So 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 Thursday June 1, 2023. 

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.

‘Best’ Balanced Stock or Dividend Income Balanced Portfolios vs. Best Balanced Allocation Fund

We have kept track of ‘best’ balanced allocation PRWCX (T. Rowe Price Capital Appreciation) and proposed a few portfolios that can rivaled it. See the following newsletters for references: 

We now believe the idea of presenting representative balanced portfolios that can be readily followed by our subscribers. Over time, these portfolios will be made to be default so that subscribers can easily find them on dashboard. 

Balanced Funds or Portfolios: Lazy Ways to Invest

Even though one can adopt more sophisticated ways to understand one’s risk and return profile (the so called ‘risk profile’ in MyPlanIQ), we have observed, for more than a decade service to our subscribers, that many people just want a simple portfolio to follow and forget. A balanced portfolio with 30% to 40% in fixed income (bonds) and the rest in stocks fits well to this mentality. 

One strong intuition for a 30% in fixed income is that if it usually takes 7-10 years or so for stock markets to go through a full bear and bull market cycle. Using a 4% withdrawal principle for a retiree or someone who needs to withdraw from the portfolio regularly (see forthcoming article on this topic), 7 years 4% withdrawal would deplete 28% of the portfolio value while 10 years of 4% withdrawal would mean 40% of the overall portfolio value. This results in 30% (rounding out 28% to 30%) to 40% fixed income allocation if one doesn’t want to touch stock holdings. In general, if you are a buy and hold taxable portfolio, it’s better to try not to touch stocks at all for tax purpose (so that you can keep compounding without paying tax for capital gains). 

In general, 30% allocated to fixed income is good enough for many investors. However, if you are more risk averse or conservative, you might want to increase fixed income allocation to 40% or even more. 

The above is just rule of thumbs for those who wish to have a simple allocation to follow. For others, it’s still better to go through a process (such as this) to come up with some personal risk profile. Notice if you want to be more rigorous, you should go through this risk profile process every a few years (such as one to three years) as your situation might have changed (the least is that you have become older). 

T.Rowe Price Capital Appreciation Fund: The ‘Best’ Balanced Fund

Among many excellent balanced funds available in the market, we have reviewed and monitored PRWCX (T. Rowe Price Capital Appreciation) for more than a decade. It’s no doubt this fund is the best balanced fund among all its peers in the same 50%-70% equity balanced fund categories. Morningstar ranked this fund ‘Gold’ and has the following comment (as of Oct. 2022): 

T. Rowe Price Capital Appreciation’s lead manager is one of the industry’s best. He has skillfully invested across asset classes with a contrarian approach for over 15 years, supporting a Morningstar Analyst Rating of Gold across all share classes.

Lead manager David Giroux has helmed this strategy since mid-2006. Over that time, he’s displayed an innate ability to opportunistically invest across both equities and bonds, capturing pockets of value through strong stock selection and impressively timed asset-allocation tilts. His execution of this strategy’s nimble, contrarian approach has delivered topnotch returns for its investors. Over his tenure through September 2022, he’s outpaced all peers in the allocation — 50% to 70% equity Morningstar Category on both an absolute and risk-adjusted basis (as measured by Sharpe ratio).

Giroux delivers a high-conviction basket of roughly 40-50 stocks that ranges between 56% and 72% of the fund’s assets. He’ll shift the exposures meaningfully when he identifies a mispricing, like scaling equity exposure when drawdowns bring valuations to a more attractive level. Giroux executed the approach in 2018, early 2020, and during this year’s selloff. Though such moves can be early at times, driving steeper short-term losses, they’ve paid off over the long run. Giroux and team’s deep fundamental research drives security selection, which has been additive in the equity sleeve each of the last 10 calendar years. Giroux invests the remainder of the portfolio opportunistically across a mix of assets that can include investment-grade corporates, Treasuries, high-yield bonds, bank loans, and cash.

Giroux has skillfully navigated the strategy through this year’s market volatility. The portfolio entered the year slightly underweight equities alongside a sizable cash stake. As markets sold off, he opportunistically shifted to a 600 basis points overweight in stocks, selectively adding to names where they viewed short-term headwinds as overblown. This prescient move captured July’s fleeting market rally, and the team subsequently trimmed the exposure back down to a more neutral stance. The portfolio also held a 12% allocation to bank loans at yearend 2021, which has held up better than the broader bond market to date. Such decisions underpin the strategy’s top quartile performance versus peers and smaller drawdown relative to the Morningstar Moderate Target Risk allocation category index.

