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, April 2, 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.
Defensive Conservative Portfolio Review
MyPlanIQ monitors several conservative portfolios. In this newsletter, we take a look at their performance and discuss how they can be used in the current environment.
It’s been our long held position that for fixed income (bond) investments, one should adopt an active approach. MyPlanIQ recommends total return bond fund rotation based portfolios (see, for example, August 28, 2017: Total Return Bond Fund Portfolios: Where Do They Fit?) for all of the conservative portfolios. Given the current rising rate environment. these portfolios are very much called for as they can actively rotate/pick a good total return bond fund (or even go to cash) based on prevailing market conditions and fund performance in order to reduce loss and enhance returns.
For stock investments, there are two types of conservative portfolios:
- Buy and hold stocks in a conservative allocation
- Tactical (active) stocks in a conservative allocation
Buy and hold stocks with actively managed bonds
These portfolios have the simplicity that one should just allocate stock portion to some low cost stock index funds and bond portion to a total return bond portfolio like P_46880 (Schwab Total Return Bond) (if you are a Schwab client, otherwise, pick another brokerage specific portfolio). On our brokerage investors page, we list several brokerage specific conservative portfolios. Each one has the following target allocation:
USStocks (VDIGX) 20%
REITs (VGSIX) 10%
TotalReturnBond (Brokerage specific) 70%
For stocks, we merely allocate to US dividend stocks and REITs. The 10% allocation to REITs can be reduced if you are not comfortable with its volatility (in general, REITs are more volatile than dividend stocks or even a broad base stock index like S&P 500).
The following are the latest performance figures (as of 3/9/2018):
|1Yr AR||3Yr AR||5Yr AR||10Yr AR||AR since 1/2/2001|
|Schwab Conservative Total Return Dividend Portfolio||-1.1%||5.3%||4.8%||5.8%||8.3%||8.5%|
|Fidelity Conservative Total Return Dividend Portfolio||-1.1%||6.3%||4.3%||5.4%||7.9%||8.4%|
|TDAmeritrade Conservative Total Return Dividend Portfolio||-1.1%||6.1%||4.4%||5.7%||8.3%||8.4%|
|Folioinvesting Conservative Total Return Dividend Portfolio||-1.1%||5.3%||4.8%||5.8%||8.3%||8.2%|
|Etrade Conservative Total Return Dividend Portfolio||-1.1%||5.3%||4.8%||5.8%||8.3%||8.6%|
|Merrill Edge Conservative Total Return Dividend Portfolio||-1.1%||5.3%||4.4%||5.6%||8.9%||7.9%|
|Vanguard Conservative Total Return Dividend Portfolio||-1.7%||4.7%||4.6%||5.7%||8.3%||8.8%|
|BERIX (Berwyn Income)||0.9%||0.8%||2.0%||4.5%||6.5%||7.3%|
|VWINX (Vanguard Wellesley Income Inv)||-1.6%||5.8%||5.4%||6.1%||7.2%||6.8%|
AR: Annualized Return
Left un-shown are the maximum drawdown for these portfolios, compared with VWINX or BERIX. For the past 10 years or 17 plus years since 2001, the portfolios have had a slightly better (smaller) maximum drawdown than the funds while they have outperformed the funds in terms of returns by some good margins (extra 1% or so).
Year to date, even after REIT stocks have lagged behind general stocks badly (VGSIX’s -8.9% vs. VFINX’s 4.6% year to date return as of 3/9/2018), our portfolios are still doing better than VWINX. This is again mostly due to the total return bond portfolios’ performance. They have done a better job than even Vanguard Wellesley fund’s fixed income (in fact, we would claim better than most funds), assuming the stock and REIT index portions are in par with fund’s stock portion.
Tactical stocks with actively managed bonds
We introduced these portfolios in October 9, 2017: Conservative Portfolios Revisited. Our goal is to further reduce the stock portion risk (while also improving returns if it’s possible). The portfolios consist of the following two sub portfolios:
Stocks: S&P 500 index fund moving average portfolio ( P_61056 (P SMA 200d VFINX Total Return Bond As Cash Monthly)
Bonds: total return bond fund portfolio (such as P_46880 (Schwab Total Return Bond)
It turns out that the moving average portfolio (that again invests in a total return bond fund portfolio instead of cash when the stock index is under its 200 day moving average) has had much better return than the fund (VFINX) itself (see this portfolio on Advanced Strategies):
|AR since 2001|
|P SMA 200d VFINX Total Return Bond As Cash Monthly||17.5%||20.0%||10.9%||13.7%||13.8%||12.6%|
|VFINX (Vanguard (S&P 500) Index)||55.3%||20.0%||12.4%||14.6%||10.2%||6.6%|
|VBINX (Vanguard Balance (60% stocks/40% bonds)||36%||12.3%||7.7%||9.2%||7.9%||6.4%|
MaxDD: Maximum Drawdown. AR: Annualized Return
This outperformance, together with the outperformance of our total return bond fund portfolios, have contributed to the big outperformance for the tactical portfolios mentioned in the newsletter:
|1Yr AR||3Yr AR||5Yr AR||10Yr AR||MaxDD|
|Tactical Conservative Portfolio 30 Percent Stocks||0.7%||9.1%||6.0%||6.8%||9.5%||7.3%|
|Tactical Conservative Portfolio 40 Percent Stocks||1.2%||10.7%||6.7%||7.8%||10.1%||8.4%|
|Tactical Conservative Portfolio 50 Percent Stocks||1.8%||12.2%||7.4%||8.8%||10.8%||9.8%|
|VWINX (Vanguard Wellesley Income Inv)||-1.6%||5.8%||5.4%||6.1%||7.2%||21.7%|
Detailed year by year comparison >>
Current market volatility and condition certainly raise concern to conservative investors. In the current extremely high stock valuation environment, it’s very likely the next stock market correction (or bear market) will be as deep (or deeper) as the previous ones. The implies stocks might correct something like 30-60%. What’s worse, as current interest rates are extremely low and central banks around the world have started to tighten monetary polices, bond investments will also likely to suffer from some steep loss.
