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%

See detailed comparison >>

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:

Portfolio Performance Comparison (as of 1/11/2019):
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:

Portfolio Performance Comparison (as of 1/11/2019)
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 

  1. 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. 
  2. 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.

Market overview

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. 

For more detailed asset trend scores, please refer to 360° Market Overview

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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