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.
Long Term Stock Timing Based Portfolios And Their Roles
We introduced a few long term stock timing portfolios several years ago. Specifically we keep track of two Simple Moving Average (SMA) based portfolios on Advanced Strategies page. The first one is a 200 days SMA based portfolio:
|Ticker/Portfolio Name||1Yr AR||3Yr AR||5Yr AR||10Yr AR||10Yr Sharpe||Since 3/31/1988|
|P SMA 200d VFINX Total Return Bond As Cash Monthly||17.8%||9.4%||13.0%||12.2%||0.91||N/A|
|P SMA 200d VFINX Monthly||16.8%||8.4%||12.4%||10.2%||0.77||10.7%|
|VFINX (Vanguard 500 Index Investor)||24.5%||10.7%||13.8%||7.1%||0.32||10.1%|
The portfolio buys Vanguard 500 index fund (VFINX, an S&P 500 index fund) when its total return line is above its 200 days SMA and sells VFINX when its total return line is below the 200 days SMA. It then either goes to CASH (the second portfolio) or goes to a total return bond fund such as P_46880 (Schwab Total Return Bond) in the first portfolio. The portfolio makes the above transactions at the end of a month. These portfolios only invest in US stocks (S&P 500 index fund).
The going to cash portfolio has the earliest start date (3/31/1988). The amazing fact for this portfolio is that it not only has beaten buy and hold VFINX for the past 29 years (10.7% vs. 10.1%), it does so with much lower maximum drawdown (22.4% vs. 55.3%). Though it has lagged slightly behind VFINX in the past 1, 3, 5 years. It did much better (10.2% vs. 7.1%) for the past 10 years. It truly fulfills our stated purpose to keep up with general markets in a bull market and outperform in a full market cycle that includes a bull and a bear market.
The first portfolio did even better by investing in a total return bond fund instead of going to cash. We have advocated using total return bond fund portfolios as a cash substitute in many newsletters. This is a feasible and fully investable method as the portfolio only buys/sells at a monthly frequency.
Unlike our globally oriented Tactical Asset Allocation(TAA) portfolios that can invest in other stocks and risk assets other than US stocks, these portfolios have done much better in this ongoing bull market since 2009 as they only focus on the best performing stock asset – US stocks.
Global SMA Based Portfolio
This portfolio was first introduced by Mebane Faber in an article A Quantitative Approach to Tactical Asset Allocation. He termed it as GTAA (Global Tactical Asset Allocation). As this portfolio is a simple equal weighted allocation among 5 major assets: US stocks, US REITs, International Stocks, Commodities and Long Term Treasury Bonds and in each asset, it uses 10 month SMA (or 200 days SMA) to switch between the underlying asset and cash, we believe it’s more appropriate to call it a global SMA based portfolio.
In the following portfolio, we invest 25% in each asset that is based on 200 days SMA, rebalanced monthly. We also use total return bond portfolio as the cash substitute to boost the performance.
|Ticker/Portfolio Name||1Yr AR||3Yr AR||5Yr AR||10Yr AR||10Yr Sharpe||Since 6/30/2003 AR|
|P Diversified Timing Asset Allocation Portfolio With Total Return Bonds||12.0%||5.2%||5.7%||6.2%||0.62||8.6%|
|VFINX (Vanguard 500 Index Investor)||24.5%||10.7%||13.8%||7.1%||0.32||8.8%|
|MALOX (BlackRock Global Allocation Instl)||13.1%||2.8%||5.4%||5.1%||0.41||8.3%|
|PASDX (PIMCO All Asset D)||19.8%||2.1%||3.1%||4.7%||0.5||5.5%|
See year by year performance >>
In the above table, we compare the portfolio with two famous global allocation funds: MALOX and PASDX. Again the simple portfolio has beaten the two mutual funds for the past 1, 3, 5, 10 years and since 6/30/2003, the start date when the PIMCO commodity fund PCRDX was first available.
The above portfolio again shows that using both long term timing and smart total return bonds as cash, one can outperform some of the best mutual funds with lower risk.
The above portfolios clearly supports our long term held view that simple, long term timing can be effective to reduce risk while enhancing returns. Though market timing has been criticized by many, simple timing techniques such as moving average based do offer some advantages. We offer the following observations:
- It’s indisputable that such techniques can be effective in a long term period.
- Unlike other traditional timing based portfolios, investing in a good bond fund instead of cash when going to cash can enhance returns by 1-5% annually. We view ‘smart cash’ is an inherent component in a timing portfolio.
- However, short term or even in a period of several years (such as the current 7 year and going bull market since 2009), it can lag behind the general markets. This can discourage investors. We have devoted numerous articles to this investment portfolio behavior. The key is to fully understand each strategy’s pros and cons and thus set the appropriate expectation.
- It’s even more frustrating during such a period because investors have to perform transactions that only yield bad results, compared with just a simple buy and hold. This is a a ‘much ado about nothing’ behavior is perhaps the biggest challenge for many to stick to such a strategy. Unfortunately, there is no a strategy that can consistently outperform markets in any period of time.
