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 day 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.

Rebalance date change

Several users expressed their concerns and confusion on our rebalance calendar. We want to emphasize that from now on: 

We now officially phase out our old rebalance calendar for both SAA and TAA. All SAA, TAA and AAC portfolios are now always rebalanced on the first trading day of a month. 

On the other hand, expert users can still have options to set their rebalance dates, though we strongly suggest that, based on our extensive studies, end of a month and the beginning of a month usually exhibit better performance (returns) results for a long period of time. 

Investment Landscape For Retirees And Would-be Retirees: Fixed Income

As markets are in some record territories for both stocks and bonds, we want to discuss the investment environment for retirees and would-be retirees. We have discussed this several times and we believe that the current market environment warrants another discussion. 

In November 13, 2017: Is This A Good Time For Retirees Or Would Be Retirees?, we stated: 

With stock markets making new record highs month after month, investors are in a good mood. Naturally, if you ask anyone who is in stock markets and going to retire soon, you probably will get a positive answer. After all, what’s not to like to see your account value gone up so much?

However, if history is any guide, for those we are retiring in or near a stock market peak, it turns out that the time from now on is awful, to say the least.

The first paragraph in the above is still applicable to today’s climate. In the latter part of the newsletter, after looking at some historical data, we further stated:

To summarize, for a retiree or soon to retire investor, retiring close to a market peak is detrimental to your financial health. This is especially true for those who only rely on strategic asset allocation portfolios, which have been the most popular method lately….

Even though it’s likely that stocks might still have 10% or 20% or even 50% to go up, we should be reminded that right now, it’s actually a BAD time to retire.

It turns out that since November 13, 2017, S&P 500 (SPY) has risen 33% and VBMFX (Vanguard total bond index fund) has returned more than 10% (total return with dividend reinvested). So our warnings seem to be a bit premature. 

However, as we claimed in that newsletter and virtually in all of our newsletters, we have no crystal ball to precisely predict markets. In fact, we would again claim that no one possesses such a precise ability. Our discussions on current environment are more to provide an anchoring point to help us to be prepared for events in some future of time, albeit the precise moments of those future events can be months or even years away.  

Current market environment

The following are the updated points mentioned in the 2017’s newsletter:

  • The longest bull market in the US history: the current bull market has lasted 130 months, almost 11 years (since March 2009, the bear market low). It’s followed by the 113 months one that started in October 1990. It has returned more than 330%, better than the one that followed 1929’s Great Depression (325%). 
  • Historical high stock valuation:  Buffett’s stock market capitalization over GDP ratio is higher or close to the historical high made in 2000. So based on Buffett, buying stocks at this level is like ‘playing with fire’. On the other hand, Shiller’s CAPE stands more than 31, 1.85 x of its long term average (17.01). So it’s also significantly overvalued. 
  • Historical low bond yields: the following chart suffices to show that the 10 year Treasury note is at a record low yield (interest) since 1950s: 

Regardless how much and how accurate the above metrics are, one thing is clear, markets can not go up indefinitely, mean reversion will always happen. The following chart, courtesy of, shows how overshoot S&P stock composite is currently: 

What to do: fixed income 

So it’s very likely that the returns in the coming 10 years or so are very poor for both stocks and bonds. These returns (ranging 0% or negative to 2-3% in bonds if we are lucky) are a far cry for retirees who would like to be able to derive above 4% (inflation adjusted) returns annually (see November 13, 2017: Is This A Good Time For Retirees Or Would Be Retirees? for more discussions on withdrawal rate). 

We believe for retirees and would be retirees, based on the above discussion, it’s important to 

  1. Maintain low expectation of returns in the coming years. 
  2. This means maintain low or scale down spending expectation: you might want to decide your 4% withdrawal or spending rate based on your investment values many years ago, instead of based on the existing high levels due to the stock and/or bond price rise. 
  3. be more tactical/active in investing strategies for both stocks and bonds. This means that you want to avoid some large interim drawdown (loss) and reinvest at lower levels. Or you want to be able to capture some returns in bond sectors and/or stock assets but avoid large loss to preserve your capital to be able to reinvest at lower levels. 

