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, July 27, 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.

Core ETF Commission Free Portfolios

MyPlanIQ has maintained several plans that utilize brokerage suggested ETFs. Most of these plans are for a brokerage available commission free ETFs. In general, we have maintained these lists of ETFs as they are suggested or available in a brokerage. However, like those brokerage suggested mutual funds, many such commission free ETFs are not ideal for our portfolio building. In fact, some of them have created problems for our portfolios. Similar to our effort to clean up and make more durable plans for mutual funds:

we would like to further clean up these ETF portfolios that are based on brokerage suggested commission free ETFs.

First, let’s look at the issues for these ETFs

Issues with commission free ETFs

It is well known that brokerages often provide commission free ETFs to entice their customers. Such a commission free feature was first introduced by Fidelity. Subsequently, it was followed by TD Ameritrade, Vanguard and Schwab. It is obvious that this feature can attract new customers to a brokerage. However, another less well known secret is that by making some ETFs commission free, customers will tend to invest more in these ETFs, thus helping the ETFs to grow their asset under management, or AUM. 

The problem is that quite some so called commission free ETFs are exotic and thinly traded. The only reason we can think of to market these ETFs is to boost and grow their AUMs, certainly not for the best intention to customers. 

We should also point out that Fidelity changed its commission free policy to only commission free for purchase (or buy commission free only). You still need to pay commission for selling these ETFs. So at best, these ETFs are quasi commission free. 

What are the best brokerages for commission free ETFs?

The best brokerages to use commission free ETFs to construct portfolios suggested by MyPlanIQ or in general, to construct an asset allocation portfolio are:

  • Merrill Edge: it has 30 commission free trades monthly for accounts with over $25,000. There is no limited on what ETFs or stocks you can trade for that 30 commission free trades, which are more than enough for asset allocation portfolios. Our three general purpose ETF plans (Six Core Asset ETFsMyPlanIQ Diversified Core Allocation ETF Plan or Retirement Income ETFs) can be implemented here. Furthermore, it is a good place to implement an advanced portfolio such as P Goldman Sachs Global Tactical Include Emerging Market Diversified Bonds ETFs
  • Vanguard: if you have a brokerage account in Vanguard, you can trade all Vanguard ETFs commission free. We find Vanguard ETF line up is more than enough and the plan actually contains a subset of its ETFs. Vanguard ETFs have the following advantages: extremely low cost, often the lowest; good liquidity for many key ETFs and very respectful index tracking performance because of Vanguard’s expertise in index funds. 
  • TDAmeritrade: it has more than 100 commission free ETFs. What we really like is that the list includes most Vanguard ETFs that are low cost and liquid enough to build a good portfolio. It also has a broad base commodity index fund DBC for commodity exposure, which you wouldn’t have (for commission free) at a Vanguard brokerage account. 

The purpose of core ETF portfolios

Ideally, we would like to build a plan that satisfies the following: 

  • Good diversification on major asset classes including US stocks, International stocks, emerging market stocks, REITs, fixed income and commodities. 
  • Don’t over diversified: as stated previously, there is a tradeoff between having many subasset class ETFs vs. only those that are representative. Furthermore, less candidate ETFs also mean less trading and better simplification. 
  • Good trading volume as well as narrow bid-ask spread. We have also make tradeoff here between extra diversification value added by many newly created ETFs and their liquidity (volume and bid-ask spread). 

Unfortunately, for many brokerages, we find their lists are over bloated and we have to frequently make tradeoff for the above criteria.  

The Modifications

We have modified many ETF plans featured on Brokerage Investors page. The following are explanations for those plans. 
  • Fidelity Commission Free ETFs: we have deleted many unnecessary ETFs in the list. These include several international stock funds that are either narrow region based or less liquidity. We have deleted all ‘commodities’ funds: these funds are actually equity funds any way. Furthermore, we have removed some bond funds that include ultra long term bond funds. These funds can be very volatile and hard to manage in the coming rising rate environment. Unfortunately, many ETFs in the list are still relatively new and have low trading volume. In our opinion, using Fidelity buy commission ETFs does not have noticeable advantages as one is restricted to these ETFs. 
  •  Schwab Commission Free ETFs: this is a very bloated list. We have removed many narrow region based international stock funds. Furthermore, all the ‘commodity’ equity funds are removed. Even though we like some Schwab broad base ETFs, in our opinion, Schwab’s commission ETFs are still not up to the standard to build a good portfolio. Some ETFs are  too new and have low volume. There are quite some important bond ETFs missing in the fixed income category. 
  • TD Ameritrade Commission Free ETFs: this plan has some narrow region based international stock funds. These funds created problems for the plan’s performance in 2011. We have since then modified our strategies to accommodate these funds. Nevertheless, we have decided to remove them. We also further simplified bond funds and commodity funds. Because of the many good funds in the list, one can easily implement the three general purpose ETF plans (Six Core Asset ETFsMyPlanIQ Diversified Core Allocation ETF Plan or Retirement Income ETFs) as well as the advanced portfolio  P Goldman Sachs Global Tactical Include Emerging Market Diversified Bonds ETFs with some minor change. Some important Vanguard funds missing in the TD Ameritrade list include VNQI (Vanguard Global ex-US Real Estate ETF) and VTIP (Vanguard Short Term TIPS). 
  • Vanguard Liquid ETFs: this plan is a reduced subset of all Vanguard ETFs. We are generally happy with its candidate funds and their performance so far. We will modify this plan selectively more Vanguard ETFs become mature. 
  • Etrade All Star ETFs: since Etrade does not have commission free ETFs, it is thus not surprising that the suggested ETFs are more reasonable. Other than some minor removal, the list largely remains unchanged. 

Note that because of the above changes, there might be some noticeable changes in the portfolios’ holdings. If the changes are just mere substitutes by a similar index funds, you can simply ignore these changes and still holding the funds in your account until a more significant transaction is called for.  

Market Overview

The Greek debt crisis has created a shock to capital markets in the world. All risk markets have plummeted. The optimism of a successful solution to the problem has faded. If Greece defaults entirely on its debt, it will mostly affect governments in the Euro zone. However, more than 30 billion euro debt from private banks in the EU and the U.S. will be also affected. Furthermore, if Greece were to leave the EU, it can create a far fetching geopolitical effect. The crisis, coupled with a bear market or highly volatile Chinese stock market, can become a trigger to a major financial event. 

For now, all major risk assets are ranked below bonds or cash. This might be a transient event or become a major trend turning point. 

Again, we don’t pretend to be able to predict the outcome here. What we will rely on are our predefined portfolio strategies and respond accordingly. 

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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