The fund has been closed to new investors since 2014

To summarize, this fund adopts a tactical approach to stock sector exposure. Its stock selection strategy is growth at a reasonable price (GARP) that has been a traditionally strong area in T.Rowe Price fund family.  Furthermore, the fund’s fixed income exposure is also very tactical. It’s very adept to utilize convertible and high yield bonds tactically to boost returns. The combination of the strong stock and fixed income investments results in an extremely strong showing in its returns, as shown in the following table: 

Portfolio Performance Comparison (as of 5/5/2023):
Ticker/Portfolio Name YTD
1Yr AR 3Yr AR 5Yr AR 10Yr AR 15Yr AR
PRWCX (T. Rowe Price Capital Appreciation) 7.4% 4.5% 11.4% 10.5% 10.6% 9.5%
DODBX (Dodge & Cox Balanced) 2.5% 0.5% 12.7% 7.2% 8.4% 7.2%
SGIIX (First Eagle Global I) 7.6% 6.0% 12.2% 6.5% 6.7% 6.6%
BRUFX (Bruce) -1.5% -1.7% 8.3% 7.6% 7.6% 8.3%
PASDX (PIMCO All Asset D) 0.0% 1.1% 3.4% 3.7%  
MALOX (BlackRock Global Allocation Instl) 4.9% 0.2% 6.7% 4.6% 4.8% 4.5%
GBMFX (GMO Benchmark-Free Allocation III) 3.4% 7.1% 5.6% 1.9% 2.2% 3.6%
VBINX (Vanguard Balanced Index Inv) 6.8% 4.0% 9.3% 8.0% 8.0% 7.4%

You can find these funds in our SmartMoneyIQ Managers. We regularly review or mention these funds. We also want to point out that unfortunately, many funds (in fact other than PRWCX and BRUFX), have lagged behind a very simple 60/40 balanced index fund: VBINX for periods like 5, 10 and 15 years. We can also see that PRWCX has excelled by very big margins over other funds. 

Note this fund has been closed to new investors since 2014. However, you can still get into this fund if your 401k or 403b retirement plans have it as one of investment options. It’s one of very popular funds in 401k plans. 

Best Strategic or Buy and Hold Balanced Portfolios

MyPlanIQ advocates both strategic and tactical asset allocation portfolio strategies as we see both have merits for different purposes and behaviors. A strategic balanced portfolio is just one that always invests in some fixed percentage allocations to stocks and bonds. For a 70% stocks 30% bonds balanced portfolio that’s similar to T.Rowe Price Allocation fund, one can allocate 70% to some stock funds and 30% to some bond funds. 

One can simply buy and hold an ultra low cost index stock fund in the stock allocation portion. There are several excellent index stock funds. One is S&P 500 index fund (such as VFINX (Vanguard 500 Index Investor) or VFIAX (a lower cost Admiral class). Others can be ETFs mentioned in Low-Cost Stock Index Funds: Quality ‘Business Conglomerates’ for Solid, Low-Risk Long-Term Returns. For dividend income investors, we recommend VDIGX (Vanguard Dividend Growth Inv) mutual fund or  ETFs VIG (Vanguard Dividend Appreciation ETF) or VYM (Vanguard High Dividend Yield ETF). We believe these index funds are diversified enough for US centric investors. 

For fixed income (bond) portion in a balanced portfolio, we advocate using our Total Return Bond fund portfolios, as those mentioned on Income Investors page. It has both mutual fund and ETF based portfolios. These portfolios have had stellar performance, outperforming even the best total return bond funds such as PIMCO total return bond fund (PTTAX) or Doubleline Total Return bond fund (DLTNX) for more than a decade in our live tracking. We believe this fixed income can give us a return boost without incurring extra risk (in fact, it lowers risk). Notice also in a taxable portfolio, a buy and hold taxable income portion doesn’t have much tax advantage over a more active dynamic bond fund portion as the bulk of returns in a fixed income portfolio comes from interests that are taxed as ordinary income. 

Strategic Stock Balanced Portfolio:

Buy and Hold (Annually Rebalance)
30% Bonds P_46880 (Schwab Total Return Bond) 
70% Stocks VFINX (Vanguard 500 Index Investor)

Strategic Dividend Stock Income Balanced Portfolio:

Buy and Hold (Annually Rebalance)
30% Bonds P_46880 (Schwab Total Return Bond)
70% Stocks VDIGX (Vanguard Dividend Growth Inv)

Portfolio Performance Comparison (as of 5/5/2023):
Ticker/Portfolio Name YTD
1Yr AR 3Yr AR 5Yr AR 10Yr AR 15Yr AR
Strategic Dividend Stock Income Balanced Portfolio 1.9% 3.2% 11.6% 10.2% 9.1% 9.0%
Strategic Stock Balanced Portfolio 6.6% 2.4% 11.5% 9.5% 9.7% 8.9%
PRWCX (T. Rowe Price Capital Appreciation) 7.4% 4.5% 11.4% 10.5% 10.6% 9.5%
VBINX (Vanguard Balanced Index Inv) 6.8% 4.0% 9.3% 8.0% 8.0% 7.4%

Notice that the two portfolios still slightly underperform PRWCX. However our portfolios are truly buy and hold stock index funds which will incur extremely low tax event over time, unlike PRWCX that has still some turn over, albeit they are mostly long term capital gains. So holding PRWCX for many years in a taxable account will probably force you to pay some tax in those years. 