- To alleviate or reduce the psychological effect, one can further diversify by employing a combination of investment strategies so that when one zigs, another zags in a particular market environment.
Last quarter’s earnings report continue to beat the expectation: based on Factset, with 82% of the companies in the S&P 500 reporting results for Q4 2016, the blended earnings growth rate is 4.6%, better than the expected 3.1% on December 31, 2016. Stocks are still at elevated levels. Though stocks are way overvalued, the current market behavior is a classic and typical reflection of the saying ‘Markets can remain irrational for longer than you can remain solvent’. For average investors, it’s better to stay with markets and react accordingly. We again call for stay on the course.
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.
- February 13, 2017: Alternative Investment Portfolios Review
- February 6, 2017: Tax Free Municipal Bond Investments Review
- January 30, 2017: Brokerage Specific Conservative Portfolios
- January 23, 2017: Fixed Income Portfolio Review
- January 16, 2017: Long Term Trend Following Portfolio Review
- January 9, 2017: Tactical Asset Allocation Review
- January 3, 2017: Strategic Asset Allocation Review
- December 12, 2016: Enhanced Index Funds
- December 5, 2016: Review Of Broad Base Core Mutual Funds For Brokerages
- November 28, 2016: Core Index ETFs Review
- November 21, 2016: International Exposure Of U.S. Large Companies
- November 14, 2016: Asset Trends After The Election
- November 7, 2016: Rising Rate And Current Bond Trend
- October 31, 2016: Economy Power And Long Term Stock Returns
- October 24, 2016: Current Commodity Trend And Managed Futures
- October 17, 2016: Investment Mistakes And Good Or Bad Investment Strategies
- October 10, 2016: Momentum Investing Review
- October 3, 2016: Survey & Feedback
- September 26, 2016: Fixed Income Investing: Actively Managed Funds vs. Index Funds
- September 19, 2016: Stock Investing: Actively Managed Funds vs. Index Funds
- September 12, 2016: Newsletter Update
- September 5, 2016: Overvalued Markets And Long Term Timing Strategies
- August 29, 2016: Your 401K Finally Draws Attention
- August 22, 2016: Inflation Protected Securities TIPS For Current Overvalued Markets
- August 15, 2016: Risk On: Emerging Market Stocks And Small Cap Stocks
- August 8, 2016: Portfolio Construction Using Stock ETFs And Bond Mutual Funds
- August 1, 2016: Adding Value To Your Own Investments
- July 25, 2016: Tactical Asset Allocation Funds Review
- July 18, 2016: Strategic Asset Allocation & Lazy Portfolio Review
- July 11, 2016: Asset Trend Review
- June 27, 2016: Secular Cycles For Tactical And Strategic Investment Strategies
- June 20, 2016: A World of Debt
- June 13, 2016: Managed Futures For Portfolio Building
- June 6, 2016: Newsletter Summary
- May 30, 2016: Swensen Portfolio And Permanent Portfolios
- May 23, 2016: AAII Article And Some Web Changes
- May 16, 2016: The PIMCO (Dis)Advantages
- May 9, 2016: Boost Your Dull Summer Investments
- May 2, 2016: Low Cost Index Fund Investing
- April 25, 2016: Tax Free Municipal Bond Funds & Portfolios
- April 18, 2016: Asset Class Trend Review
- April 11, 2016: Construction of Sound And Conservative Portfolios
- March 28, 2016: Total Return Bond ETFs Review
- March 21, 2016: Small And Large Company Stock Performance In Different Economic Expansion Cycles
- March 14, 2016: Are Tactical And Timing Strategies Losing Steam?
- March 7, 2016: Defined Maturity Bond Fund Analysis
- February 29, 2016: Smart Strategic Asset Allocation Rebalance When Market Trend Changes
- February 22, 2016: Be Cash Smart
- February 15, 2016: Bond ETF Portfolios
- February 8, 2016: Newsletter Collection Update
- February 1, 2016: Total Return Bond Fund Portfolios In A Volatile Period
- January 25, 2016: Alternative Portfolios Review
- January 18, 2016: Strategic Asset Allocation: A Cautious Outlook
- January 11, 2016: Review Of Trend Following Tactical Asset Allocation
- January 4, 2016: What Worked And Didn’t In 2015
- December 21, 2015: Distressed Assets
- December 14, 2015: High Yield Bonds And Their Correlation With Stocks
- December 7, 2015: Diversification And Global Allocation
- November 30, 2015: Investors and Speculators Combined
- November 23, 2015: Active Stock Fund Performance Consistency
- November 16, 2015: Permanent, Risk Parity And Alternative Portfolios Review
- November 9, 2015: Broad Base Core Mutual Fund Review
- November 2, 2015: Broad Base Index Core ETFs Review
- October 26, 2015: Total Return Bond Fund Review
- October 19, 2015: Advanced Portfolio Review
- October 12, 2015: What About Commodities?
