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, March 13, 2017. You can also find the re-balance calendar for 2017 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 Investment Portfolios Review

MyPlanIQ features a few alternative portfolios which combine tactical, strategic portfolios or consist of assets that can hedge with each other. We list some of those portfolios on Brokerage Investors (What We Do -> Brokerage Investors) . For last year’s review, please see January 25, 2016: Alternative Portfolios Review.

The following are some of the benefits why one should at least keep an eye on these portfolios:

  • These portfolios often have lower volatility than the traditional strategic portfolios because of their hedged or uncorrelated components. 
  • These portfolios often are less in sync with general stock or bond market indexes. Thus, they can serve as a stabilizer in a traditional or mainstream strategic portfolio. 
  • These portfolios are conservative and thus can be used as an anchor when stock markets are way overvalued so that investors can ‘wait out’ till a correction comes to bring down the valuation level (and thus better investment environment)

Performance in 2016

Portfolio Performance Comparison (as of 2/10/2017)
Ticker/Portfolio Name 2016 Return 1Yr AR 3Yr AR 5Yr AR 10Yr AR 10Yr Sharpe
My Simple Alternative Hedge Fund 6.5% 9.1% 3.8% 6.4% 8.5% 1.01
Harry Browne Permanent Portfolio 5.4% 5.2% 4.1% 3.0% 5.9% 0.77
Permanent Income Portfolio 5.2% 6.1% 5.3% 4.8% 5.6% 0.85
Bridgewater All Weather Portfolio Risk Parity 6.7% 7.8% 3.4% 2.8% 5.2% 1.21
Bridgewater All Weather Portfolio 8.0% 10.5% 3.9% 3.4% 5.9% 0.98
VWINX (Vanguard Wellesley Income Inv) 6.0% 9.9% 6.1% 7.0% 6.7% 0.93

These portfolios have achieved reasonable returns in 2016. 

My Alternative Hedge Portfolio

My Simple Alternative Hedge Fund has the following target allocation:

Buy and Hold (Annually Rebalance)
P_51098 (MyPlanIQ Diversified Core Allocation ETF Plan Tactical Asset Allocation Most Aggressive) 42%
P_46880 (Schwab Total Return Bond) 28%
VWINX (Vanguard Wellesley Income Inv) 15%
P_17551 (Harry Browne Permanent Portfolio) 10%
BERIX (Berwyn Income) 5%

The tactical portfolio aims at achieving reasonable return while avoiding big loss. The total return bond portfolio enhances fixed income portion, which as stated previously, has an outstanding long term performance. The two  conservative allocation mutual funds VWINX and BERIX should give the portfolio a steady return in a bull market, thus alleviating the possible loss incurred by the false move of the tactical portfolio. 

Finally, Harry Browne permanent portfolio is a hedge portfolio that can perform well in many scenarios. 

 Though the tactical portfolio didn’t do very well, however, the rest has done good enough for the portfolio to deliver better return than VWINX (Vanguard Wellesley Income Inv), the benchmark for these portfolios. 

The Permanent portfolios

The two permanent portfolios recovered from their 2015 underperformance, thanks to the strong stock markets and stable long term bond return.

The performance of the components in the permanent portfolios (as of 2/10/2017):
Ticker/Portfolio Name 2016
1Yr AR 3Yr AR 5Yr AR 10Yr AR
VFINX (Vanguard 500 Index Investor) 11.8% 27.6% 10.9% 13.8% 7.0%
VGSIX (Vanguard REIT Index Inv) 8.3% 21.1% 11.8% 10.8% 4.3%
VDIGX (Vanguard Dividend Growth Inv) 5.6% 17.1% 9.7% 12.2% 8.0%
GLD (SPDR Gold Shares) 8.0% 2.7% -1.5% -6.8% 5.9%
VIPSX (Vanguard Inflation-Protected Secs Inv) 1.1% 3.8% 1.7% 0.6% 4.2%
LTPZ (PIMCO 15+ Year U.S. TIPS ETF) 8.6% 5.7% 4.9% 1.3%  
VUSTX (Vanguard Long-Term Treasury Inv) 1.2% -6.5% 6.3% 3.2% 6.6%
VWESX (Vanguard Long-Term Investment-Grade Inv) 5.8% 5.5% 6.6% 5.4% 7.1%
VFSTX (Vanguard Short-Term Investment-Grade Inv) 2.5% 2.6% 1.8% 2.1% 3.2%

All of the assets in the permanent portfolios had a positive return in 2016. Gold recovered from its long term slump with 8% return in 2016. 

We have also updated the  Long Term Harry Browne’s Permanent Portfolio Performance table: 

As of 12/31/2016:

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% 2016 5.4%
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  8.48%

Looking ahead, though there has been a very negative sentiment on long term bonds because of the rising interest rate concern, we see that the three main components in the permanent portfolio: stocks, gold and long term bonds will still act to hedge to each other. Gold can still excel if major debt spending is materialized. Stocks can still rise if the corporation earnings can be boosted due to tax cut and other pro economy growth policies. Long term bonds will act as a hedge if investors expectation turns out to be false. 

Risk parity portfolios

The real risk parity portfolios use leverage in fixed income to boost returns while increasing the risk in bonds to match stocks. Though these portfolios have done very well for the past twenty years, investors should be aware that the outperformance has been achieved in a secular bond bull market. We are concerned that there is a possibility that in a rising rate environment, both stocks and bonds tank. In such a scenario, this type of portfolios can suffer. 

We advocate only using these portfolios in a small allocation in one’s overall portfolio. We believe that investors should not overly rely on these portfolios in the current environment,  

Market Overview

All assets rose last week. As of last Friday, based on Factset,  with 71% of the companies in the S&P 500 reporting actual results for Q4 2016,  67% of S&P 500 companies have beat the mean EPS estimate and 52% of S&P 500 companies have beat the mean sales estimate. For the quarter, the blended earnings growth rate 5.0% is much better than 3.1% expected on December 31, 2016. Though we have no particular strong opinion on when the current up trends will end, we are concerned that investors will become more and more wary on the promises fulfilled by the current administration. We are cautiously optimistic. 

For more detailed asset trend scores, please refer to 360° Market Overview

Now that the Trump administration is officially sworn in, the new president is facing the reality to deliver his many promises to make substantial changes. As the nation is posed to invest, the most important factor to watch is how productive the investments will be. Simply put, productive investments will result in better return on investment (ROI), tangibly or intangibly. They should also increase productivity that in turns will improve our standard of living. Capital misallocation can result in a higher growth but might not improve the real standard of living, which is the ultimate goal of economic activities. Whether the new president can truly achieve this goal is still yet to be seen. One thing is certain: we will see more market volatilities. 

In terms of investments, U.S. stock valuation is at a historically high level. It is thus not a good time to take excessive risk. However, we remain optimistic on U.S. economy in the long term and believe much better investment opportunities will arise in the future. 

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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