The ETF Portfolios

In practice, one can construct an ETF portfolio that replaces P_46880 (Schwab Total Return Bond) with MPIQ ETF Fixed Income (see Income Investors page) in the fixed income side. We then use the following ETF equivalent for each stock index fund: 


We will have the portfolios once we make these officially supported. 

The Income Portfolio

We want to look at Strategic Dividend Stock Income Balanced Portfolio more closely as this should be an excellent income portfolio. With exposure to dividend stocks (through VDIGX) and mostly intermediate term bonds (through our bond portfolio P_46880 (Schwab Total Return Bond)), this portfolio should generate some good income. For example, currently based on the yields of VDIGX and the current holding fund in P_46880 (Schwab Total Return Bond), we estimate the portfolio has about 2.8% annualized yield. Notice that VDIGX invests in dividend growth companies, not necessarily those that have high yields. To do so, one can instead invest VHYAX (Vanguard High Dividend Yld Idx Adm) or its ETF equivalent VYM. This fund currently has 3.1% yield, which will boost the overall portfolio yield to 3.8%!

The other way to boost yields is to invest some portion to REITs (Real Estate Investment Trusts) index fund such as VGSIX (or ETF VNQ) that yields 3.95%. We recommend a breakdown like 50% VDIGX (or VHYAX), 20% VGSIX. 


We believe that by utilizing our excellent fixed income portfolios and ultra low cost US stock index funds, one can construct strategic balanced portfolios that can rival even the best balanced fund (T. Rowe Price Capital Appreciation Fund PRWCX) which has been closed to new investors since 2014. One can also utilize dividend index funds to generate income. 

In the next newsletter, we will discuss and show that our tactical balanced portfolios not only are able to outperform PRWCX in terms of returns, they also reduce interim loss (maximum drawdown dramatically). These portfolios can be followed by those who are more concerned about interim fluctuation and need a more stable income source. 

Market overview

Last week, the Federal Reserve increased the interest rate by 0.25%. The current inflation outlook remains uncertain, with the unemployment rate in April at 3.4%, lower than the 3.5% recorded in March. This indicates a robust labor market, despite significant layoffs in the tech industry. Conversely, as mentioned previously, regional banks, including the four major banks known as systemically important banks, continue to experience declining earnings. This is due to prolonged underpayment of depositors and investments in low-interest long-term bonds made several years ago. Consequently, these banks are now compelled to raise interest rates on deposits to prevent the loss of deposits to competing short-term Treasury bills or higher-yield savings accounts. Many are still reluctant or slow to raise deposit interest rates.  As of our latest check, Bank of America’s checking and savings interest rates are still around 0.02%, in contrast to the 5% plus offered by 3-month US Treasury bills. In fact, these banks’ best hope is for the Federal Reserve to cease interest rate hikes, or better yet, initiate interest rate cuts.

The challenging interest rate situation faced by banks has led many of them to tighten lending criteria, including requiring higher credit scores and charging higher interest rates for loans. This tightening of financial conditions will undoubtedly impact corporations’ pricing power, thereby weakening inflation. However, it remains unclear when and to what extent this will affect the economy.

As major companies such as Apple, Microsoft, Facebook etc. have reported better than expected earnings, markets are again rosy. Investors apparently hope that a soft landing or no landing will help stocks to avoid large loss. 

As always, we call for staying the course which is guided by some well defined and sound strategies:

  • For strategic allocation (buy and hold) investors, ignore the current market behavior. Remember, as what we have emphasized numerous times, when you choose and commit to a strategic portfolio, you essentially know and commit that your investment horizon (or the time you need to utilize this capital) is 20 years or preferably much longer given the current high valuation. As we pointed out, if your investments are those diversified (index) funds such as an S&P 500 index fund (VFINX, for example), you know your money is in some solid ‘business’ that eventually (20 years later and preferably many more years later) will deliver some reasonable returns. As long as you are comfortable with this thesis, you should sit tight and forget about the current gyration.
  • For tactical investors, again, you have to ignore the current market noise. Furthermore, you should follow your strategy rigorously, especially in a time like this. Human emotion, both optimistic and pessimistic, and human desire, both greedy and fearful, are your worst enemies. This has been shown to be true time and time again.

Stock valuation has dropped and now valuation is becoming less hostile. However, it is still not cheap by historical standard. For the moment, we believe it’s prudent to be extra cautious. However how serious a correction might be, we have confidence in the US economy in the long term and thus in the stocks in aggregate. We just need to manage through interim losses carefully.

We again would like to emphasize that 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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