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, April 13, 2015. 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.

Brokerage Specific Core Mutual Fund Portfolios

We are still waiting to get more feedback on whether to use these portfolios to replace the existing brokerage selected mutual fund based portfolios. Our purpose is to uncover as many concerns and issues as possible before switching. Up till now, some users have made comments on our forum and some have sent us emails. We will wait for another week or so before officially putting these portfolios up. If you have any questions, 

Please give us feedback by commenting on  Brokerage Specific Core Mutual Funds Plans: Suggestions & Opinions on our forum

The Low Return Environment

It is tax time again. Recently, we received a user’s email complaining about the disappearing cash returns: 

We regularly had large sum of cash in our (brokerage) account. Sometimes, the amount (of cash) was tens of thousands and occasionally, could be as high as hundred of thousands for a month or even longer. This year, I noticed one strange thing in my tax documents: we had no no 1099-INT form from the brokerage. Well it turned out that there were close to none interests from the cash!

It is possible that his cash was not auto swept to a money market fund. But even with that, it is quite possible that he is still earning pennies instead of dollars in interests! Such is the reality. 

We have warned that we are now in an environment that, as stocks and bonds rise,  has an increasingly low total return in the future. We have written several newsletters about this topic: 

Granted, our warnings had been early and today, we are still finding ourselves in the long running bull market. Fortunately, as we stated everywhere, we do not rely on our gut feel or any forecast to make investment decisions. 

Nevertheless, as markets continue to rise each day, future returns will become harder to come by. In fact, markets are becoming more and more risky. The importance of recognizing this lies in the following: first, it forces us to psychologically prepare for the environment. As The Wall Street Journal columnist Jason Zweig stated “you aren’t entitled to higher returns just because you feel you need (or deserve) them”. Second, it will help you to decide what investment strategies will be more appropriate in such an environment. 

Before we offer some of our opinions, we find Zweig’s above article (The new era of low stock returns) makes several salient points: 

  • Based on Robert Shiller, S&P 500 will average about 2.5% annually over the following 10 years. 
  • Using a simple dividend yield method, stocks will offer about 3.5% annually. 
  • A 50% stocks 50% bonds balanced portfolio will return 1.9% after inflation, using stock dividend yield method or will return 19% using Shiller’s method. This assumes bonds will return 0.3% annually. 

There are many other ways to estimate future returns. All offer dismal figures. In addition to asking investors to recognize the fact, Zweig suggests the following

  • Use low cost index funds or ETFs. This is the very first sure way to increase your returns!
  • Negotiate and lower financial advice fees! Again, this is a risk free way to increase returns!
  • Inching up exposure to non-U.S. stocks as they have higher expected returns.
  • Furthermore, he quoted William Bernstein, the famous author and investment manager advocating modern portfolio theory: 

“The things that feel most uncomfortable in the short run are generally the most rewarding in the long run,” Mr. Bernstein says, “and right now one of the most uncomfortable things is holding cash and fixed income.” By hanging onto your cash even at today’s invisible yields, you will be able to buy stock in the next downturn when shares finally become cheap again.

The last two suggestions are deviated from what both Mr. Zweig and Mr. Bernstein preach: buy and hold. They are tiled to so called ‘active’ investing style. Though the taboo of ‘active management or active investments’ has been re-enforced from the current six year and running bull market, we can see how even these buy and hold believers are increasingly worried about the future and such a static do nothing method. 

Fortunately, we adopt a more pragmatic and realistic investment methodology: for us, both strategic (buy and hold) and tactical (active) strategies offer values and the best is to implement a portfolio that has the combination of both strategies, with their allocations carefully calibrated based on your personal risk tolerance. 

Additionally, we would like to elaborate in the following. 

Tactical Asset Allocation

Regular readers understand that we are a strong advocate on using trend following based (or momentum based) Tactical Asset Allocation(TAA). When it comes to tactical or active asset allocation, there are many variations. Many are relying on so called ‘proprietary’ (or may we use ‘opaque’) methods that investors have no way to understand them intuitively. We have detailed several cautions or reasons when adopting this approach (see February 23, 2015: Why Is Global Tactical Asset Allocation Not Popular?, for example). 

Furthermore, we want to point out that this is also an area where fund managers or advisors tend to charge high fees. Admittedly, because of less number of  investors adopting such a strategy (compared with Strategic Asset Allocation (SAA)), to survive, these managers opt to charge higher fees. However, as what we have advocated and demonstrated, it is possible to implement a good TAA youself or using a low fee advisor. An era of extremely low fee to help investors has arrived. 

Even though the TAA strategy has under performed SAA in this bull market, we suspect that the tide will turn very soon, given the length of the current bull market and how over stretched market valuations have become. 

Adopting a proven tactical strategy is one way to beat the low return environment, as we stated in January 12, 2015: How Does Trend Following Tactical Asset Allocation Strategy Deliver Returns

even though it is hard to pinpoint more precise actual returns, the good news for such a strategy is that it does not necessarily depend on the future expected returns entirely to deliver a reasonable return in a long period of time. 

