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 Wednesday February 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.

Review And Outlook

In this newsletter, we will first review our portfolios and strategies and then move on to discuss what’ll happen this year.

Portfolio and strategy review

So far, the current stock and bond weakness was mostly caused by the Federal reserve bank’s interest rate hikes: because of the rise of bond interest rates, stocks or other risk assets are priced less competitive than bonds and since stock prices had been elevated by almost any historical valuation metrics, they experienced some sharp falls. This is especially noted among tech stocks:

Tech stock debacle (as of 12/30/2022)
Ticker/Portfolio Name 2022 3Yr AR 5Yr AR 10Yr AR 15Yr AR
TSLA (Tesla Motors, Inc.) -65.5% 64.6% 42.8% 49.5%  
META (META) -65.0% -16.2% -7.4% 16.6%  
AMZN ( Inc) -50.1% -3.0% 7.6% 21.3% 21.2%
GOOG (Google, Inc. Class A) -39.2% 9.9% 11.1%    
MSFT (Microsoft Corporation) -28.0% 16.5% 24.7% 27.2% 15.9%
AAPL (Apple, Inc.) -26.0% 22.8% 26.9% 23.8% 22.8%
NFLX (Netflix Inc.) -51.8% -3.0% 9.0% 36.9% 33.5%
PYPL (PYPL) -62.9% -13.0% -0.7%    
ADBE (Adobe Systems Inc) -41.0% 0.8% 13.9% 24.7% 14.7%
ARKK (ARK Innovation) -67.7% -13.6% -2.2%    
QQQ (PowerShares QQQ ETF) -32.6% 8.8% 12.3% 16.6% 12.6%
VTI (Vanguard Total Stock Market ETF) -18.7% 7.6% 9.0% 12.4% 8.8%

The most speculative stocks were hammered hard: for example, ARK Innovation ETF ARKK lost 3/4 of its value in 2022 and it actually lost more than 80% from its peak.

2022 proved to be a tough year for stocks and our tactical asset allocation strategies. Our  Asset Allocation Composite (AAC)  had some late reaction to market downturn in June 2022 and then again was whipsawed in December.  Tactical Asset Allocation(TAA) did better as it allocated stocks to international and emerging market stocks which had outperformed US stocks and REITs. As we mentioned long ago, we believed that TAA’s balanced exposure to international and US stocks would again become beneficial and 2022 began to show this.

Portfolio Performance Comparison (as of 12/30/2022)
Ticker/Portfolio Name 2022 3Yr AR 5Yr AR 10Yr AR 15Yr AR
MPIQ ETF Allocation Moderate -18.1% 3.4% 5.2% 6.6% 7.4%
MPIQ Core ETFs Tactical Asset Allocation Moderate -14.7% 4.4% 6.3% 6.7% 7.9%
VTI (Vanguard Total Stock Market ETF) -18.7% 7.6% 9.0% 12.4% 8.8%
VNQ (Vanguard REIT ETF) -23.2% 1.1% 4.4% 6.9% 6.6%
VEA (Vanguard FTSE Developed Markets ETF) -12.8% 3.1% 2.6% 5.5% 2.4%
VWO (Vanguard FTSE Emerging Markets ETF) -16.9% -0.9% 0.0% 1.8% 0.8%
VBINX (Vanguard Balanced Index Inv) -15.7% 4.5% 6.1% 8.1% 6.7%

On the other hand, our fixed income strategy outperformed all of the total return bond funds by more than 10%. This also alleviated the underperformance of the asset allocation strategies somewhat:

Portfolio Performance Comparison (as of 12/30/2022)
Ticker/Portfolio Name 2022 3Yr AR 5Yr AR 10Yr AR 15Yr AR
MPIQ ETF Fixed Income -1.3% 3.5% 4.8%    
Schwab Total Return Bond -0.8% 4.1% 4.3% 4.5% 6.7%
PTTAX (PIMCO Total Return A) -13.3% -2.4% -0.1% 0.9% 3.2%
DLTNX (DoubleLine Total Return Bond N) -11.6% -2.9% -0.3% 1.2%  
LSBRX (Loomis Sayles Bond Retail) -8.6% -1.1% 0.8% 1.9% 3.7%
VBMFX (Vanguard Total Bond Market Index Inv) -12.0% -2.5% 0.1% 1.0% 2.6%

