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, February 6, 2017. You can also find the re-balance calendar for 2017 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.
Correction
Several readers wrote to us, pointing out an error in our total return bond performance table in the previous newsletter. Specifically, PIMCO Income fund PONDX‘s 2016 total return should be 8.3%, not 2.8%. This error only occurred in our comparison and quote methods. It does not affect our strategy algorithm. It has been corrected. We thank the users for their help!
Brokerage Specific Conservative Portfolios
In addition to the total return bond fund portfolios we reviewed last week, we are also an advocate on conservative portfolios using a combination of stock index funds and total return bond funds. We detailed this type of portfolios in our previous newsletter April 11, 2016: Construction of Sound And Conservative Portfolios. In that newsletter and other previous newsletters, we pointed out the advantages of investing in these conservative portfolios:
- Conservative portfolios usually have the best risk adjusted returns (in terms of Sharpe ratio) among stock and bond asset allocation portfolios. The reason being that by scaling down stock (risk asset) allocation to a level that can be matched with bonds in terms of risk, one can maximize returns with the least risk taken.
- Conservative portfolios can be used tactically when a stock market is way overvalued, such as the current market. It can be used an an anchor to wait till the valuation becomes more reasonable without completely sacrificing the returns of late stage stock markets.
In the previous newsletter, we introduced two portfolios that have the following allocations:
Conservative Total Return Bonds REITs Dividend Stocks
USStocks VDIGX 20%
REITs VGSIX 10%
TotalReturnBond P_46880 70%
VDIGX (Vanguard Dividend Growth Inv) is Vanguard’s (index) dividend appreciation fund. VGSIX is Vanguard REIT Index fund.
The other portfolio uses Vanguard 500 index fund (S&P 500) VFINX instead of VDIGX.
The fixed income is P_46880 (Schwab Total Return Bond).
In this newsletter, we officially introduce conservative portfolios designed specifically for major brokerages. For a brokerage other than Schwab, we simply substitute the Schwab total return bond portfolio with the brokerage’s specific total return bond portfolio.
We choose dividend fund VDIGX for stocks instead of using a broad base stock index fund such as Vanguard 500 VFINX (S&P 500 fund) because dividend stocks not only offer a comparable total return in the long term, they also offer lower volatility and thus can slightly reduce risk. Furthermore, many conservative investors are income investors seeking dividends and interests. Users can tweak the risk exposure (i.e. the dividend stocks and REITs) using other more diversified funds such as a combination of small cap, large cap US stocks and foreign stocks. We believe, however, for a conservative investor, US stocks and REITs assets only exposure offers a simple but good enough solution.
A note on using Vanguard index funds for REITs and dividend stocks: though many brokerages charge transaction fees on Vanguard funds, one can actually use their corresponding Vanguard ETFs as substitutes, i.e., Vanguard Dividend Appreciation ETF VIG for VDIGX and Vanguard REIT ETF VNQ for VGSIX.
These portfolios can be viewed on Brokerage Investors (What We Do -> Brokerage Investors).
Portfolio performance
These portfolios have done very well historically, outperforming the famed VWINX (Vanguard Wellesley Income Inv) for the past 5, 10 years and since 2002. They closely match VWINX for the past 1 and 3 years.
