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, October 9, 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 Role of Short Term Bond Funds

As many of our readers know, we treat fixed income investing very seriously and believe they not only directly serve for conservative/income investors, they are also our ‘secret’ weapon to construct a sound and better return portfolio for investors in all kinds of risk spectrums, ranging from tactical equity/stock portfolios to strategic asset allocation portfolios. Among them, we have published a series of newsletters on cash and short term investments — an area often overlooked:

Specifically, in July 24, 2017: Total Return Bond Fund Portfolios And Cash, we outline the following allocation idea:

for a tactical stock portfolio:

  • 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)

We further outline that for 0-2 year cash needed, one should utilize Treasury bills and brokered CDs to cut down fees charged by banks and brokerages. 

A question asked by several users is the role of short term return bond funds such as VBISX (Vanguard Short-Term Bond Index Inv) in a portfolio. In this newsletter, we will address this question in more details. 

The short answer to this question:

  • There is no need to use a short term bond fund in a static portfolio.
  • Short term bond funds, however, can be used in a tactical bond fund portfolio. 

Before we go on a more detailed analysis, we recommend the article The Case for Minimizing Risk in Your Bond Holdings written by William Bernstein, the famous proponent of strategic asset allocations. He basically argues that investors should forgo short term bond funds in favor of safer T-Bills or CDs that have fixed maturity. 

0-2 years time frame

The main characteristic of a bond fund is that it invests in a set of bonds that can mature in various time periods. Since the prices of these bonds fluctuate because interest rates change and/or underlying credit quality changes, overall a bond fund’s price fluctuates and it never matures. 

It’s pretty clear that for any cash needed within a year, investors should be better off to go for the predictable money market funds, individual Treasury bills (that mature in 1, 3, 6, 9 or 12 months) and CDs. 

For cash between 1-2 years, let’s first look at the returns of a typical short term bond fund. The representative is VBISX: 

VBISX and Total Return Bond Fund Returns (as of 10/1/2017)
Ticker/Portfolio Name YTD
1Yr AR 3Yr AR 5Yr AR 10Yr AR
Schwab Total Return Bond 6.5% 5.9% 4.2% 5.0% 8.0%
VBISX (Vanguard Short-Term Bond Index Inv) 1.3% 0.3% 1.3% 1.0% 2.6%

Even though VBISX had never lost in any year since 1994, its annual returns varied. In the last 5 years, it only returned 1% per year on average. 

Furthermore, as stated before, short term bond funds still charge high fees. For example, VBISX charges 0.22% annually and it requires $3000 minimum. It’s a Vanguard fund and similar funds from other fund companies will charge much higher fees. 

Considering the variability of returns and relatively high fees charged for  often low return short term investments, we believe investors should go direct to purchase T-Bills (Treasury Bills) and CDs for anything needed within 2 years. 

2-3 year time frame

A sticky issue is on the cash needed between 2nd and 3rd year. We believe that investors can choose to invest in a total return bond fund portfolio listed on  Brokerage Investors page. Let’s compare the rolling 2 years (24 months) and rolling 3 years returns between Schwab Total Return Bond and VBISX:


  • Schwab TRB Total Return Bond portfolio) doesn’t have any loss in rolling 2 years and 3 years period. 
  • Rolling 2 years Schwab TRB underperformed VBISX in 2006 and 2008. Similarly, rolling 3 years Schwab TRB under performed twice in 2007 and 2007. 
  • However, the annualized return 8% of Schwab TRB is much higher than VBISX’s 2.6%

So we believe it’s relatively safe to go for a total return bond fund portfolio instead of a short term bond fund for investments needed between 2nd. and 3rd. year.

Longer than 3 years

We note that the average maturity of bonds in VBISX is 2.9 years. On the other hand, the average maturity of bonds in a total return bond fund is intermediate term, ranging from 3 to 10 years. Given the performance of our total return bond fund portfolios, it’s again evident that we should go for total return bond fund portfolios for these time frames.  


To summarize, for short term investments, we prefer using individual Treasury Bills or CDs that have fixed maturity to avoid a bond fund’s volatility. For anything beyond 2 years, one can use a total return bond fund portfolio that can deliver much higher returns than a short term bond fund. This should pretty much cover all of the investment horizons for short term investments. 

Market Overview

Markets continue its slow ascent. For asset allocation investors, they are unusually calm. As valuations are high at the moment, it’s actually a good time to adjust portfolios and properly manage risk before they become more volatile. Stay the course. 

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

Now that the Trump administration has been in the office for more than half a year, it has stumbled and encountered many difficulties to implement its promised changes in terms of tax cuts, job stimulation and infrastructure spending. On the other hand, stocks continued to ascend, regardless of the progress. Looking ahead, however, we remain convinced that markets will experience more volatilities at some point when reality finally sets in. 

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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