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, November 18, 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.

Introducing MyPlanIQ Asset Allocation Composite Strategy

In last week’s newsletter November 11, 2019: Market Indicator And Momentum, we introduced Composite Momentum strategy that, in addition to relative momentum among funds and assets, incorporates a general risk asset market condition indicator to guide risk asset allocation. 

In this newsletter, we introduce our new Asset Allocation Composite (AAC) strategy and its use in asset allocation portfolios for brokerage investment accounts (IRA or taxable) and retirement plans such as 401k, 403b and annuity. 

Asset allocation

As always, we believe in diversification among major assets that include US stocks, international developed market stocks, emerging market stocks, Real Estate (REITs), commodities and bonds. Among the major risk assets (i.e. the assets other than bonds mentioned in the above), we adopt a long term strategic view that’s similar to our Strategic Asset Allocation. We further recognize that US companies, especially large companies, have oversized exposure in oversea or international markets. Thus, US stock allocation actually includes some non-insignificant exposure that needs to be taken into account. Our AAC  allocation now incorporates this viewpoint. 

We also adopt a more conservative view on commodities asset class. We believe other than gold, other commodities subclasses are not efficiently investable as currently, their exposure has to be through derivatives or so called futures. Technical issues make funds representing these assets not cost effective. We thus don’t recommend commodities allocation for average investors. 

Funds in assets

We have long advocated the following in terms of selecting candidate funds for various asset classes (see our article here):

Stocks (equities):

We advocate using ultra low cost index funds for these asset classes. We have discussed the rationale behind this. A simple reason for this (among other factors) is that actively managed stock funds are usually much less predictable as they greatly depend on managers’ subjective investment viewpoints, making them not really suitable for long term investments. Furthermore, more and more efficient stock markets are making actively managed stock funds much harder to outperform index funds. In fact, majority of actively managed stock funds underperform index funds, based on many academic studies on long running data. 

Recently, (smart) factor ETFs have become more mature and have shown great potential (see November 4, 2019: Factor ETF Rotation, for example). Though some of these index based funds are not really passive per se, they nevertheless are based on a well defined set of rules (or quantitative), free of subjective human opinions. These factor ETFs are utilized in some of our advanced portfolios. 

Bonds (fixed income):

On the other hand, for fixed income (bonds), we believe the outperformance persistence by some good bond managers is much more consistent and greater, especially for intermediate term bond funds. It’s also possible to use a momentum based strategy to periodically rotate/select a fund to achieve even better returns with lower risk. Our long running total return bond fund portfolios on Brokerage Investors page have consistently outperformed index bond funds and the excellent total return bond funds used as candidate funds. We have written extensively on these types of portfolios (for example, see August 28, 2017: Total Return Bond Fund Portfolios: Where Do They Fit?). 

ETFs or mutual funds

For stock assets, we generally prefer index ETFs over index mutual funds, though mutual funds are also workable. The reasons are as follows: 

  • Stock index ETFs now possess lower expense ratios than their mutual fund counterparts. This is evident in Vanguard’s index ETFs and its index mutual funds. 
  • Stock index ETFs have no minimum holding period restriction, unlike mutual funds. Many brokerages impose a minimum 3 month holding period for mutual funds (TD Ameritrade is even more extreme, having 3 month minimum holding requirement). This can sometimes hinder our risk exposure adjustment in a fast changing market. 
  • ETFs can now be traded commission free in many major brokerages. 
  • Major stock index ETFs now have large liquidity, thus much lower premium/discount over their net asset values.  

Of course, for some investors, unlike mutual funds whose prices are set after market close,  it’s still a hassle to have to pay attention to ETFs’ intraday prices when making a trade. This can become a source of distraction and/frustration. For this, mutual funds can be still useful. 


Our AAC based portfolios will look once a month to decide whether to rebalance. Notice that not every month a portfolio needs to rebalance. This depends on the candidate funds in a portfolio. Our general purpose MPIQ Core ETFs AAC portfolios (see below), for example, average only 4 trades a year. 

At a rebalance time, the strategy will decide whether to perform risk asset exposure change (decrease or increase) as well as individual fund selection. The risk asset (stock) exposure decision is based on our market indicator. 

Our AAC always makes rebalance decision at the end of a month and investors will perform rebalance orders on the first trading day of the next month. It no longer uses our re-balance calendar that was mainly designed to accommodate the minimum 30 days holding period requirement in the past. We are phasing out this rebalance calendar in the near future. 

Risk asset exposure and fund selection

Our AAC based portfolios can dynamically reduce or increase risk asset exposure based on our our market indicator. As stated in the previous newsletter November 11, 2019: Market Indicator And Momentum, our market indicator makes infrequent such change: for example, since 1996, it only decided to change exposure five times. The main purpose of such risk asset exposure change is to reduce or avoid large portfolio loss during a severe market downturn. As we stated many times, holding a diversified stock index fund for a very long period of time can in general result in an inflation beating return (of course, we want to emphasize again here the term ‘a very long period of time’, usually means 20 years or longer). We thus make a conscious decision to be conservative in terms of reducing stock exposure. 

Once asset allocations are decided, our strategy selects funds within each asset class. The method is still momentum based. Momentum based fund rotation/selection can result in further return improvement. 

AAC portfolios for brokerages

One of the main criticisms we received in the past from our users is that we provide too many choices. Investors are thus confused and have to spend extra time to decide which ones to choose. While such many choice approach might suit some expert or advanced investors, many are frustrated. 

