanced Index Inv) 6.4% 13.4% 13.8% 11.5% 7.3% 0.52

See detailed comparison >>

Not only the composite TAA (Tactical Asset Allocation) portfolio has out performed its pure TAA counterpart, same happened to the SAA portfolios. The out performance is mainly attributed to the outstanding performance of the total return bond fund portfolio. 

The ‘Best’ Way To Use MyPlanIQ’s Portfolios

We have received many requests from users on how to use the total return bond fund portfolios. We summarize the following rules: 

  • For a brokerage based pure (100%) fixed income or bond portfolio, use Total Return Bond Fund Portfolios. These portfolios by far are the best fixed income portfolios, even compared with some of the best total return bond funds. 
  • If you have tax deferred accounts (such as 401k or IRA accounts) and your overall investments include some equities (i.e. your risk profile is not 100, or not 100% in fixed income), in general, you should do the following
    • If you plan to use Strategic Asset Allocation (SAA) in your equity part, implement the equity part as much as possible in taxable accounts (this assumes that you are using index funds and use major asset classes such as Six Core Asset ETFs, otherwise, you should treat the SAA equity portfolio(s) as TAA portfolios. 
    • If you plan to use Tactical Asset Allocation (TAA) equity portfolios, implement them in tax deferred accounts. The intuition behind this is that since equity part will appreciate more than the fixed income part, it is more tax efficient to put this to tax deferred accounts to avoid paying annual tax (while paying taxes for your fixed income part annually). You then should try to implement the fixed income part in your brokerage accounts, which allows you to utilize our  Total Return Bond Fund Portfolios that are customized for each brokerage. 

Simply put, one should utilize as much as possible to implement his/her fixed income part using total return bond fund portfolios instead of using the inherent TAA or SAA portfolios with both equity and fixed income mixed up. The total return bond fund rotation has a more consistent and steady out performance record than the equity parts, let alone the tax savings one can achieve by putting the equity part into tax deferred accounts. 

We will have a more detailed analysis on total return bond fund portfolios in future newsletters. 

Portfolio Review

We mentioned My Alternative Hedge Fund in the newsletter December 2, 2013: Versatile Multiple Portfolio Construction. The portfolio consists of a TAA portfolio, a total return bond fund portfolio, a traditional balance fund, a traditional conservative allocation fund, a permanent portfolio and a risk parity portfolio. As the current bull market has been long in the tooth, we have a sense that such portfolios are going to become more important in the coming period of a rising rate environment with uneven economic developments and many geopolitical unstable events. 

The following shows how this portfolio and these other funds have performed: 

Portfolio Performance Comparison (as of 9/15/2014): 

Ticker/Portfolio Name YTD
1Yr AR 3Yr AR 5Yr AR 5Yr Sharpe 10Yr AR
My Alternative Hedge Fund 5.1% 11.3% 8.8% 10.2% 1.16  
PRWCX (T. Rowe Price Capital Appreciation) 7.8% 14.7% 17.9% 13.5% 1.31 9.1%
BERIX (Berwyn Income) 3.9% 8.7% 10.3% 9.0% 1.73 7.7%
PRPFX (Permanent Portfolio) 2.3% 3.7% 1.1% 6.4% 0.68 7.8%
ABRRX (Invesco Balanced-Risk Allc R) 4.4% 6.0% 5.5% 8.5% 1.24  

See detailed year by year comparison >>

Market Overview

Stocks finally came down a bit. Both REITs and emerging market stocks lost significantly in last one week. Even though S&P 500 index has been strong so far, looking closely, one can see some quite divergence: 

Index ETFs 1 Week
1Yr AR
SPY (SPDR S&P 500) -1.0% 8.8% 20.2%
DIA (SPDR Dow Jones Industrial Average) -0.8% 4.1% 13.4%
IWM (iShares Russell 2000 Index) -0.9% 0.7% 12.1%
EEM (iShares MSCI Emerging Markets Index) -4.5% 5.6% 8.9%
EFA (iShares MSCI EAFE Index) -0.6% 0.6% 8.3%
IYR (iShares Dow Jones US Real Estate) -5.0% 14.7% 15.0%
QQQ (PowerShares QQQ) -0.4% 14.1% 29.1%

Furthermore,  Bloomberg reported that 47% of Nasdaq stocks have been in bear market (i.e. loss exceeding 20%). It doesn’t help either that more than 40% of Russell 2000 small stocks are in bear market too. Though it is quite possible US stocks will continue to ascend, we view the risk of a meaningful loss has risen significantly. 

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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