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, July 31, 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.

Total Return Bond Fund Portfolios And Cash

At MyPlanIQ, we use total return bond fund portfolios (see those listed in the fixed income section on page Brokerage Investors) in lieu of cash in many timing portfolios. Notice that in this situation, we merely try to use a good bond portfolio to improve returns over cash. This usually happens when cash is called for at some period of time in a portfolio such as  P SMA 200d VFINX Total Return Bond As Cash Monthly on Advanced Strategies page. We do not advocate users to literally replace cash in other situations (such as short term cash bank accounts). 

However, we still receive various inquiries from users on how these total return bond fund portfolios are compared with cash, in terms of risk. Part of the reason is that these portfolios have done much better than many other fixed income portfolios or bond funds. Nevertheless, we believe this is an important issue to clarify. 

A simple empirical way to answer this question is to look at the rolling returns of these portfolios, just like what we have done before for stock portfolios (see May 8, 2017: Holding Period of Long Term Timing Portfolios, for example). First, the following chart shows the returns of the representative portfolio Schwab Total Return Bond in each year since 2001:

The portfolio lost money in three years (2005, 2008 and 2015). Furthermore, the yearly returns vary greatly, as high as 29% and as low as -1.6%. Apparently, this portfolio has a much higher risk than cash. But just how volatile is this portfolio? From the portfolio page, we see the following

Name YTD*
1Yr 3Yr 5Yr 10Yr Since 2001
Annualized Return 5.7% 6.0% 3.3% 6.1% 8.2% 8.9%
Maximum Drawdown 0.9% 3.4% 3.7% 5.1% 7.3% 7.6%

So we have the maximum 7.6% peak to trough drop in the last 16 years. That’s still quite risky. 

Next, let’s look at the rolling returns. 

Rolling returns

We look at the prevailing 24 month or 36 month annualized returns at each month from 2001. Just a reminder, a 24-month rolling annualized return in July 2017, for example, is that we compute the annualized return for the last 24 months (i.e. from August 2015 to July 2017).  The following chart shows the 2 and 3  year rolling returns in each month: 

Other stats: 

  24-Month Rolling 36-Month Rolling
Average Annualized Return 9.12% 9.03%
Minimum Annualized Return 1.28% 1.97%
Maximum Annualized Return 21.19% 16.00%
Standard Deviation 5.27% 3.89%
Compound Annualized Return (since 1/2001) 8.90% 8.90%


  • There are no annualized loss in the 24-month (2-year) period. 
  • The 36-month (3-year) rolling returns are much more smooth. 
  • (Arithmetic) Averages are very close: 9.12% vs. 9.03% vs. Compound Annual Return 8.9%. This indicates that the returns stable enough for a period of 2 years or longer.  

From the above data, we would say that the portfolio can be used as the 3rd year (2nd year minimum) buffer for fixed income portion investments. Put it another way, For a retiree who is withdrawing 4% a year in our example used in the previous newsletter (July 17, 2017: Long Term Stock Holding Periods For Retirement), his portfolio that employs a tactical stock portfolio should have the following allocations:

  • Cash: 4-8% (1 to 2 years)
  • Total Return Bond Portfolio: 54%-64% (13 to 14 years)
  • Tactical Portfolio of Stocks (Risk Profile 0): 30%-40% (15 years or longer)

Or for a strategic allocation portfolio:

  • Cash: 4-8% (1 to 2 years) 
  • Total Return Bond Portfolio: 74% (18 to 19 years)
  • Strategic Portfolio of Stocks (Risk Profile 0): 20% (20 years or longer)

Of course, for people who are before retirement, that would mean there is no need to maintain cash in a portfolio (assuming current income fully covers monthly spending and no need for emergency use purpose or a near term large purchasing/spending). Basically, a total return bond fund based portfolio is stable enough for anything needed beyond 2 years. 

As a final note, we caution that the above analysis is based on the past performance since 2001. As many have known, this has been a period of a super bull market for bonds. Though we believe that the tactical/dynamic nature of these total bond fund upgrade/rotation portfolios can alleviate more severe bear market drops in bonds, a safer or more cautious assumption should be adopted if desired. 

Market Overview

Another day, another dollar. Financial markets are unusually calm (or usually calm for more than 9 months now). In fact, CBOE VIX (near term volatility) is at 9.4, in the lowest territory since 1990. Markets are  sleepy in this summer, but sleepy in an uptrend for sure. High yield bonds are bullish again, as virtually all risk assets other than commodities. In the meantime, the long awaited bond bear market seems to be delayed again. 

Earnings reports for last quarter are in their early stage and at this point, it does look like S&P 500 companies will deliver better than expected earning growth again (see Factset latest report).  Stocks are over valued, very over valued but “The Market Can Remain Irrational Longer Than You Can Remain Solvent”. Again, we emphasize that investors should stay the course and manage portfolios accordingly based on a sound plan. 

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. 

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.