- October 5, 2015: Core Satellite Portfolios In A 401k Account
- September 28, 2015: Risk Managed Strategic Asset Allocation Portfolios Revisited
- September 21, 2015: Quest For The Best Investment Strategy
- September 14, 2015: Core Satellite Portfolios In Market Turmoil
- September 7, 2015: Market Rout Creates An Opportunity to Reposition Your Portfolios
- August 31, 2015: Review of Asset Allocation Funds and Portfolios
- August 24, 2015: Market Rout And Your Portfolios
- August 17, 2015: ETF or Mutual Fund Based Portfolios
- August 10, 2015: Updated Newsletter Collection
- August 3, 2015: Slippery Asset Trends
- July 27, 2015: Performance Dispersion Among Momentum Based Portfolios
- July 20, 2015: Global Balanced Portfolio Benchmarks
- July 13, 2015: Pain in Tactical Portfolios
- July 6, 2015: Fixed Income Total Return Bond Funds In Strategic Asset Allocation Portfolios
- June 29, 2015: Core ETF Commission Free Portfolios
- June 22, 2015: Secular Asset Trends
- June 15, 2015: Giving Up Bonds?
- June 1, 2015: Summer Blues?
- May 26, 2015: Cash, Bonds and Stocks In A Rising Rate Environment
- May 18, 2015: Portfolio Update
- May 11, 2015: Pain in Fixed Income?
- May 4, 2015: The Balanced Stock and Long Term Treasury Bond Portfolios
- April 27, 2015: Long Term Treasury Bond Behavior
- April 20, 2015: 529 College Savings Plan Rebalance Policy Change
- April 13, 2015: Total Return Bond Funds As Smart Cash
- April 6, 2015: The Low Return Environment
- March 30, 2015: Brokerage Specific Core Mutual Fund Portfolios 2
- March 23, 2015: Investment Arithmetic for Long Term Investments
- March 16, 2015: Brokerage Specific Core Mutual Fund Portfolios
- March 9, 2015: Newsletter Collection Update
- March 2, 2015: Total Return Bond ETFs
- February 23, 2015: Why Is Global Tactical Asset Allocation Not Popular?
- February 16, 2015: Where Are Permanent Portfolios Going?
- February 9, 2015: How Have Asset Allocation Funds Done?
- February 2, 2015: Risk Management Everywhere
- January 26, 2015: Composite Portfolios Review
- January 19, 2015: Fixed Income Investing Review
- January 12, 2015: How Does Trend Following Tactical Asset Allocation Strategy Deliver Returns
- January 5, 2015: When Forecast Fails
- December 22, 2014: Long Term Asset Returns: How Long Is Long?
- December 15, 2014: Beaten Down Assets
- December 8, 2014: Implementing Core Asset Portfolios In a Brokerage
- December 1, 2014: Two Key Issues of Investment Strategies
- November 24, 2014: Holiday Readings
- November 17, 2014: Retirement Spending Portfolios Update
- November 10, 2014: Fixed Income Or Cash
- November 3, 2014: Asset Trend Review
- October 27, 2014: Investment Loss, Mistakes And Market Cycles
- October 20, 2014: Strategic Portfolios With Managed Volatility
- October 13, 2014: Embrace Volatility
- October 6, 2014: Tips For 401k Open Enrollment
- September 29, 2014: What Can We Learn From Bill Gross’ Departure From PIMCO?
- September 22, 2014: Why Total Return Bond Funds?
- September 15, 2014: Equity And Total Return Bond Fund Composite Portfolios
- September 8, 2014: Momentum Based Portfolios Review
- September 1, 2014: Risk & Diversification: Mint.com Interview
- August 25, 2014: Remember Risk
- August 18, 2014: Consistency, The Most Important Edge In Investing: Tactical Case
- August 11, 2014: What To Do In Overvalued Stock Markets
- August 4, 2014: Is This The Peak Or Correction?
- July 28, 2014: Stock Musings
- July 21, 2014: Permanent Portfolios & Four Pillar Foundation Based Framework
- July 14, 2014: Composite Portfolios Review
- July 7, 2014: Portfolio Behavior During Market Corrections
- June 30, 2014: Half Year Brokerage ETF and Mutual Fund Portfolios Review
- June 23, 2014: Newsletter Collection Update
- June 16, 2014: There Are Always Lottery Winners
- June 9, 2014: The Arithmetic of Investment Mistakes
- June 2, 2014: Tips On Portfolio Rebalance
- May 26, 2014: In Praise Of Low Cost Core Asset Class Based Portfolios
- May 19, 2014: Consistency, The Most Important Edge In Investing: Strategic Case
- May 12, 2014: How To Handle An Elevated Overvalued Market
- May 5, 2014: Asset Allocation Funds Review
- April 28, 2014: Now The Economy Backs To The ‘Old Normal’, Should Our Investments Too?
- April 21, 2014: Total Return Bond Investing In The Current Market Environment
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