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, February 11, 2019. You can also find the re-balance calendar for 2019 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.
Tactical Asset Allocation Portfolio Review
For the first in the past several years, tactical asset allocation (TAA) strategies became relevant in late 2018. Unfortunately, as US stocks really started to weaken in October 2018 and then it experienced a seesaw fashion, the downtrend only began to materialize in December, which was too late to show its strength.
In fact, the TAA portfolios mostly underperformed their strategic asset allocation (SAA) counterparts in 2018, even in the presence of the volatile months in late 2018.
Before we proceed to review these portfolios, let’s look at the major asset performance table cited in the last newsletter:
Major asset returns (as of 1/4/2019):
|Ticker/Portfolio Name||2018||3Yr AR||5Yr AR||10Yr AR|
|VTI (Vanguard Total Stock Market ETF)||-5.2%||9.9%||8.3%||13.1%|
|VEA (Vanguard FTSE Developed Markets ETF)||-14.8%||4.7%||1.5%||6.3%|
|VWO (Vanguard FTSE Emerging Markets ETF)||-14.8%||9.7%||2.3%||7.1%|
|VNQ (Vanguard REIT ETF)||-6%||3.3%||7.6%||12.4%|
|DBC (PowerShares DB Commodity Tracking ETF)||-12.8%||3.8%||-10.0%||-3.8%|
|BND (Vanguard Total Bond Market ETF)||0.1%||2.3%||2.4%||3.0%|
|GLD (SPDR Gold Shares)||-1.9%||5.7%||0.4%||3.5%|
|TLT (iShares 20+ Year Treasury Bond)||-1.6%||2.8%||6.4%||3.6%|
|JNK (SPDR Barclays High Yield Bond ETF)||-3.3%||5.6%||2.0%||8.2%|
|TIP (iShares TIPS Bond)||-2.2%||1.4%||-6.5%||-0.7%|
Unfortunately, virtually all of the major assets were down last year.
TAA portfolios performed poorly
We continue to look at the representative portfolios that were tracked in the last year’s review newsletter:
|Ticker/Portfolio Name||2018||3Yr AR||5Yr AR||10Yr AR||15Yr AR||Since 1/2/2001||Max Drawdown|
|P SMA 200d VFINX Total Return Bond As Cash Monthly||-6.3%||8.6%||7.1%||12.8%||10.9%||11.3%||21%|
|P Goldman Sachs Global Tactical Include Emerging Market Diversified Bonds||-7.1%||7.7%||4.9%||8.6%||10.2%||11.8%||17.2%|
|P Goldman Sachs Global Tactical Include Emerging Market Diversified Bonds Top 2||-11.9%||3.8%||1.9%||7.3%||9.3%||11.5%||23.4%|
|VFINX (Vanguard 500 Index Investor)||-4.5%||12.6%||9.2%||13.5%||7.8%||6%||55.3%|
See year by year detailed comparison >>
- Again, the portfolio that only chooses top 2 instead of 3 assets underperformed.
- The tactical portfolios underperformed S&P 500 (VFINX) last year. In fact, they did worse in the last 1, 3, 5 and 10 years.
- However, these portfolios still did much better in the last 15 and 18 years in terms of returns and risk: maximum drawdown or other metrics like standard deviation (please see the link for more such details).
- It’s very interesting to see that the maximum drawdown of these tactical portfolios since 2001 was made in last year. To be more precise, these portfolios suffered from the biggest loss in the last 18 years in the last three months of 2018. The loss/drawdown last year surpassed that in 2008/2009!
Expanding the last point, we look at another moving average based timing portfolio that has longer history than P SMA 200d VFINX Total Return Bond As Cash Monthly (this portfolio relies on a total return bond fund portfolio as cash, which has data only starting from 2001). This portfolio P SMA 200d VFINX Monthly started in 1981 and thus includes the 1987 Black Monday stock market crash. One can see that the recent drawdown (21%) in 2018 ranks second, only smaller than 33% made during the crash in 1987. As a side note, since 3/31/198, this portfolio annualized return is 10.2%, slightly better than the VFINX’s 10%. However, one should note that this portfolio only invests in cash instead of some bond funds when it called for non stock exposure. That itself will be another 1 to 2% gain.
We will discuss this portfolio in more details in a future newsletter.
The above data show how severe the loss made in late 2018, as illustrated by the following S&P 500 index chart:
The three sequential events: the descent in October, the ‘fake’ recovery in November and then the near vertical slide in December seriously affected the portfolios.
Commodities in an asset allocation portfolio?
