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 16, 2018. 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 ‘Best’ Balanced Portfolio Continues To Excel

US stocks continue to be in an overly extended level. This has persisted for the last several years. We have repeatedly pointed out their extreme valuation based on several long term metrics (see Market Indicators, for example). However, investors who have been with us for the last several years also notice that markets can be way over extended (or ‘irrational’) for a long time. In fact, it can be long enough so that many rational investors throw in the towel one by one, only eventually finding out that they are suddenly confronting with a severe correction or bear market. 

There are several ways to cope with this. Among them, the simplest way is to just combine both buy and hold when stocks are undervalued and even reasonably valued and, when they are overvalued, become more tactical (thus a speculator) using something as simple as a 200 day moving average on US stock index like S&P 500. We detailed this approach in the following two newsletters: 

The above approach only deals with stock investing. For most investors, their portfolios are more ‘balanced’: i.e. they should include at least some portion in fixed income (bonds). For fixed income part, MyPlanIQ has long maintained some excellent portfolios called total return bond fund portfolios that tactically invest in a few highly selective total return bond mutual funds. These portfolios have consistently outperformed the ‘best’ total return bond or intermediate bond funds for the past several years. For example, as of 6/15/2018, these portfolios, listed on our What we do -> Brokerage Investors page, have the following performance: 

Portfolio Performance Comparison (as of 6/15/2018)
Ticker/Portfolio Name YTD
1Yr AR 3Yr AR 5Yr AR 10Yr AR 10Yr Sharpe
Schwab Total Return Bond -1.1% 1.2% 4.4% 3.4% 7.7% 1.81
Fidelity Total Return Bond -1.1% 1.0% 4.0% 3.8% 7.2% 1.77
TDAmeritrade Total Return Bond -1.1% 2.2% 3.6% 3.2% 7.3% 1.83
FolioInvesting Total Return Bond -1.1% 2.2% 4.8% 3.7% 7.7% 1.81
Etrade Total Return Bond -1.1% 2.2% 4.8% 3.7% 7.8% 1.83
Merrill Edge Total Return Bond -1.1% 2.2% 3.8% 3.5% 8.6% 2.14
PONAX (PIMCO Income A) -2.1% 1.2% 4.3% 4.6% 8.6% 2.18
DLTNX (DoubleLine Total Return Bond N) -0.3% 0.4% 2.1% 2.4%    
VBMFX (Vanguard Total Bond Market Index Inv) -2.3% -1.5% 1.3% 1.6% 3.6% 0.88

PONAX is the best performing total return bond fund in the past 10 year period. Though our total return bond fund portfolios return comparably or slightly lower than it, notice that these portfolios have had about half of the maximum drawdown compared with PONAX. Furthermore, we have long argued that one can not simply rely on a single fund for a long time, regardless how it has performed.

Combining both the ‘invest and speculate’ stock portfolios and the total return bond fund portfolios, one can construct a solid ‘balanced’ portfolio. We introduced the portfolios in June 26, 2017: How To Beat The Best Balanced Allocation Fund. We termed these portfolios as the ‘best’ balanced portfolios. In the following, let’s review their performance. 

The ‘best’ continues to be the best

The following compares some of the best ‘balanced’ mutual funds with the ‘best’ portfolio 50 To 70 Percent Tactical Balanced Portfolio

Portfolio Performance Comparison (as of 6/15/2018)
Ticker/Portfolio Name YTD
1Yr AR 3Yr AR 5Yr AR 10Yr AR 10Yr Sharpe
50 To 70 Percent Tactical Balanced Portfolio 3.1% 11.6% 8.8% 9.9% 12.1% 1.29
PRWCX (T. Rowe Price Capital Appreciation) 3.4% 9.2% 9.4% 11.0% 9.4% 0.65
DODBX (Dodge & Cox Balanced) 1.4% 8.9% 8.2% 9.8% 7.9% 0.49
VBINX (Vanguard Balanced Index Inv) 3.0% 10.0% 8.0% 8.8% 7.7% 0.63
My Simple Alternative Hedge Fund 0.2% 5.7% 4.9% 5.1% 7.4% 0.98
VWELX (Vanguard Wellington Inv) 0.1% 3.8% 6.6% 7.9% 7.4% 0.58
FPACX (FPA Crescent) 0.7% 5.7% 5.9% 7.0% 6.8% 0.65

See detailed year by year comparison >>

The above table is sorted on the 10 year annualized returns. The funds in the table are all of Morningstar’s ‘gold’ funds in the 50%-70% equity balanced fund category:

To remind readers, our ‘best’ balanced portfolio has the following allocation: 

Its allocation is as follows:

Asset Fund in this portfolio Percentage
Bonds P_46880 (Schwab Total Return Bond) 30.00%
Tactical P_61056 (P SMA 200d VFINX Total Return Bond As Cash Monthly) 70.00%


It falls into the Morningstar’s Allocation — 50% to 70% Equity category. Even though it might seem like this portfolio always has 70% in equity, it actually can sometimes go to 0% in equity because the tactical portion can completely invest in bonds or cash only when markets are in distress. 

