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, August 20, 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.

A Guide To Conservative Portfolios

As promised in the previous newsletter, we will discuss how to construct conservative portfolios in more details.

We have addressed this topic several times in the past:

We strongly suggest that users interested in this subject read the above newsletters. It does seem that many users are still confused and it warrants to make this newsletter serve as a guide on this topic.

Ways to construct a conservative portfolio

Admittedly, MyPlanIQ website does present several ways to construct a conservative portfolio:

Asset Fund in this portfolio Target Percentage
USStocks VDIGX (Vanguard Dividend Growth Inv) 20%
REITs VGSIX (Vanguard REIT Index Inv) 10%
TotalReturnBond P_46880 (Schwab Total Return Bond) 70%
  • 3. The above portfolios have no protection in stock loss as you are essentially buy and hold both US stocks and REITs index funds. For people who are concerned about the drawdown or losses in a market downturn, you can invest in a moving average guarded index fund portfolio like P_61056 (P SMA 200d VFINX Total Return Bond As Cash Monthly) instead of VDIGX and VGSIX. This results in a much lower drawdown. Furthermore, you might be able to increase stock portion allocation in order to boost returns without sacrificing much risk. We discussed this method in October 9, 2017: Conservative Portfolios Revisited. The following shows the latest performance for these portfolios: 
Portfolio Performance Comparison (as of 7/13/2018)
Ticker/Portfolio Name YTD
1Yr AR 3Yr AR 5Yr AR 10Yr AR AR Since 1/1/2001
Tactical Conservative Portfolio 30 Percent Stocks -0.0% 5.6% 6.3% 6.3% 9.4% 9.6%
Tactical Conservative Portfolio 40 Percent Stocks 0.8% 7.1% 6.9% 7.2% 10.1% 10%
Tactical Conservative Portfolio 50 Percent Stocks 1.6% 8.7% 7.6% 8.0% 10.8% 10.4%
Schwab Conservative Total Return Dividend Portfolio -0.9% 3.0% 5.6% 5.7% 8.3% 8.4%
VWINX (Vanguard Wellesley Income Inv) -0.9% 3.0% 5.7% 5.8% 7.5% 6.7%

AR: Annualized Return

Furthermore, the maximum drawdown (from a peak to a following trough):

Ticker/Portfolio Name Standard Deviation (since 2001) Maximum Drawdown (since 2001)
Tactical Conservative Portfolio 30 Percent Stocks 5.2% 7.3%
Tactical Conservative Portfolio 40 Percent Stocks 5.9% 8.4%
Tactical Conservative Portfolio 50 Percent Stocks 6.7% 9.8%
Schwab Conservative Total Return Dividend Portfolio 6.1% 20.1%
VWINX (Vanguard Wellesley Income Inv) 6.2% 21.7%

So one can increase stock allocation to 40% from 30%, for example, while still only getting less than half of maximum drawdown while improving annualized return to 10% vs. 6.7% of VWINX since 2001!

The Portfolio Performance  (as of 7/13/2018):
Ticker/Portfolio Name YTD
1Yr AR 3Yr AR 5Yr AR 10Yr AR AR Since 1/1/2001
Global Tactical Conservative Portfolio 30 Percent Stocks -1.7% 3.9% 5.5% 5.1% 7.9% 9.7%
Tactical Conservative Portfolio 30 Percent Stocks -0.0% 5.6% 6.3% 6.3% 9.4% 9.6%
VWINX (Vanguard Wellesley Income Inv) -1.0% 2.7% 5.4% 5.8% 7.5% 6.7%

AR: Annualized Return

Even though the global tactical conservative has severely underperformed the US centric one for the past 10 years as in this period, US stocks have virtually outperformed international stocks, emerging market stocks and other risk assets by some big margins, this portfolio still managed to beat the US one since 2001! 

Recommended conservative portfolios

Now many users might be already confused as there are so many versions of conservative portfolios (let alone the ones discussed in the previous newsletter). Though we recognize that these options all have their pros and cons, we would still like to present our recommendations or favorites based on users’ preferences.

For those who are fine with US centric allocation (to some extent, if you are comfortable with investing in a US centric conservative mutual fund like VWINX or BERIX, you probably would be fine with US centric allocation), you can further look at your preferences in terms of tax and risk and consider

  • For very risk averse investors, you should use (US) tactical portfolios (item 3 above). 
  • For tax conscious investors and you don’t actually need the stock portion capital for a long time (more than 15 years or so), you can use (US) buy and hold portfolios in item 2 above. 
  • For those who would like to boost returns a little bit more, you can use (US) tactical portfolios (item 3 above) by increasing allocations to the tactical stock portion. NOTE: we don’t suggest an overly aggressive increase in stock allocations as ultimately, if you are interested in a conservative portfolio, you are definitely very concerned about temporary loss and a moving average or tactical portfolio. Unfortunately, however how much maximum drawdown it has reduced, it is still subject to some possible severe sudden loss (such as in a stock market crash scenario). 

The above method is also mostly applicable to a global allocation investor. We do want to point out that to commit to a global allocation portfolio, you have to commit to some more active trading and some possible prolonged underperformance against a US centric portfolio such as in the past 10 years. Although subjectively we have no reason to believe that the current relative US strength is going to fade anytime soon compared with other international stocks, the long period of outperformance is perhaps pointing to a closer turning point. 


Finally, we want to address an often confusing question regarding static portfolios that are used in the above portfolios. The above static portfolios are simple enough and thus there is no need to get email alert on their rebalances. What you need is to follow the subportfolios such as the total return bond portfolio and the tactical portfolio and then just simply allocate capital in your actual investment accounts in a brokerage based on the conservative target percentages. You can put the above conservative portfolio to your watchlist (that does not count towards your quota) so that every now and then, you can check on this model portfolio to understand its performance. However, if you really feel the need, you can customize a static portfolio on your own (which counts towards your quota).

For basic subscribers, you can customize a tactical portfolio with risk profile 0 using a brokerage specific plan to substitute P Goldman Sachs Global Tactical Benchmarks Based Include Emerging Market Diversified Bonds ETFs. We plan to make moving average strategy based portfolios available to basic subscribers soon. 

Market Overview

One of the important developments recently is that US bonds are now back to a positive trend. We have no idea how long such a trend will persist. However, we also want to point out that the yield curve is now much flattened:

We can see that it’s the most flattened since 2008. A flattened yield curve usually signals that bond investors are less optimistic about the long term economic growth. Again, all of these indicators only tell part of the story and in no way are sure predictors for market direction. As always, the best way is to follow a well thought out plan and 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 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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–Thanks to those who have already contributed — we appreciate it.

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