Ticker/Portfolio Name | YTD Return** |
1Yr AR | 3Yr AR | 5Yr AR | 10Yr AR | 10Yr Sharpe |
---|---|---|---|---|---|---|
Schwab Conservative Total Return Dividend Portfolio | 0.6% | 9.8% | 6.1% | 7.8% | 8.0% | 1.09 |
Fidelity Conservative Total Return Dividend Portfolio | 0.6% | 6.7% | 5.1% | 7.2% | 7.6% | 1.03 |
TDAmeritrade Conservative Total Return Dividend Portfolio | 1.6% | 9.9% | 5.9% | 8.0% | 8.1% | 1.07 |
Folioinvesting Conservative Total Return Dividend Portfolio | 0.6% | 9.8% | 6.1% | 7.8% | 8.0% | 1.09 |
Etrade Conservative Total Return Dividend Portfolio | 1.7% | 7.6% | 6.1% | 7.8% | 8.0% | 1.09 |
Merrill Edge Conservative Total Return Dividend Portfolio | 0.6% | 7.0% | 6.1% | 8.2% | 8.3% | 1.23 |
Vanguard Conservative Total Return Dividend Portfolio | 0.6% | 9.8% | 6.1% | 7.8% | 8.1% | 1.1 |
VWINX (Vanguard Wellesley Income Inv) | 0.5% | 10.4% | 6.2% | 7.1% | 6.8% | 0.94 |
More detailed year by year comparison >>
We make the following observations:
- The portfolios outperformed one of the best conservative mutual funds VWINX consistently. We attribute the outperformance to their use of our total return bond fund portfolios. These fixed income portfolios consistently outperform some of the best total return bond funds such as PIMCO total return, Double Line total return and TGW total return fund.
- These portfolios again reveal a thesis we have maintained for years: it’s much easier to derive/squeeze returns from the fixed income bonds than from stock funds. For large portfolios, if you are concerned about the volatility from stocks, you can choose to use a tactical portfolio such as MyPlanIQ Diversified Core Allocation ETF Plan Tactical Asset Allocation Most Aggressive (for global allocation) or those as simple as P SMA 200d VFINX Total Return Bond As Cash Monthly. However, this comes with the expense of more maintenance or more frequent trading, which, for a conservative investor, might be too much to deal with.
- It’s possible to choose brokerage specific index (or broad base) NTF (no transaction fee) no load dividend stock or REIT mutual funds or commission free ETFs instead of Vanguard funds or ETFs.
Market Overview
Last week, Dow Jones industrial index finally surpassed 20,000 and this caused much hoopla in financial media. Stocks rose sharply. The Trump induced rally seems to continue. However, as we pointed out before, reality for the new US administration will soon to settle in and the road ahead will definitely not be as smooth as it seems. Again, it calls for a methodological and disciplined approach in such an euphoric and overvalued market.
For more detailed asset trend scores, please refer to 360° Market Overview.
Now that the Trump administration is officially sworn in, the new president is facing the reality to deliver his many promises to make substantial changes. As the nation is posed to invest, the most important factor to watch is how productive the investments will be. Simply put, productive investments will result in better return on investment (ROI), tangibly or intangibly. They should also increase productivity that in turns will improve our standard of living. Capital misallocation can result in a higher growth but might not improve the real standard of living, which is the ultimate goal of economic activities. Whether the new president can truly achieve this goal is still yet to be seen. One thing is certain: we will see more market volatilities.
In terms of investments, U.S. stock valuation is at a historically high level. It is thus not a good time to take excessive risk. However, we remain optimistic on 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.