We thus see it’s very important to adopt a more active and risk averse approach in portfolios. The conservative portfolios mentioned in the above can be used to cope with the twin evils in both stocks and bonds.
Stocks recovered last week. Bond yields are also taking a breath and stabilize. We also note that among bonds, high yield bonds are somewhat stalled in a positive trend, unlike other bond segments that are mostly in a downtrend. For now, stocks are tilted toward upside. But given the extended elevation and high valuation, trends can change quickly. Again, stay the course and manage risk accordingly.
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 a year, the economy and financial markets are in general still in a good shape. Whether the economy will continue to benefit from the supposedly trickle down of the tax cut, the deregulation and the promised infrastructure spending remains to be seen. 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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–Thanks to those who have already contributed — we appreciate it.
- March 5, 2018: Warren Buffett’s Advices
- February 26, 2018: Pros And Cons of Strategic And Tactical Portfolios In 2018
- February 12, 2018: Trend Review
- February 5, 2018: Market Selloff And Long Term Investing
- January 29, 2018: The New Addition To Our Total Return Bond Fund Candidates
- January 22, 2018: Where Are Bonds Heading?
- January 15, 2018: Tactical Portfolios Review
- January 8, 2018: Strategic Portfolios Review
- December 18, 2017: Record Highs And Risk
- December 11, 2017: Cash Return And Interest Rate Update
- December 4, 2017: Mutual Fund Star Ratings: Are They Useful?
- November 20, 2017: Thankful And Mindful
- November 13, 2017: Is This A Good Time For Retirees Or Would Be Retirees?
- November 6, 2017: Newsletter Collection Update
- October 30, 2017: Rising Interest Rates
- October 23, 2017: A Primer For Portfolios
- October 16, 2017: REITs As An Asset Class
- October 9, 2017: Conservative Portfolios Revisited
- October 2, 2017: The Role of Short Term Bond Funds
- September 25, 2017: Fees In Cash Investments
- September 18, 2017: Conservative Portfolios Review
- September 11, 2017: International Diversification Effect
- September 4, 2017: Invest And Speculate Revisited
- August 28, 2017: Total Return Bond Fund Portfolios: Where Do They Fit?
- August 21, 2017: Portfolio Performance: A Walk In The Past
- August 14, 2017: Fidelity Commission Free ETFs Update
- August 7, 2017: I Didn’t Learn Anything — Mistake vs. Temporary Underperformance
- July 31, 2017: Asset Classes And Fund Choices: A Primer
- July 24, 2017: Total Return Bond Fund Portfolios And Cash
- July 17, 2017: Long Term Stock Holding Periods For Retirement
- July 10, 2017: Half Year Asset Trend Review
- June 26, 2017: How To Beat The Best Balanced Allocation Fund
- June 19, 2017: Newsletter Collection Update
- June 12, 2017: A Mixed Bag Performance of Momentum Investing
- June 5, 2017: How To Start A New Portfolio
- May 29, 2017: Alternative Assets And Their Role In Portfolios
- May 22, 2017: Summer Seasonality And Portfolio Management
- May 15, 2017: Cash: Banking Or Investing?
- May 8, 2017: Holding Period of Long Term Timing Portfolios
- May 1, 2017: Debate on Risk vs. Volatility
- April 24, 2017: The Long Term Stock Market Timing Return Since 1871
- April 17, 2017: Risk vs. Volatility: Long Term Stock Market Returns
- April 10, 2017: Total Return Bond ETFs And Portfolios
- April 3, 2017: Quarter End Asset Trend Review
- March 27, 2017: Practical Consideration For IRAs And 401k Accounts
- March 20, 2017: Fund Fees: That’s (Still) Outrageous
- March 13, 2017: Long Term Stock Valuation Review
- March 6, 2017: Asset Classes for Retirement Investments
- February 27, 2017: Fidelity Total Bond Fund Review
- February 20, 2017: Long Term Stock Timing Based Portfolios And Their Roles
- 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