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%
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):

Portfolio Name YTD
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): 

Name MaxDD 1Yr
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

Portfolio Performance Comparison (as of 3/9/2018):
Ticker/Portfolio Name YTD
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. 

Market Overview

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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