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, May 18, 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.

Total Return Bond Funds As Smart Cash

Many long term readers know that we strongly advocate using total return bond fund portfolios listed on Fixed Income Bond Fund Portfolios as a cash substitute for many portfolios that has a substantial cash components. In this newsletter, we update these portfolios and add a few more examples here. It is intended as a more comprehensive summary on this approach. 

For initial introduction on this, see November 10, 2014: Fixed Income Or Cash

Total Return Bond Fund Portfolios in Simple Moving Average (SMA) Based Portfolios

Here is the latest performance for those portfolios:

Portfolio Performance Comparison (as of 4/13/2015):

Ticker/Portfolio Name YTD
Return**
1Yr AR 3Yr AR 5Yr AR 10Yr AR 10Yr Sharpe Since 12/31/2000
P SMA 200d VFINX Total Return Bond As Cash Monthly 2.2% 17.4% 17.5% 13.6% 13.3% 0.97 12.6%
P SMA 200d VFINX Monthly 2.2% 17.4% 17.5% 12.0% 12.0% 0.88 11.2%
VFINX (Vanguard 500 Index Investor) 2.2% 16.3% 17.1% 14.1% 7.9% 0.35 9.6%
VBINX (Vanguard Balanced Index Inv) 2.7% 11.9% 11.9% 10.5% 7.4% 0.54 7.7%

More detailed comparison >>

Diversified Timing Asset Allocation Portfolio

Portfolio Performance Comparison (as of 4/10/2015):

Ticker/Portfolio Name YTD
Return**
1Yr AR 3Yr AR 5Yr AR 10Yr AR 10Yr Sharpe Since 12/31/2000
P Diversified Timing Asset Allocation Portfolio With Total Return Bonds 1.9% 10.1% 7.6% 6.9% 9.1% 0.87 10.3%
P Diversified Timing On Endowment Asset Allocation Model SMA 10 Months With Long Treasury 1.5% 9.2% 7.0% 4.8% 6.8% 0.7 7.6%

See the year by year comparison

Recently both emerging market stocks and international stocks have risen enough to show a positive trend and thus for those components, they are invested in the stock indices. However, in this portfolio, several components have been in cash for a long time (for example, even up till now, commodities have been in cash). Using total return bond funds instead of cash has improved the returns significantly (more than 2% for the last 10 years or since 12/31/2000). 

Long Term Stock Valuation Based Portfolios

Portfolios listed on Advanced Strategies such as P Warren Buffett Total Stock Market Valuation to GNP Ratio SO SU Weekly Strategy or P Shiller Cyclically Adjusted PE 10 SO SU Stock Market Timing Strategy Weekly have been in cash for quite some time now. It is certainly a pity to earn 0% cash interest in all these years. Using total return bond funds can improve performance substantially: 

Portfolio Performance Comparison (as of 4/10/2015):

Ticker/Portfolio Name YTD
Return**
1Yr AR 3Yr AR 5Yr AR 10Yr AR 10Yr Sharpe Since 7/1/2000
P Warren Buffett Total Stock Market Valuation to GNP Ratio SO SU Weekly Strategy Total Return Bond Funds As Cash 1.5% 3.8% 12.3% 10.9% 12.3% 0.88 11.8%
P Warren Buffett Total Stock Market Valuation to GNP Ratio SO SU Weekly Strategy 0.0% 0.0% 7.9% 8.4% 10.1% 0.71 7.5%

See detailed year by year comparison >>

Using total return bond portfolios as cash when these portfolios exit from stocks is a very sensible approach to deal with the anxiety and the loss of returns in a long ‘cash’ period. Again, over 2% improvement in the last 10 years. But over 4.3% improvement since 2001!

Total Return Bond Fund Portfolios in Permanent Portfolios

In permanent portfolios, a large chunk of the portfolio is invested in cash. For example, 25% in Harry Browne Permanent Portfolio is always in cash. Using total return bond funds again improve the performance substantially: 

Portfolio Performance Comparison

Ticker/Portfolio Name YTD
Return**
1Yr AR 3Yr AR 5Yr AR 10Yr AR 10Yr Sharpe
Harry Browne Permanent Portfolio Total Return Bond Fund As Cash 2.4% 7.7% 5.2% 8.3% 9.1% 1.07
Harry Browne Permanent Portfolio 1.3% 4.4% 2.3% 5.9% 7.1% 0.86
Permanent Income Portfolio Total Return Bond Funds As Cash 2.1% 10.2% 7.3% 8.7% 7.6% 1.03
Permanent Income Portfolio 2.0% 9.6% 6.3% 7.7% 6.7% 0.98

See year by year detailed comparison >>

Again we are seeing over 2% return improvement for Harry Browne Permanent Portfolio. We are seeing only 1% return improvement for permanent income portfolio as the cash in this portfolio has been replaced with a Vanguard short term corporate bond fund, a very respectful short term bond portfolio. 

Summary

Although total return bond fund portfolios are not the same as cash in terms of their risk, we believe for many portfolios that use cash as one of its components, using total return bond portfolios is a reasonable substitute. Investors should not overlook the cash component. In fact, a less known secret about how brokerages such as Schwab makes their profit is to earn the difference between what their money market funds or cash pay to clients and short term interest rates. 

Portfolio Review

Our alternative hedge fund portfolio has been consistent: 

Portfolio Performance Comparison (as of 4/10/2015):

Ticker/Portfolio Name YTD
Return**
1Yr AR 3Yr AR 5Yr AR 5Yr Sharpe 10Yr AR 10Yr Sharpe
My Alternative Hedge Fund 2.8% 4.6% 8.9% 7.7% 0.94    
VBINX (Vanguard Balanced Index Inv) 2.7% 11.9% 11.9% 10.5% 1.12 7.4% 0.54

We believe this portfolio will show its ‘hedge’ or ‘risk management’ strength during a market downturn that is yet to happen. 

Market Overview

Emerging market and international stocks finally show their positive trends. Furthermore, high yield bonds are now recovering. Though fundamental worries abound, we will let markets develop and figure out what direction they want to go.  

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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