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 5, 2015. You can also find the re-balance calendar for 2015 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.

Risk Managed Strategic Asset Allocation Portfolios Revisited

Recent market weakness has created quite some anxiety among investors. We have received many inquiries on how to better manage portfolios in the current environment. The following is one of the questions:

1) Have you ever looked at the results of a SAA portfolio timed by TAA?  The SAA portfolio stays invested unless the TAA portfolio goes to Cash.  SAA goes to cash if TAA goes to cash.  SAA invests when TAA exits cash. 

The short answer for the above question is that unfortunately, we don’t have such an indicator to direct an SAA goes to cash when our TAA goes to cash. However, there are several ways one can achieve a similar result. 

Moving average guarded strategic portfolios

In several previous newsletters, we showed that one can use composite portfolios to add a moving average layer to a portfolio, being strategic or tactical. For example, in 

June 10, 2013: Risk Managed Strategic Asset Allocation Portfolios

we showed how to use our system to create a composite portfolio that utilizes simple timing to construct a guarded (risk managed) portfolio. Let’s use the method to construct a 200 day simple moving average based strategic portfolio called P SMA 200d VFINX Global Equal Weight Stock REITs Gold Benchmark Portfolio Monthly. In essence, this composite portfolio uses S&P 500 (using Vanguard 500 index fund VFINX as the representative) 200 day Simple  Moving Average (SMA) as the guide, when VFINX closes above its 200 day SMA, it invests in Global Equal Weight Stock REITs Gold Benchmark Portfolio which has the following allocations: 

USStocks VFINX 20%
EuropeStocks VEURX 20%
PacificStocks VPACX 20%
Gold GLD 20%

We mentioned this global benchmark portfolio in July 20, 2015: Global Balanced Portfolio Benchmarks. It is an equal weight strategic asset allocation portfolio. 

When VFINX closes below its moving average, the composite portfolio goes to cash. The following table shows how effective such a simple timing overlay technique is on a strategic portfolio:

Portfolio Performance Comparison (as of 9/28/2015):

Ticker/Portfolio Name YTD
1Yr AR 3Yr AR 5Yr AR 10Yr AR 10Yr Sharpe
P SMA 200d VFINX Global Equal Weight Stock REITs Gold Benchmark Portfolio Monthly -3.0% -2.1% 4.4% 7.7% 9.8% 0.75
Global Equal Weight Stock REITs Gold Benchmark Portfolio -6.3% -5.3% 3.2% 5.8% 6.4% 0.3
VFINX (Vanguard 500 Index Investor) -7.7% -3.7% 10.9% 12.5% 6.5% 0.29
VGTSX (Vanguard Total Intl Stock Index Inv) -9.3% -14.1% 1.5% 1.6% 2.9% 0.1
VEIEX (Vanguard Emerging Mkts Stock Idx) -18.6% -23.1% -6.1% -3.9% 3.9% 0.13
VGSIX (Vanguard REIT Index Inv) -7.2% 5.4% 7.7% 10.8% 6.8% 0.17
VBINX (Vanguard Balanced Index Inv) -4.4% -1.1% 7.2% 8.8% 6.2% 0.46

See detailed year by year comparison >>

A couple of observations: 

  • The composite outperformed every individual stock index and the strategic global portfolio in the last 10 years (and since its start 1996). The annualized outperformance is over 3%. What’s more, it did it with only 14% maximum drawdown (i.e. from peak to a subsequent trough loss), compared with over 50% or more maximum loss in the index funds and the original strategic portfolio. 
  • Currently, emerging market stocks are already in a bear market (using over 20% loss definition). 

Regardless what popular belief or financial propaganda has said, a simple moving average based timing has achieved a similar return or out performed the underlying index in a long period of time. For example, since 1960, for the period of over 55 years, a 200 day based SMA based S&P 500 portfolio has done 0.5% better annually than S&P 500 index itself (total return including dividends) but with 1/3 maximum drawdown (or loss). 

One can use the similar technique to construct other guarded strategic portfolios. 

Long term stock valuation based strategic portfolios 

On MyPlanIQ Advanced Strategies page, we list 3 long term stock valuation metric based timing models: 

Strategy Portfolio Name YTD
1Yr AR 3Yr AR 5Yr AR 10Yr AR
Warren Buffett Total Stock Market Value to GNP Ratio Strategy P Warren Buffett Total Stock Market Valuation to GNP Ratio SO SU Weekly Strategy Total Return Bond Funds As Cash -1.0% -1.2% 8.8% 11.0% 11.8%
Shiller Cyclically Adjusted PE 10 Stock Market Timing Strategy P Shiller Cyclically Adjusted PE 10 SO SU Stock Market Timing Strategy Weekly Total Return Bond Funds As Cash -1.0% -1.2% 10.4% 11.9% 12.2%
Hussman Peak PE Market Timing Strategy P Hussman Peak PE SO SU Market Timing Strategy WeeklyTotal Return Bond Funds As Cash -1.0% -1.2% 9.2% 11.2% 11.3%

For each of these portfolios, you can customize them by replacing the Equity fund parameter with a strategic asset allocation portfolio. What that does is that when the metric indicates buying an equity fund (the ones in the above 3 portfolios are all S&P 500 fund SPY), instead of buying SPY, the portfolio would invest in the strategic portfolio you enter. Otherwise, it would invest in the cash fund (in our cases, the cash fund is a total return bond fund portfolio, see April 13, 2015: Total Return Bond Funds As Smart Cash, for example. 

As an exercise, we use Six Core Asset ETFs Strategic Asset Allocation – Optimal Most Aggressive (P_60159) as the underlying Equity fund for the Shiller CAPE portfolio: 

Portfolio Performance Comparison (as of 9/28/2015):

Ticker/Portfolio Name YTD
1Yr AR 3Yr AR 5Yr AR 10Yr AR 10Yr Sharpe
P Shiller Cyclically Adjusted PE 10 SO SU Stock Market Timing Strategy Weekly Total Return Bond Funds As Cash SAA Six Core -1.4% -1.4% 7.6% 8.1% 11.5% 0.72
P Shiller Cyclically Adjusted PE 10 SO SU Stock Market Timing Strategy Weekly Total Return Bond Funds As Cash -1.4% -1.4% 10.3% 11.9% 12.1% 0.85
VFINX (Vanguard 500 Index Investor) -7.7% -3.7% 10.9% 12.5% 6.5% 0.29


There are many other ways to use the composite feature to construct various portfolios. In fact, one can construct a portfolio that is very close to answer the user’s question in the above. However , we are aware that such a detailed complex treatment might not be interesting to many other users. We thus simply make a claim here. If you are interested, please let us know by email or comment.

The important take away here is that it is possible to use various timing info to help study a portfolio performance. However, we emphasize that Simple Is Better. Often, it is better to forgo marginal improvement that comes with the expense of complexity. 

Market Overview

As it stands right now, stocks are retesting the August low. No one knows whether this is going to be the second leg down in a bear market or it will rebound from here to recover in this correction. Our personal belief has always been that since the financial crisis in 2008,  the US, European union and emerging markets (notably China) have not carried out substantial structural changes that can sustain a healthy global economy. Coupled with stock over valuation, investors should be cautious at the 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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