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, February 22, 2016. 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.

Alternative Portfolios Review

In MyPlanIQ, we advocate a core satellite portfolio approach. In this approach, instead of investing in a single Strategic Asset Allocation (SAA) or Tactical Asset Allocation(TAA) portfolio, investors divide the investment into two parts: one is in SAA portfolios and one is in TAA portfolios. For those who are not familiar with, please refer to the section in our Newsletter Collection.

For the core portfolios, investors can further diversify in investing in our SAA portfolios that are more traditionally based or some other alternative portfolios. The alternative portfolios include the portfolios in the following table: 

Portfolio Performance Comparison (as of 1/25/2016):

Ticker/Portfolio Name YTD
1Yr AR 3Yr AR 5Yr AR 10Yr AR 10Yr Sharpe 10 Yr Max. Drawdown
My Alternative Hedge Fund -1.3% -6.1% 3.2% 5.1%     8.5% (5 year)
Harry Browne Permanent Portfolio 0.1% -7.9% -0.5% 3.1% 5.4% 0.64 15.3%
Permanent Income Portfolio -0.5% -3.4% 3.3% 6.1% 5.9% 0.85 17.5%
Bridgewater All Weather Portfolio Risk Parity -0.5% -3.2% -0.1% 3.2% 4.9% 1.05 15%
Bridgewater All Weather Portfolio -1.2% -5.3% -0.4% 3.4% 5.6% 0.85 20%
VFINX (Vanguard 500 Index Investor) -8.1% -6.7% 10.0% 10.1% 6.0% 0.27 55.3%
VBINX (Vanguard Balanced Index Inv) -4.9% -5.0% 6.3% 7.3% 5.7% 0.43 36%

See detailed year by year comparison >>

We have reviewed these portfolios many times. Most of these portfolios belong to conservative or close to conservative allocation risk category. Allocating some part of one’s core portfolios to these portfolios can further diversify and smooth out the volatility often found in traditional SAA portfolios. However, these portfolios are often not in sync with general stock market movement and thus can create some anxiety in a bull market. In fact, for the past 5 to 7 years, we have seen these portfolios lagged behind traditional US stocks and US bonds balance portfolios/funds. 

Alternative Portfolios Might Outshine in 2016

Compared with traditional SAA portfolios, these alternative portfolios might prove to be relatively ‘safe’ in 2016. From the above table, the 10 year returns of these portfolios are not closer to VBINX (Vanguard Balanced Index Inv), but with much less maximum drawdown, a metric that measures a peak to following troughs loss. 

Year to date, these portfolios have avoided large loss mostly due to their smaller allocation in stocks. Harry Browne Permanent Portfolio even managed to stay positive because of the strengths in long term Treasury bonds and gold. The following table shows year to date performance for funds used in these portfolios: 

Portfolio Performance Comparison (as of 1/25/2016):

Ticker/Portfolio Name YTD
1Yr AR
MyPlanIQ Diversified Core Allocation ETF Plan Tactical Asset Allocation Most Aggressive -1.7% -10.1%
Schwab Total Return Bond 0.9% -1.0%
VUSTX (Vanguard Long-Term Treasury Inv) 4.0% -3.6%
VWESX (Vanguard Long-Term Investment-Grade Inv) 1.5% -4.3%
VGSIX (Vanguard REIT Index Inv) -4.8% -10.3%
VFINX (Vanguard 500 Index Investor) -8.1% -6.7%
GLD (SPDR Gold Shares) 4.6% -14.6%
PRWCX (T. Rowe Price Capital Appreciation) -4.6% 0.2%
VWINX (Vanguard Wellesley Income Inv) -2.1% -2.0%
BERIX (Berwyn Income) -1.4% -5.3%
ABRRX (Invesco Balanced-Risk Allc R) -2.8% -9.1%
PRPFX (Permanent Portfolio) -2.3% -12.9%

Detailed comparison >>

If 2016 turns out to be a year in bear market, we expect strength in long term bonds, especially in long term Treasuries. Furthermore, gold will probably do well. Other relatively safe convertible bonds or preferred securities that are often employed by funds like PRWCX, VWINX and BERIX will perform better. Also, the TAA portfolio will do better to avoid large loss, compared with a stock index. All of these indicate that these alternative portfolios might do better than a straight stock and bond allocation fund such as VBINX this year. However, this is based on the thesis that stocks will perform poorly in 2016, about which no one can be sure. That is why we need to still maintain some allocation in traditional SAA portfolios. 

Permanent Portfolios

Permanent portfolios have not done well for the past several years. 2015 proved to be difficult to this portfolio again.