Returns and risk

Among them,  PRWCX (T. Rowe Price Capital Appreciation) is perhaps the most deserved to be the ‘best’ balanced fund title. We have followed and discussed this fund for years. In fact, its returns in the last 10 years and other periods have been way better than the rest of other ‘gold’ funds. For example, its 10 year annualized return is 1.5% better than the second ranked DODBX (9.4% vs. 7.9%).  Unfortunately, this fund is now closed to new investors. 

However, our ‘best’ portfolio has beaten all of these best funds by some big margins: the 10 year annual return is 2.7% better than PRWCX and 4.2% better than the second ranked DODBX! Furthermore, it has maintained the lead year to date, again, better than all other funds except for PRWCX. 

Long term readers might know that PRWCX is very adept in using convertible securities (a hybrid between stocks and bonds) to boost its return. Its recent excellent returns are clearly helped by the strong performance of convertible bonds: 

Convertible bonds performance: 
Funds YTD
1Yr AR 3Yr AR 5Yr AR 10Yr AR 10Yr Sharpe
VCVSX (Vanguard Convertible Securities Inv) 4.5% 7.9% 3.5% 5.6% 6.2% 0.57
VBMFX (Vanguard Total Bond Market Index Inv) -2.3% -1.5% 1.3% 1.6% 3.6% 0.88

However, one should be reminded that VCVSX (Vanguard convertible bond fund) lost over 40% in 2008-2009. In fact, the following table compares the maximum drawdown among several portfolios and funds: 

Maximum drawdown in the last 10 years:
Ticker/Portfolio Name Maximum Drawdown in the last 10 years 2008 Return
50 To 70 Percent Tactical Balanced Portfolio 12.9% -1.6%
My Simple Alternative Hedge Fund 12.3% -3.5%
PRWCX (T. Rowe Price Capital Appreciation) 41.8% -27.2%
VCVSX (Vanguard Convertible Securities Inv) 40.1% -29.8%
VBMFX (Vanguard Total Bond Market Index Inv) 5.4% 5.1%

With maximum drawdown over 40% and -27% loss in 2008, the best balanced fund PRWCX might not be for everyone. This compares with the ‘best’ portfolio’s about 13% maximum drawdown and a very tolerable -1.6% loss in 2008. 


Given the current high stock market valuation and the prolonged bull market, we suspect that when the next downturn hits, average investors might have a hard time to withstand the volatility exhibited by these ‘best’ funds, however how balanced they are. Furthermore, as bonds are emerging out of an ultra low interest rate environment, there is a possibility that some of the bonds’ risk will have a greater impact on one’s portfolio. As a reminder, VBMFX (Vanguard Total Bond Market Index Inv) has lost over -2% year to date. 

Funds that rely on using higher risk bonds such as convertible or high yield bonds to boost their returns will likely to have a hard time when the next downturn occurs, just like in the previous ones. In our opinion, conservative or risk averse investors should adopt double risk management technique, i.e. using a tactical strategy in both stocks and bonds to prepare for the next downturn while without sacrificing much of the returns whatever the current market can yield. The ‘best’ balanced portfolio certainly fits well into this framework. 

Market Overview

Stock markets started to become a a little more volatile last week as investors are now more concerned about a possible trade war. On the other hand, bonds have been stable: 10 year Treasury bill yields less than 3%. Merge and acquisition fervor continues: The Wall Street Journal reported that the recent AT&T and likely Comcast merge and acquisition might result in some of the largest corporate debts in the world. This is not surprising as in the recent years, companies have utilized low interest rates to pursue both stock buyback and merge & acquisition. However, the debts might eventually become some serious concerns when economy starts its downturn. Again, we reiterate that we are not seeing any imminent downturn risk at the moment. But a prudent investor should always plan out such possibilities, preferably when times are good. As always, we call for staying 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 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 about 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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