Last year, we witnessed again how commodities again can distract a portfolio’s returns (and risk). The following chart shows Invesco DB commodity index tracking ETF DBC in 2018:
The fake momentum in September (or early October) followed by the non stop loss in the rest of the year was very damaging to a TAA portfolio that has a commodity fund as its candidate. The following table compares the six and five (without commodity as a candidate) core asset allocation portfolios:
|Ticker/Portfolio Name||2018||3Yr AR||5Yr AR||10Yr AR||Since 12/31/2000 AR|
|Five Core Asset Index Funds Tactical Asset Allocation Moderate||-5%||4.8%||2.8%||6.7%||8.4%|
|Six Core Asset Index Funds Tactical Asset Allocation Moderate||-9%||1.1%||0.4%||5.0%||7.8%|
Among the reasons cited in the last year’s review newsletter (January 15, 2018: Tactical Portfolios Review), we reiterated what was said there:
So we would suggest some caution on commodities, especially for those who are more conservative. This means that if you have been following a plan that has commodities as an asset such as Six Core Asset ETFs, you might also want to consider to look at Five Core Asset ETFs. You can either switch to the five core plan or reduce weights when commodities are suggested in a six core portfolio.
Given the poor performance in 2018 for the tactical portfolios, we understand that some users expressed anxiety on the strategies. However, as we have discussed many times in our newsletters, one should expect to hold such a strategy based portfolio for at least 15 years to see its benefits — comparable or better returns that a buy and hold portfolio with much less drawdown or volatility. The above data are still consistent with this assertion.
In the current market environment, even though stock markets can stage a recovery that might eventually makes a new high, we want to point out that
- in the presence of historical high valuation and global trade readjustment, it’s more likely for stocks to experience downside than upside, in our opinion.
- even if indeed stocks can go on to continue their secular up trend for a few more years, just like the one from 1980 to 2000, the tactical will still be able to capture the big portion of the remaining upside from here on when the trends become positive.
As a closing note, we want to reiterate what we said in the last year’s review newsletter:
As we have pointed out numerous times, the real challenge of momentum based investing is not some sort of secret source people haven’t uncovered. Instead, it’s the very nature of its behavior that can make it challenging to many investors short term (see, for example, July 22, 2013: Tactical Asset Allocation: The Good, The Bad And The Ugly). We don’t proclaim possessing super secret investing strategies, instead, we have been very open and believe our value lies in constant education, interaction and analysis on these strategies and human behavior.
Stocks continued their recovery last week and now they are at an important junction, both technically and fundamentally. As we are fully in the earnings report period in the next two weeks, the critical factor to watch is how companies will project their upcoming earnings and revenue. One should understand that at such an elevated level for stock prices, all it takes is an earnings slowdown (and profit margin compression) to dent the appetite for risk.
As always, patience is the virtue and we call for steady and risk comfortable position.
In terms of investments, even after the recent retreat, U.S. stock valuation is still at a historically high level and a bigger correction is still waiting to happen. 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.
- January 7, 2019: Global Strategic Asset Allocation Portfolio Review
- December 17, 2018: Robinhood’s ‘Revolution’ Or Gimmick
- December 10, 2018: How Defensive Are REITs?
- December 3, 2018: Conservative Core Satellite Portfolio
- November 26, 2018: Allocation Mutual Fund Review
- November 19, 2018: Is The Recent Downtrend Sustainable?
- November 12, 2018: The Staggering Low Interest Rates From Big Banks
- November 5, 2018: The ‘Right’ Or ‘Wrong’ Decision
- October 29, 2018: Taxable Total Return Bond Plus Muni Bond Fund Based Portfolios
- October 22, 2018: DoubleLine Shiller CAPE 10 Based Fund Review
- October 15, 2018: Newsletter Collection Update
- October 8, 2018: Asset Trend Review
- October 1, 2018: Taxable vs. Tax Exempt High Yield Bonds
- September 24, 2018: High Yield Bonds In A Rising Rate Environment
- September 10, 2018: Value, Growth And Blend Stock Style Investing
- August 27, 2018: Money Market ETFs?
- August 20, 2018: How Momentum Investing Stacks Up?
- August 13, 2018: Total Return Bond ETF
- August 6, 2018: Fidelity Zero-Fee Index Funds
- July 30, 2018: Tax Efficient Portfolios
- July 23, 2018: Municipal Bond Funds And Portfolios
- July 16, 2018: A Guide To Conservative Portfolios
- July 9, 2018: Conservative Allocation Mutual Funds Based Portfolios
- July 2, 2018: Small Cap Stocks For The Long Term
- June 25, 2018: What Can We Learn From GE’s Removal From Dow Jones Index?
- June 18, 2018: The ‘Best’ Balanced Portfolio Continues To Excel
- June 11, 2018: Is 10 Year Long Enough For Portfolio Comparison?
- June 4, 2018: Action Plan: Risk Review For Investments
- May 21, 2018: Rising Rates, Consumer Staples And Stock Index
- May 14, 2018: Newsletter Collection Update
- May 7, 2018: Money Market Fund Taxonomy
- April 30, 2018: Momentum Investing Review
- April 23, 2018: Commodities In Current Environment
- April 16, 2018: Municipal Bonds As A Fixed Income Asset Class
- April 9, 2018: Exponential Or Compounding Nature In Investing
- April 2, 2018: Inside Of The Stock Chaos
- March 26, 2018: Total Return Bond Update
- March 19, 2018: Treasury Bills vs. Brokered CDs
- March 12, 2018: Defensive Conservative Portfolio Review
- 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