We just updated our Long Term Harry Browne’s Permanent Portfolio Performance table: 

Long Term Harry Browne’s Permanent Portfolio Performance (as of 12/31/2015):

1970 4.10% 1980 22.10% 1990 -0.70% 2000 2.70% 2010 11.92%
1971 13.40% 1981 -6.20% 1991 11.50% 2001 -1.00% 2011 8.16%
1972 18.70% 1982 23.30% 1992 4.00% 2002 7.20% 2012 5.5%
1973 10.60% 1983 4.30% 1993 12.60% 2003 13.76% 2013 -3.8%
1974 12.30% 1984 1.10% 1994 -2.40% 2004 6.64% 2014  7.6%
1975 3.70% 1985 20.10% 1995 16.60% 2005 8.01% 2015 -4.5%
1976 10.10% 1986 21.70% 1996 5.20% 2006 10.80%    
1977 5.20% 1987 5.30% 1997 6.70% 2007 11.94%    
1978 15.00% 1988 3.60% 1998 7.40% 2008 -2.03%    
1979 36.70% 1989 14.80% 1999 4.70% 2009 9.64%    
Cumulative 328.62%   272.57%   186.24%   190.27%    
Annual 12.63%   10.55%   6.42%   6.64%  Since 1970  8.35%

We discussed the permanent portfolio’s prospective performance in February 16, 2015: Where Are Permanent Portfolios Going?. From the above table, one can see that the first half of this decade has been very challenging so far. Unfortunately, we expect it will still endure some more challenges before the two major issues: over valuation of stocks and extremely low interest rates, are resolved. 

For those who are not comfortable with investing in gold, Permanent Income Portfolio has proved to be a viable portfolio. In 2015, it lost -3.4%. 

My Alternative Hedge Fund Portfolio

This portfolio allocates bulk of its capital to a tactical equity portfolio and a tactical total return bond portfolio (70% total). The rest of 30% is spread in a traditional balance fund, permanent portfolio, risk parity and a conservative fund: 

Allocation of My Alternative Hedge Fund

tactical stock portfolio (P_51098) 42%
tactical total return bonds (P_46880) 28%
balanced PRWCX 10%
permanent PRPFX 10%
risk_parity ABRRX 5%
conservative BERIX 5%

This portfolio is of conservative risk. Investors can alter the allocations based on their risk tolerance. In addition, we would suggest that the permanent portfolio fund PRPFX be replaced by Harry Browne permanent portfolio to reduce expenses. Furthermore, if it is hard to invest in a risk parity fund, the allocation can be redistributed to other funds. VWINX (Vanguard Wellesley Income Inv) is an excellent substitute for BERIX. 

Other good alternatives for the risk parity or permanent portfolio allocations can be alternative funds such as those reviewed in February 3, 2014: Alternative Investment Funds & Diversified Portfolios

There are also several ways to invest for the tactical stock portfolio part. In addition to the P_51098 (MyPlanIQ Diversified Core Allocation ETF Plan Tactical Asset Allocation Most Aggressive), one can use advanced tactical portfolios and/or simple timing (moving average, for example) based portfolios. 

With the tumultuous markets ahead, we are optimistic that this portfolio will perform reasonably well as what its name implies: hedging with alternative methods.  

Market Overview

As expected, stocks staged a feeble recovery and had a small positive return last week. However, as Jason Zweig at the WallStreet Journal pointed out, Market ‘Capitulation’ Is Nowhere in Sight (So Far). Up till now, the selling or so called distribution of stocks have been orderly. If a bear market indeed happens, S&P 500 might drop to 1500 to 1700 level. Bear in mind that even at that level, S&P 500 is only back to its long term average valuation level. It is thus prudent to review your risk exposure at this moment regardless whether you are a strategic, a tactical investor or both. It is still not too late to scale back to a risk level you are comfortable with. 

On the other hand, as an investor, we also want to emphasize that as markets drop, it creates more opportunities. Though at the moment, it is still too early to venture into the market bravely, we expect the time will come if markets continue their descent. 

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. 

Latest Articles

Enjoy Newsletter

How can we improve this newsletter? Please take our survey 

–Thanks to those who have already contributed — we appreciate it.

Any investment in securities including mutual funds, ETFs, closed end funds, stocks and any other securities could lose money over any period of time. All investments involve risk. Losses may exceed the principal invested. Past performance is not an indicator of future performance. There is no guarantee for future results in your investment and any other actions based on the information provided on the website including, but not limited to, strategies, portfolios, articles, performance data and results of any tools. All rights are reserved and enforced. By accessing the website, you agree not to copy and redistribute the information provided herein without the explicit consent from MyPlanIQ.