Latest Articles
- January 23, 2017: Fixed Income Portfolio Review
- January 16, 2017: Long Term Trend Following Portfolio Review
- January 9, 2017: Tactical Asset Allocation Review
- January 3, 2017: Strategic Asset Allocation Review
- December 5, 2016: Review Of Broad Base Core Mutual Funds For Brokerages
- November 28, 2016: Core Index ETFs Review
- November 21, 2016: International Exposure Of U.S. Large Companies
- November 7, 2016: Rising Rate And Current Bond Trend
- October 31, 2016: Economy Power And Long Term Stock Returns
- October 24, 2016: Current Commodity Trend And Managed Futures
- October 17, 2016: Investment Mistakes And Good Or Bad Investment Strategies
- October 10, 2016: Momentum Investing Review
- October 3, 2016: Survey & Feedback
- September 26, 2016: Fixed Income Investing: Actively Managed Funds vs. Index Funds
- September 19, 2016: Stock Investing: Actively Managed Funds vs. Index Funds
- September 12, 2016: Newsletter Update
- September 5, 2016: Overvalued Markets And Long Term Timing Strategies
- August 29, 2016: Your 401K Finally Draws Attention
- August 22, 2016: Inflation Protected Securities TIPS For Current Overvalued Markets
- August 15, 2016: Risk On: Emerging Market Stocks And Small Cap Stocks
- August 8, 2016: Portfolio Construction Using Stock ETFs And Bond Mutual Funds
- August 1, 2016: Adding Value To Your Own Investments
- July 25, 2016: Tactical Asset Allocation Funds Review
- July 18, 2016: Strategic Asset Allocation & Lazy Portfolio Review
- July 11, 2016: Asset Trend Review
- June 27, 2016: Secular Cycles For Tactical And Strategic Investment Strategies
- June 20, 2016: A World of Debt
- June 13, 2016: Managed Futures For Portfolio Building
- June 6, 2016: Newsletter Summary
- May 30, 2016: Swensen Portfolio And Permanent Portfolios
- May 23, 2016: AAII Article And Some Web Changes
- May 16, 2016: The PIMCO (Dis)Advantages
- May 9, 2016: Boost Your Dull Summer Investments
- May 2, 2016: Low Cost Index Fund Investing
- April 25, 2016: Tax Free Municipal Bond Funds & Portfolios
- April 18, 2016: Asset Class Trend Review
- April 11, 2016: Construction of Sound And Conservative Portfolios
- March 28, 2016: Total Return Bond ETFs Review
- March 21, 2016: Small And Large Company Stock Performance In Different Economic Expansion Cycles
- March 14, 2016: Are Tactical And Timing Strategies Losing Steam?
- March 7, 2016: Defined Maturity Bond Fund Analysis
- February 29, 2016: Smart Strategic Asset Allocation Rebalance When Market Trend Changes
- February 22, 2016: Be Cash Smart
- February 15, 2016: Bond ETF Portfolios
- February 8, 2016: Newsletter Collection Update
- February 1, 2016: Total Return Bond Fund Portfolios In A Volatile Period
- January 25, 2016: Alternative Portfolios Review
- January 18, 2016: Strategic Asset Allocation: A Cautious Outlook
- January 11, 2016: Review Of Trend Following Tactical Asset Allocation
- January 4, 2016: What Worked And Didn’t In 2015
- December 21, 2015: Distressed Assets
- December 14, 2015: High Yield Bonds And Their Correlation With Stocks
- December 7, 2015: Diversification And Global Allocation
- November 30, 2015: Investors and Speculators Combined
- November 23, 2015: Active Stock Fund Performance Consistency
- November 16, 2015: Permanent, Risk Parity And Alternative Portfolios Review
- November 9, 2015: Broad Base Core Mutual Fund Review
- November 2, 2015: Broad Base Index Core ETFs Review
- October 26, 2015: Total Return Bond Fund Review
- October 19, 2015: Advanced Portfolio Review
- October 12, 2015: What About Commodities?
- October 5, 2015: Core Satellite Portfolios In A 401k Account
- September 28, 2015: Risk Managed Strategic Asset Allocation Portfolios Revisited
- September 21, 2015: Quest For The Best Investment Strategy
- September 14, 2015: Core Satellite Portfolios In Market Turmoil
- September 7, 2015: Market Rout Creates An Opportunity to Reposition Your Portfolios
- August 31, 2015: Review of Asset Allocation Funds and Portfolios
- August 24, 2015: Market Rout And Your Portfolios
- August 17, 2015: ETF or Mutual Fund Based Portfolios
- August 10, 2015: Updated Newsletter Collection
- August 3, 2015: Slippery Asset Trends
- July 27, 2015: Performance Dispersion Among Momentum Based Portfolios
- July 20, 2015: Global Balanced Portfolio Benchmarks
- July 13, 2015: Pain in Tactical Portfolios
- July 6, 2015: Fixed Income Total Return Bond Funds In Strategic Asset Allocation Portfolios
- June 29, 2015: Core ETF Commission Free Portfolios
- June 22, 2015: Secular Asset Trends
- June 15, 2015: Giving Up Bonds?