We now drastically trim down the number of choices for brokerage investors. In fact, we will offer only one Core ETFs based general allocation portfolios. As before, users can customize a new portfolio based on their personal risk profile. However, these portfolios are all based on a set of selected ETFs. As it stands today, these ETFs are as follows (note, from time to time, we might change these ETFs lineup infrequently if there is a need):

  • US Stocks: Vanguard Total Stock Market ETF (VTI)
  • International Stocks: Vanguard FTSE Developed Markets Stock (VEA)
  • Emerging Market Stocks: Vanguard Total Stock Market ETF (VWO)
  • Real Estate: Vanguard REIT Index ETF (VNQ)
  • Fixed Income:
Intermediate-Term Bond VCIT Vanguard Intermediate-Term Corp Bd ETF
Intermediate-Term Bond BOND PIMCO Total Return Active ETF
High Yield Muni HYD Market Vectors® High-Yield Municipal ETF
Muni National Interm MUB iShares National AMT-Free Muni Bond
Intermediate-Term Bond FBND Fidelity Total Bond ETF
Intermediate-Term Bond BND Vanguard Total Bond Market ETF
Intermediate-Term Bond VMBS Vanguard Mortgage-Backed Securities ETF
LONG GOVERNMENT IEF iShares 7-10 Year Treasury Bond
Intermediate-Term Bond TOTL SPDR® DoubleLine Total Return Tact ETF

The candidate ETFs in fixed income are from some excellent total return bond ETFs (that have their mutual fund counterparts such as PIMCO’s BOND ETF vs. PIMCO’s PTTAX) and some index bond funds. They are the basis of the ETF fixed income portfolio we featured in September 30, 2019: Boosting Bond ETF Portfolio’s Return With Muni Bond ETFs. Our intention is to construct a comparable/competitive bond portfolio to replace total return bond fund portfolios as mentioned in October 29, 2018: Taxable Total Return Bond Plus Muni Bond Fund Based Portfolios

The following are the returns for moderate (risk profile 40, i.e. at most 60% in stocks) and most aggressive (all stocks) portfolios: 

Portfolio Performance Comparison (as of 11/15/2019):
Ticker/Portfolio Name YTD
1Yr AR 3Yr AR 5Yr AR 5Yr Sharpe 10Yr AR 15Yr AR
MPIQ Core ETFs Asset Allocation Composite Moderate 18.7% 14.9% 9.9% 7.0% 0.93 8.2% 7.8%
MPIQ Core ETFs Asset Allocation Composite Most Aggressive (All Stocks) 23.9% 15.7% 12.0% 8.1% 0.67 10.0% 9.8%
VFINX (Vanguard 500 Index Investor) 26.6% 16.3% 14.7% 10.9% 0.76 13.1% 8.8%
VBINX (Vanguard Balanced Index Inv) 18.8% 14.0% 10.1% 7.7% 0.89 9.4% 7.3%

We want to caution here that since the fixed income ETFs have short history, their meaningful data should be really as those highlighted, i.e. up to last 5 years. As a comparison and for benchmarking purpose, we also construct a plan that consists of Vanguard stock index mutual funds and total return bond and muni bond funds as mentioned in October 29, 2018: Taxable Total Return Bond Plus Muni Bond Fund Based Portfolios. Since mutual funds have much longer history, the following table shows their returns since 2001: 

Portfolio Performance Comparison (as of 11/15/2019):
Ticker/Portfolio Name 1Yr AR 3Yr AR 5Yr AR 10Yr AR 15Yr AR Since 1/1/2001
MPIQ Core Asset Mutual Funds Asset Allocation Composite Moderate 13.1% 9.5% 7.1% 9.6% 10.1% 11.5%
MPIQ Core ETFs Asset Allocation Composite Moderate 14.9% 9.9% 7.0% N/A N/A N/A
VFINX (Vanguard 500 Index Investor) 16.3% 14.7% 10.9% 13.1% 8.8% 10.8%
VBINX (Vanguard Balanced Index Inv) 14.0% 10.1% 7.7% 9.4% 7.3% 7.1%

Since 2001 chart: 

Detailed year by year comparison >> 


  • MPIQ Core Asset Mutual Funds Asset Allocation Composite Moderate obeys minimum 3 month holding period requirement for all the mutual funds. 
  • This portfolio can serve as a benchmark reference as it has long history since 2001. 
  • It has outperforms both VBINX (60% US stocks/40% bonds) and VFINX (S&P 500) by some big margin, especially since 2001. 
  • It has much less drawdown or interim loss: 13.8% vs. VFINX’s 55% or VBINX’s 36%. 
  • On the other hand, for the past 5 years, the ETF counterpart MPIQ Core ETFs Asset Allocation Composite Moderate compares very favorably with the mutual fund one. 

We thus feel comfortable to use the Core ETFs portfolios for general or basic subscribers. However, investors can still choose to use mutual fund portfolios if needed. We will have a more in depth discussion on this in the next newsletter. Users interested in this can find this portfolio on our Brokerage Investors page or through Get Started Now on our home page. 

Finally, for 401k and other retirement or predefined plans, our AAC strategy has been deployed and users can customize a new AAC portfolio to follow. 

In the near future, we will make more changes on our website and also discuss in more depth on how to use our model portfolios. Stay tuned. 

Market overview

US companies continued to deliver better than expected (albeit lower) earnings: As of last Friday, Factset shows that the blended earnings decline of S&P 500 for Q3 2019 is -2.3%, better than even last week’s -2.7%. US large cap stock indexes are all at record highs. It does look like investors’ risk appetite has also improved in a generally favorable stock season. Again, we want to emphasize markets can change suddenly in a high valuation and extended stock market rise environment. We call for staying the course and being risk conscious. 

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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