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, December 29, 2014. You can also find the re-balance calendar for 2014 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.

Key Issues of Investment Strategies

Over the years, we have received two key  questions regarding our investment strategies. Even though they  have been addressed by one of our newsletters, we nevertheless believe it is critical for our users to fully understand their answers.  In this newsletter, we attempt to summarize our answers.

As always, we remind our readers to look at our short summaries of our important newsletters in newsletter collection link. 

How do I know which strategies to trust?

This question was answered in our newsletters: 

Specifically, we discussed: 
  • A strategy should have strong intuitions and plausible reasons behind it
  • One should look at a strategy in a long term, regardless whether the strategy is passive (strategic or buy and hold) or active (such as tactical that utilizes short to intermediate term asset behaviors). There is no sure win strategy in any given short period of time. 
  • when you should get out a strategy by asking important questions such as whether the strategy has a fundamental flaw or it is just a short term hiccup. Furthermore, it is equally important to understand whether that is an implementation issue. 

Which strategies should I use?

Regarding MyPlanIQ’s  Strategic Asset Allocation (SAA) and Tactical Asset Allocation(TAA), we have written several newsletters to answer this question: 
We use the following table to show how these two strategies behave in different times or market situations: 

For each strategy, the following table shows the two key qualities:

  Intuitions Expected Returns
Strategic Asset Allocation Diversification Equities deliver above inflation returns while bonds are stabilizers
Tactical Asset Allocation Momentum exists in nature, in human behavior and social events It is recognized momentum factor can deliver market beating average return in many research results

Their pros and cons:

  Early Bull Late Bull Bear Side Way
Strategic Asset Allocation Good:rebalancing actually enables more exposure (allocation wise) to beaten down risk assets Good:always riding on risk assets and rebalancing actually takes some profit off the table Bad:holding falling assets can actually ride the falling trends all the way down

OK: no loss for risk assets but bonds can actually generate some income. Risk assets with dividends can cushion more

Tactical Asset Allocation Miss: It has a lag due to confirmation of rising trends Good:invest in high performing assets that can even outperform market indices Good:reduced risk asset allocation and exposure to other ‘safe’ assets such as treasury bonds Bad:frequent switching results in buy high sell low. These can amount to large loss over time

Notice when we say Good, we do not necessarily mean it will always out perform a market index such as VFINX (Vanguard (S&P 500) Index) or VBINX (Vanguard Balance (60% stocks/40% bonds). Again, these strategies can even under perform against these benchmarks in those periods even when they are rated as Good. What we care most is that strategies should produce reasonable returns and acceptable risk when they are Good. Ultimately what we truly care is their long term performance that spans over a full market cycle including a bull and a bear market.

For example, up to this point in this year, both our SAA and TAA have under performed against the two often used benchmark indices: VFINX and VBINX. However, we still feel comfortable with the strategies as they are still producing positive returns. Certainly, we would love to be able to produce better returns this year. However, we also understand realistically the reasons behind their lagging: for SAA, it was because of its diversification into other under performing assets such as international stocks, emerging market stocks and even commodities. For TAA, it was because of the several fluctuations and fake positives such as emerging market stock strengths and international stock strengths in the earlier parts of this year. 

We are still confident that both our SAA and TAA will still out perform in a long period of time. For SAA, that would mean at some point of times, other assets will catch up. For TAA, that would mean it will avoid large loss during a market stress and that will give it a leg up even in terms of returns. See June 9, 2014: The Arithmetic of Investment Mistakes for example. 

As always, we advocate using SAA and TAA portfolios together instead of just using one strategy for all of investments, hence the core satellite approach. Please see the following newsletters that addressed this approach: 

Finally, we would like to address a follow up question: 

Can you give a brief overview on your portfolios/strategies?

In addition to the two basic strategies (SAA and TAA) that have been used for 401k plans and taxable/brokerage plans, users are often confused with other portfolios. These include

We would like to comment on our Goldman Sachs portfolios. These portfolios use a variant version of our TAA. But the key here is that it uses a list of well chosen index mutual funds to represent the key asset classes we would like to have a representation. The portfolios have done well consistently over the years, illustrating the fact that a list of  carefully chosen index funds (but not over diversified) is the very key to make the tactical strategy work well. 

Inception Date: 12/31/1997

Name 1Wk
P Goldman Sachs Global Tactical Include Emerging Market Diversified Bonds 0.8% 8.5% 10.0% 12.3% 11.0% 14.0%
VFINX (Vanguard (S&P 500) Index) -0.4% 13.0% 15.9% 22.3% 15.7% 7.8%
VBINX (Vanguard Balance (60% stocks/40% bonds) 0.4% 9.8% 11.2% 14.3% 11.5% 7.2%

*   YTD: Year to Date
**  AR: Annualized Return

Note: the start date of the above chart is 6/21/1996, the first date VBINX had a price. 

Portfolio Review

Our ETF strategic portfolios on brokerage page have done a reasonable job so far this year: 

Market Overview

Even though US stocks are still at a record level, we do want to point out two noticeable weaknesses: both high yield bonds and small cap stocks have been stubbornly weak: 


Again, we are cautiously optimistic at best at this moment. 

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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