We also regularly received users’ emails, asking us how we feel about our TAA performance. For the past five years, even though our TAA portfolios have lagged behind standard benchmarks (such as S&P 500 or VBINX, a 60% US stocks 40% US bonds index fund), we believe they have served their purposes: delivering a reasonable return in a bull market while preparing to avoid big loss when a bear market arrives. Unlike other ‘tactical’ or ‘active’ funds or portfolios, our portfolios have done what they are supposed to deliver in a more consistent way. For that, we feel very comfortable. 

Total return bond investing

Similarly, we believe going more active in fixed income can enhance returns too. Fortunately, unlike in stock investing, some excellent bond fund managers can out perform total bond market index more persistently, as shown in the following fund performance comparison table (first shown in March 16, 2015: Brokerage Specific Core Mutual Fund Portfolios). 

Fund Performance Comparison (as of 4/2/2015):

Ticker/Portfolio Name YTD
1Yr AR 3Yr AR 5Yr AR 5Yr Sharpe 10Yr AR 10Yr Sharpe
DLTNX (DoubleLine Total Return Bond N) 1.3% 5.7% 4.4%        
TGMNX (TCW Total Return Bond N) 1.1% 5.4% 5.4% 6.3% 2.64 6.7% 1.57
MWTRX (Metropolitan West Total Return Bond M) 1.3% 5.7% 5.2% 6.0% 1.97 6.4% 1.37
PONDX (PIMCO Income D) 1.7% 5.6% 9.6% 10.8% 3.21    
LSBRX (Loomis Sayles Bond Retail) -1.0% 0.4% 5.5% 6.8% 1.55 7.0% 1.16
PBDDX (PIMCO Investment Grade Corp Bd D) 2.9% 8.6% 6.5% 7.2% 1.61 7.2% 1.17
PTTDX (PIMCO Total Return D) 2.1% 5.6% 3.7% 4.6% 1.34 5.9% 1.19
WABRX (Western Asset Core Bond R) 2.0% 6.5%          
VBMFX (Vanguard Total Bond Market Index Inv) 1.6% 5.7% 2.9% 4.2% 1.17 4.8% 0.95

See year by year detailed comparison >>

Again, all of the funds in the above table have out performed VBMFX (Vanguard Total Bond Market Index Inv) for the past 5 or 10 years, if they have data. Using total return bond fund rotation or upgrade approach, we believe it is possible that our bond portfolios on Fixed Income Bond Fund Portfolios will enhance returns over an index bond fund. 


As mentioned by Mr. Zweig, diversifying into international stocks is possible to enhance returns. Here are some assets to consider: 

  • International stocks: cheaper (lower) valuation. Furthermore, eventually, the strength of US dollars will reverse, benefiting these stocks, especially those in Euro zones (from American investors’ point of view).
  • Emerging market stocks: similar to Euro zone, emerging markets are facing a structural reform challenge in their economies. However, these markets are very different from 15 or 20 years ago. They have grown to a comparable size as the U.S. and European markets. 
  • Real estate investment trusts (REITs): these companies are the very material benefactors of low rate policies. They have taken the low rate environment to (re)finance their long term debts with extremely low rates. Even when rates rise, these companies can have a cushion to raise rents (although unevenly). 
  • Commodities: they are now in a depressed level that will eventually rise.  

However, we have to caution that all the above assets can be depressed for a long period of time. As any investment strategy, no one can predict outcomes in a short period of time. It is also true for diversification, as evident in the past 6 years. 

Portfolio Review

As stated in many newsletters (see April 1, 2013: Momentum Over Stocks, Sector And Style Funds), we believe it is better to invest in style funds (such as large, mid and small growth & value stocks) than in sector funds. The following table shows how our style rotation momentum portfolio has compared: 

Portfolio Performance Comparison (as of 4/2/2015): 

Ticker/Portfolio Name YTD
1Yr AR 3Yr AR 3Yr Sharpe 5Yr AR 10Yr AR 10Yr Sharpe
P Momentum Scoring Style ETFs and Treasuries -1.2% 5.9% 14.0% 1.08 9.1% 11.0% 0.67
VAPAX (Virtus Premium AlphaSector A) -4.0% -4.8% 8.6% 0.76      
GHUAX (Good Harbor Tactical Core US A) -1.1% -16.0%          
SPY (SPDR S&P 500 ETF) 0.9% 11.4% 15.7% 1.3 14.2% 8.0% 0.34

Again, the portfolio has done what it is supposed to do: achieving steady returns to keep up with the market index in a bull market while eventually out performing the index in a full bull-bear market cycle by preserving capital in a bear market. 

Market Overview

Although there have been several weak economic news, markets have behaved quite unpredictably. We have all given up to predict their short term movements. For now, we will let markets sort themselves out.  

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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