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, May 22, 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.

The Long Term Stock Market Timing Return Since 1871

Last week, we wrote about S&P 500 rolling 10 to 20 years returns for over 100 years (see April 17, 2017: Risk vs. Volatility: Long Term Stock Market Returns). It’s natural to ask how active investment strategies can improve returns and/or reduce risk (or overall volatility). As many have known, we have advocated strategies that are based on long term stock market valuation metrics (see  March 13, 2017: Long Term Stock Valuation Review, for example) or long term stock timing such as S&P 500 total return 200 days (10 month) moving average  (see February 20, 2017: Long Term Stock Timing Based Portfolios And Their Roles). In this newsletter, we will look at how the 10-month (or 200 days) moving average based portfolio on S&P 500 has performed for this long period of time. 

The moving average portfolio is very simple: at each month end, look at the S&P 500 total return (i.e. not just index price, but with dividend reinvested) and its 10 month moving average. If the total return is above the moving average, it invests in S&P 500, otherwise, it just invests in cash. In this study, we further assume cash does not generate any extra return, an assumption we will discuss later. 

The Data

Using the same Shiller’s monthly S&P 500 index data which spans from 1871 to the end of 2016, we construct a 10-month moving average of S&P 500 total return (dividend reinvested) based portfolio, what we find is the following: 

Or from 10/1871 to 12/2016, the 10-month moving average based portfolio generated 9.73% annualized return (compound aggregate, not simple average return), compared with S&P 500’s 9.57% annualized total return. 

Furthermore, the moving average portfolio only incurred less than 1/3 of the maximum drawdown, the most present instance is what happened from 2008 t 2009: S&P 500 had a over 55% maximum loss (drawdown) from a peak to a trough while the moving average one only had 22%, which occurred in 1990, not in 2008-2009 period (it had 17% maximum drawdown at that period). 

So for over 145 years, the 10-month moving average based timing portfolio not only returned better, but with much less (1/3) risk (or volatility). 

We also look at the rolling 10, 15 and 20 years returns of this moving average portfolio, compared with those for S&P 500 mentioned last time. Here is what we found: 

The moving average rolling 10 years annual returns are now improved: there was never a negative rolling 10 year return. The minimum annual return for rolling 10 year periods is 0.9%, instead of -4%. Here are the monthly return data: 

  S&P Rolling 10 Yr S&P Rolling 15 Yr S&P Rolling 20 Yr  MA Rolling 10 Yr  MA Rolling 15 Yr  MA Rolling 20 Yr 
AVERAGE 9.2% 9.2% 9.3% 9.4% 9.4% 9.4%
STDEV 5.0% 4.1% 3.3% 3.9% 3.1% 2.3%
MIN -4.0% -0.3% 2.1% 0.9% 2.6% 3.2%
MAX 21.1% 19.3% 17.9% 19.4% 16.7% 15.3%

MA: Moving Average

In fact, for the rolling 10 year period, the annualized return of -4% vs. moving average (MA)’s annualized return of 0.9% translates over 43% compound 10 year return difference: the -4% annual return for 10 years. This is certainly not a short term volatility issue, it’s a very meaningful risk. 


However, the story does not end here. Let’s look at how the portfolio performed from 1990 to 1999:

In fact, in this 10 year period, the market timing portfolio underperformed the index! No wonder in that period, the financial media was full of the market timing bashing articles. In fact, a 10 year is a long enough period where people tend to forget about the history. 


The 145 year period in this study is the longest period when S&P 500 has data. It’s indisputable that a simple moving average based market timing strategy can be an effective tool to reduce risk. Market timing is a sensitive and controversial topic, partly due to the bias in financial media and industry, and partly due to its many inferior forms and most importantly, partly due to its long term nature: sometimes, such strategies can underperform for as long as 10, 15 and even 20 years. 

The above study doesn’t take cash return into account. Furthermore, using bonds or total return bond fund portfolios as cash substitute can boost overall portfolio annual return by 1-2% (see, P SMA 200d VFINX Total Return Bond As Cash Monthly portfolio or February 20, 2017: Long Term Stock Timing Based Portfolios And Their Roles newsletter. 

 At this moment, we are seeing a similar pattern as in 1990s: the current bull market has been running for over 7 years. Investors have started to lose patience in risk management strategies. But the long term history will again teach them the same lesson once the current market cycle ends. 

Market Overview

The result of the French election turns out to be more encouraging and investors are again flocking to risk assets. As last quarter’s earnings start to pour in, markets are more or less driven by this short term event. Our position is still that investors should not be carried away by these short term events and should follow a well defined investment strategy. As we stated many times, consistency and proper risk management are the key factors to determine the outcome of investments in the long term. We just need to constantly remind ourselves even when markets are in favor. 

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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