Our advanced strategies portfolios have also mixed performance. In general, they have done better than market indexes:

Portfolio Performance Comparison (as of 12/30/2022)
Ticker/Portfolio Name 2022 3Yr AR 5Yr AR 10Yr AR 15Yr AR
P Composite Momentum Scoring Global Risk Assets -24.9% 4.9% 7.5% 10.4% 10.5%
P Composite Momentum Scoring Factor ETFs -15.9% 8.5% 9.6% 14.5%  
P Composite Momentum Scoring Fidelity Select Funds -11.9% 10.4% 9.1% 13.6% 12.4%
P Composite Momentum Market VFINX -27.7% 3.3% 4.7% 9.9% 9.9%
P GS Global Tactical Include Emerging Market Diversified Bonds -14.7% 3.1% 2.1% 5.6% 6.5%
STS Seasonal Timing Using VFINX Total Return Bond Fund As Cash -8.8% 5.2% 8.8% 10.3% 10.3%
VTI (Vanguard Total Stock Market ETF) -18.7% 7.6% 9.0% 12.4% 8.8%

Our factor ETFs and Fidelity Select Funds did relatively well compared with the rest. They benefited from some big return dispersion among different stocks, specifically, value and small cap vs. growth and energy, health care vs. the rest (especially tech stocks).

Similarly, the ‘disgraced’ P GS Global Tactical Include Emerging Market Diversified Bonds portfolio did relatively well in 2022 as it relied on foreign stocks’ relative outperformance.

In a word, 2022 proved to be challenging but it also proved that some strategies will did better than others and it pays to be diversified, not only among asset classes but also among various strategies.


The current weakness and downturn are very different from the last two downturns (2000 and 2008) that were mostly in a subdued inflation environment. Furthermore, many strategies and even many great investors have been custom to such a low rate or low inflation environment and they reacted to the economic and financial market conditions using old playbooks. This has proved to be tough so far.

For 2023, we believe that the main themes are still inflation and economy weakness. We offer the following subjective opinions.

  • Inflation will be more persistent than many others are expecting:
    1. Though prices have stabilized and some of them such as used car prices have come down a lot, this is only half of the story. The other often overlook main factor is the persistent wage/labor cost pressure that have affected service and real estate and rental cost. Though tech company layoffs have made headlines, labor demand is still persistently high in other parts of the economy. Unfortunately, labor market has quite some lag in response to high interest rates. So unemployment rate will need to go up, most likely above 4% in order to tame the cost. 
    2. The other interesting part is that although home sales have declined dramatically, home prices are still quite elevated: The Case-Shiller national home price index in October (the latest data) was still way above its previous year’s figure. It’s easy to understand this: as most of existing home mortgages were made at extremely low rates many years ago. As long as people have jobs that pay well, they are not forced to sell. This is actually very much related to employment picture. We expect that once job markets become much worse, home prices will go through a much steeper decline.

  • Recession will very likely come in this year. However, it’s still hard to predict the timing. If the recession indeed happens, corporate earnings will likely decline another 20% or so (based on Morgan Stanley and many other analysts) and this will drag down stock prices, most likely another 20% or so.

To summarize, though many have predicted that the Federal Reserve inflation fighting interest rate hikes will soon stop, they most likelty underestimated the lingering effect of inflation: it’s likely that the Fed will stop raising interest rates but it’s not obvious that it will be forced to pivot to cut interest rates soon. Or put it another way, inflation might prove to stay high for a while. This will definitely create headwind to corporate earnings. So bond weakness will last a bit longer than most expected and stock prices might have some way to go down further in 2023.

We want to emphasize that the above discussion is again just our educated guess. It has been proved again and again even the so called great investors, economists including the Federal Reserve bankers can’t accurately predict economy and financial markets. The educated guess is just something that can help us to understand the urgency of properly managing risk. Ultimately, we need to rely on our well defined strategies to manage investments.

Market overview

The Santa Claus or holiday rally proved to be elusive: stocks instead kept dropping in the holiday period. At the moment, investors are attempting to guess various outcomes including ‘soft landing’, the Fed’s interest rate pivot, corporate earnings weakness, and continuing inflation pressure. We are in an environment that’s full of conflicting signals. At the moment, investors are awaiting for the Q4 last year’s earnings reports to further gauge the economy.

As always, we advocate a risk managed approach and let prevailing market conditions and actions guide us further. We call for staying the course:

  • 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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