- June 1, 2015: Summer Blues?
- May 26, 2015: Cash, Bonds and Stocks In A Rising Rate Environment
- May 18, 2015: Portfolio Update
- May 11, 2015: Pain in Fixed Income?
- May 4, 2015: The Balanced Stock and Long Term Treasury Bond Portfolios
- April 27, 2015: Long Term Treasury Bond Behavior
- April 20, 2015: 529 College Savings Plan Rebalance Policy Change
- April 13, 2015: Total Return Bond Funds As Smart Cash
- April 6, 2015: The Low Return Environment
- March 30, 2015: Brokerage Specific Core Mutual Fund Portfolios 2
- March 23, 2015: Investment Arithmetic for Long Term Investments
- March 16, 2015: Brokerage Specific Core Mutual Fund Portfolios
- March 9, 2015: Newsletter Collection Update
- March 2, 2015: Total Return Bond ETFs
- February 23, 2015: Why Is Global Tactical Asset Allocation Not Popular?
- February 16, 2015: Where Are Permanent Portfolios Going?
- February 9, 2015: How Have Asset Allocation Funds Done?
- February 2, 2015: Risk Management Everywhere
- January 26, 2015: Composite Portfolios Review
- January 19, 2015: Fixed Income Investing Review
- January 12, 2015: How Does Trend Following Tactical Asset Allocation Strategy Deliver Returns
- January 5, 2015: When Forecast Fails
- December 22, 2014: Long Term Asset Returns: How Long Is Long?
- December 15, 2014: Beaten Down Assets
- December 8, 2014: Implementing Core Asset Portfolios In a Brokerage
- December 1, 2014: Two Key Issues of Investment Strategies
- November 24, 2014: Holiday Readings
- November 17, 2014: Retirement Spending Portfolios Update
- November 10, 2014: Fixed Income Or Cash
- November 3, 2014: Asset Trend Review
- October 27, 2014: Investment Loss, Mistakes And Market Cycles
- October 20, 2014: Strategic Portfolios With Managed Volatility
- October 13, 2014: Embrace Volatility
- October 6, 2014: Tips For 401k Open Enrollment
- September 29, 2014: What Can We Learn From Bill Gross’ Departure From PIMCO?
- September 22, 2014: Why Total Return Bond Funds?
- September 15, 2014: Equity And Total Return Bond Fund Composite Portfolios
- September 8, 2014: Momentum Based Portfolios Review
- September 1, 2014: Risk & Diversification: Mint.com Interview
- August 25, 2014: Remember Risk
- August 18, 2014: Consistency, The Most Important Edge In Investing: Tactical Case
- August 11, 2014: What To Do In Overvalued Stock Markets
- August 4, 2014: Is This The Peak Or Correction?
- July 28, 2014: Stock Musings
- July 21, 2014: Permanent Portfolios & Four Pillar Foundation Based Framework
- July 14, 2014: Composite Portfolios Review
- July 7, 2014: Portfolio Behavior During Market Corrections
- June 30, 2014: Half Year Brokerage ETF and Mutual Fund Portfolios Review
- June 23, 2014: Newsletter Collection Update
- June 16, 2014: There Are Always Lottery Winners
- June 9, 2014: The Arithmetic of Investment Mistakes
- June 2, 2014: Tips On Portfolio Rebalance
- May 26, 2014: In Praise Of Low Cost Core Asset Class Based Portfolios
- May 19, 2014: Consistency, The Most Important Edge In Investing: Strategic Case
- May 12, 2014: How To Handle An Elevated Overvalued Market
- May 5, 2014: Asset Allocation Funds Review
- April 28, 2014: Now The Economy Backs To The ‘Old Normal’, Should Our Investments Too?
- April 21, 2014: Total Return Bond Investing In The Current Market Environment
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