The last point means that we advocate active investing strategies. Specifically, for fixed income/bonds, we advocate our total return bond portfolios such as the one listed on Brokerage Investors page:

Latest Fixed Income Bond Fund Portfolios Performance Comparison (as of 1/24/2020):

Ticker/Portfolio Name YTD
1Yr AR 3Yr AR 5Yr AR 10Yr AR 15Yr AR
Schwab Total Return Bond Plus 0.6% 9.8% 6.5% 5.8% 8.1% 7.6%
Fidelity Total Return Bond Plus 0.6% 9.8% 6.5% 5.8% 8.3% 7.7%
Etrade Total Return Bond Plus 0.6% 11.7% 6.1% 5.4% 7.8% 7.9%
Merrill Edge Total Return Bond Plus 1.6% 12.8% 6.8% 5.8% 8.5% 8.2%
Vanguard Brokerage Total Return Bond Plus 0.6% 11.7% 6.0% 4.8% 6.9% 7.4%
MPIQ Core ETFs Fixed Income 1.3% 13.3% 6.9%      
TDAmeritrade Total Return Bond 1.6% 11.3% 6.6% 4.7% 6.2% 7.4%
PTTRX (PIMCO Total Return Instl) 1.3% 9.4% 4.7% 3.1% 4.2% 5.2%
DLTNX (DoubleLine Total Return Bond N) 1.1% 6.7% 4.0% 3.0%    
VBMFX (Vanguard Total Bond Market Index Inv) 1.2% 9.7% 4.2% 2.7% 3.5% 4.1%

If you prefer using mutual funds, you’ll need to follow a brokerage specific portfolio. For example, if you would like to invest fixed income in your Fidelity account, you’ll follow Fidelity Total Return Bond Plus

Or you can always follow MPIQ Core ETFs Fixed Income in any brokerage account to invest bond ETFs instead. 

As we are now in some sort of unprecedented situations (both extreme high stock and bond levels), we have no visibility to claim what kind of expected returns one can achieve with these active bond portfolios. However, we are confident that these portfolios will help us navigate through the current ultra low rate environment and hopefully achieve above 4% annualized returns in the coming decade. 

The reasons we are optimistic on our active portfolios include

  • Our candidate funds are all of stellar historical performance records. These total return bond funds will be more active and can utilize long bonds and lower credit bonds (high yield bonds, corporate bonds) when markets present opportunities. In general, these funds are likely to achieve better results in times of high volatility than an index bond fund. 
  • Some of candidate funds such as high yield municipal bond funds possess good momentum/trend property and thus, they can be utilized to capture bigger returns and avoid big loss in an active rotation strategy. 
  • There will be opportunities when markets eventually correct from high overshoot positions. In fact, markets will often undershoot in a violent correction and that will create opportunities for active momentum based strategies. 

Finally, let’s look at how Schwab Total Return Bond Plus navigated through 2008-2011 period: 

The portfolio moved from highly volatile LSBRX (Loomis Sayles total bond) to more stable TGMNX in 2008, still lost money in that year. It then switched to high yield muni (NHMAX) and LSBRX (more high yield corp bond exposure) in 2009. In 2010, it managed to switch to PONAX (PIMCO income fund) that had started a very good run since. 

To summarize, given the current high valuation in bonds, fixed income investing should consider to adopt a more active investing strategy. This, of course, is at some expense of increased fluctuation. However, the higher returns are often able to offset the fluctuation and achieve higher risk adjusted returns in a long period of time. 

In the subsequent newsletters, we will address the issue of stock investing for retirees. 

Market overview

Global stocks were finally hit by the fear of coronavirus outbreak in China: the epidemic disease has started to put a strain in global economy growth. Investors just begin to assess how serious this can be, as it’s still in its early development stage. Another potential worry (though investors have largely shrugged it off) is that, based on Factset, after 17% of the companies in the S&P 500 reported their Q4 earnings, so far, the blended result is worse than the expected on December 31: earnings decline -1.9% vs. expected -1.6%. As this is also in an early stage, we’ll just have to wait and see. 

Regardless, 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. 

Enjoy Newsletter

How can we improve this newsletter? Please take our survey 

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

Latest Articles

Any investment in securities including mutual funds, ETFs, closed end funds, stocks and any other securities could lose money over any period of time. All investments involve risk. Losses may exceed the principal invested. Past performance is not an indicator of future performance. There is no guarantee for future results in your investment and any other actions based on the information provided on the website including, but not limited to, strategies, portfolios, articles, performance data and results of any tools. All rights are reserved and enforced. By accessing the website, you agree not to copy and redistribute the information provided herein without the explicit consent from MyPlanIQ.