Re-balance Cycle Reminder All MyPlanIQ’s newsletters are archived here.

Regular AAC (Asset Allocation Composite), SAA and TAA portfolios are always rebalanced on the first trading day of a month. the next re-balance will be on Monday, February 3, 2020.

Please note: As of today, we now officially phase out our old rebalance calendar for both SAA and TAA. They are now always rebalanced on the first trading of a month. 

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.

Portfolio Performance: A Walk In The Past II

About two and half years ago, we published August 21, 2017: Portfolio Performance: A Walk In The Past. In that newsletter, we tried to help investors to walk back in history so that we can better understand the situations when a series of underperformance periods occurred. As now we just concluded a banner year for US stocks and not so great year for TAA portfolios, we would like to revisit this walk by updating the latest figure. 

The latest walk

In the previous newsletter, we tried to ask readers to place themselves at a snapshot of the past and looked at the historical returns of our tactical portfolio (GSTAA) P Goldman Sachs Global Tactical Include Emerging Market Diversified Bonds (listed on Advanced Strategies page) and S&P 500 (represented by Vanguard’s VFINX). In this latest exercise, we shall continue to use GSTAA as our yardstick, even though we now also have a new type of portfolios that utilize market composite momentum/indicator (the Asset Allocation Composite (AAC) strategy or see portfolios like P Composite Momentum Scoring Global Risk Assets (on Advanced Strategies page). 

Each year, we compare the GSTAA portfolio’s 1 year return with VFINX’s. This represents so called short term walker. If the portfolio outperformed VFINX (S&P 500), investors would get a happy face, otherwise, an upset face. Similarly, we also construct a long term walk map for comparing the trailing 10 years’ returns. It turns out that 2017 was the last year (and the only outlier in the past 11 years) when investors were happy for both short term and long term walks:

When we wrote the last newsletter in July 2017, GSTAA investors were increasingly unhappy with the short term returns. It turned out 2017 was more an exception when GSTAA outperformed. After that year, things have only become worse: even for 10 year long term investors, they got underperformance two years in a row. On the other hand, if one extends his/her horizon a bit longer to 15 years (that means since 2005), we have the following latest return comparison for GSTAA (as of 1/10/2020): 

Name YTD*
Since 12/31/97
P Goldman Sachs Global Tactical Include Emerging Market Diversified Bonds 1.0% 8.5% 7.4% 3.5% 6.9% 10.1% 11.8%
VFINX (Vanguard (S&P 500) Index) 1.1% 28.1% 15.0% 11.9% 13.2% 9.2% 7.6%
VBINX (Vanguard Balance (60% stocks/40% bonds) 0.8% 19.7% 10.2% 8.1% 9.4% 7.5% 6.6%

Chart data since 12/31/1997

So the portfolio still has outstanding returns if one were look at more than 10 years. This tactical vs. buy and hold argument has always swung to two extremes under different market environments. For those of us who are old enough, we remembered back in late 1990s, all major financial media had proclaimed the death of market timing using the example of the returns of 200 days simple moving average on major stock indexes like S&P 500. The example portfolios include  P SMA 200d VFINX Total Return Bond As Cash Monthly or a much longer history one P SMA 200d VFINX Monthly (since 1981). Before the tech bubble burst, these portfolios underperformed major stock indexes for many years. But then things changed dramatically and after entering the bear market in 2001 to 2003, these portfolios have outperformed S&P 500. They then continued to do so in the financial crisis bear market in 2008-2009. But now, in the current bull market, we have seen these portfolios, just like GSTAA, underperformed for many years. For those readers who would like us to perform the similar walk in the past analysis for these portfolios, send us emails and we will publish our results if there is enough interest. You can also perform such an analysis by using our tool to calculate a period of returns on both portfolio and fund pages. 

Again, we believe performing walking in the past (by looking back trailing short and long term returns) could be very useful to put investors under the right perspective. This is especially pertinent right now as we are now seeing some similar patterns that have occurred repeatedly in the past. 

User feedback

Since we published a user’s comment in December 16, 2019: Q&As On Our Services, we have received many encouraging emails. Here, as promised, we published some of them. As always, we are truly grateful for your encouragement and support. 

A user encouraged us to be open: 

I just wanted to react to the comment by a skeptical reader that you were courageous and honest enough to post in today’s newsletter.
The writer is off base.  I agree with your reply.  

But beyond that, I wanted to say that I always look forward to your newsletters and always learn from them.  I have taken many money-making bits of advice from them, and always refer to them when I am on the verge of getting “exhuberant.”  You have always cautioned rationality and caution, and I think those attributes for an investor are key.  Markets are emotional and often irrational.  I know of no service that advises people to keep their shirt on — everyone is out there selling something.  Even though you have a service that you sell, my consumption of your newsletter has nothing to do with that and all that I have learned from you has nothing to do with whatever services you are providing for a fee.  So, once again, let me thank you.

A financial advisor’s opinion: 

A couple things….First, IMO, your newsletter is always informative, appears to be one of the more transparent efforts, and while I personally might like more pictures, graphs, and historical references, it has always maintained a consistent goal; reasonable risk adjusted returns. As a professional portfolio manager I have found that the problem many people have when it comes to managing their own investments is not a lack of intellect, but rather a lack of discipline. It appears that your service recognized that early on and has provided an easy to follow systematic approach. There is a significant amount of independent data that corroborates the efficacy of the MyPlanIQ concepts.

The angst the writer feels appears to be fueled by his/her lack of “careful analysis” (especially from a historical perspective) AND something that Warren Buffett has commented upon via one of his more famous quotes, “The stock market is a device for transferring money from the impatient to the patient.” Fact is, I become more concerned, from a strategic point of view, when my clients’ portfolios experience those long periods of outperformance. Regression to the mean is an investment reality. Just as much as is having a well thought out methodology that can be adapted to the ever changing realities of the investment world we live in and the expanding tools available to us.

Another long time user’s comment: 

Also as a long time subscriber, we enjoyed the Q&A on the recent user’s comments. A while back we brought to your attention a desire and interest in your looking into portfolios using variations of Dual Momentum and protective asset allocation momentum variations that we had been using. Nice job on the AAC portfolios. We appreciate the continued improvements and enhancements.

Market overview

Major stock indexes continue to levitate in record territories. However, as reported, gains in S&P 500 index last were mostly due to the mega stocks. In fact, just the top 5 stocks: Apple, Microsoft, Alphabet, Amazon and Facebook now make up 18% of the index. On the other hand, as we have pointed out numerous times, small cap and mid cap stocks have not participated in such a rally. As we are now entering the first earnings report period, markets are expected to become more volatile. In this overly extended and very overvalued market, we call for staying the course and adopting a more tactical strategy. 

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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–Thanks to those who have already contributed — we appreciate it.

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