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, January 22, 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.
Strategic Portfolios Review
It’s a good time to review what has happened in 2017. Several things stood out last year: stock indexes were unusually strong and calm, seldom had large correction. Everything seemed to go up that year in a near perfect Goldilocks environment (low inflation and reasonable growth).
Nevertheless, let’s first look at the returns of major assets.
Returns of major assets
Major Index ETF Performance Comparison (as of 1/5/2018)
|ETF||2017||3Yr AR||5Yr AR||10Yr AR|
|VTI (Vanguard Total Stock Market ETF)||21.7%||12.8%||15.5%||9.5%|
|VEA (Vanguard FTSE Developed Markets ETF)||26.4%||11.0%||8.5%||2.9%|
|VWO (Vanguard FTSE Emerging Markets ETF)||31.5%||10.0%||3.9%||2.1%|
|VNQ (Vanguard REIT ETF)||7.0%||4.4%||8.4%||8.2%|
|DBC (PowerShares DB Commodity Tracking ETF)||4.9%||-2.4%||-9.5%||-6.3%|
|BND (Vanguard Total Bond Market ETF)||3.7%||1.9%||2.0%||3.7%|
|GLD (SPDR Gold Shares)||12.8%||2.7%||-4.8%||3.9%|
|TLT (iShares 20+ Year Treasury Bond)||9.2%||1.5%||3.9%||6.2%|
|JNK (SPDR Barclays High Yield Bond ETF)||3.9%||4.0%||3.4%||5.4%|
|TIP (iShares TIPS Bond)||1.8%||1.2%||-7.6%||-0.9%|
Several notable observations:
- Stocks in other parts of the globe did better than the US ones. Emerging market stocks had the best returns among all major assets.
- Real Estate Investment Trusts (REITs) disappointed. It returned 7% last year. The tax reform bill passed last year clearly benefit to REITs. However, REIT investors were not as excited on the sector as in other sectors. It seemed that they are more concerned about the rising interest rates.
- Commodities did reasonably well in the first half of the year but didn’t catch up in the second half. Gold, however, did better than broad base commodities.
- Another disappointing asset is high yield bonds: JNK had a somewhat uncharacteristic low return, compared with the much higher general stock market returns.
- Inflation or inflation expectation was muted last year: TIPs did even worse than general bonds.
The low returns in REITs and commodities offset higher returns from foreign stocks in our global balance portfolios.
Strategic Asset Allocation (SAA) Portfolios Returns
The following table shows how our typical brokerage specific SAA mutual fund portfolios performed last year. You can find performance data of other ETF based SAA portfolios on Brokerage Investors page.
Portfolio Performance Comparison (as of 1/5/2018):
|Ticker/Portfolio Name||1Yr AR||3Yr AR||5Yr AR||10Yr AR||15 Yr AR|
|Schwab Core Mutual Funds Strategic Asset Allocation – Optimal Moderate||12.4%||7.2%||7.5%||6.9%||9.5%|
|Fidelity Core Mutual Funds Strategic Asset Allocation – Optimal Moderate||12.6%||9.1%||8.5%||7.4%||9.3%|
|Vanguard Select Mutual Funds Strategic Asset Allocation – Optimal Moderate||11.7%||6.1%||6.1%||5.3%||8%|
|Schwab Income Mutual Fund Select List Strategic Asset Allocation – Optimal Moderate||12.0%||6.3%||6.8%||6.5%||8.4%|
|Etrade Core Mutual Funds Strategic Asset Allocation – Optimal Moderate||12.4%||8.0%||8.0%||7.4%||9.7%|
|Merrill Edge Core Mutual Funds Strategic Asset Allocation – Optimal Moderate||12.8%||7.9%||7.5%||6.8%||9.1%|
|VBINX (Vanguard Balanced Index Inv)||14.0%||8.2%||9.9%||7.4%||7.9%|
These global oriented portfolios did well, though mostly are slightly lagging behind VBINX (Vanguard Balanced Index Inv), a 60% US stocks and 40% US bonds index fund.
As the strength of US stocks continued, the 10 year annualized returns of these global portfolios are now similar or slightly worse than VBINX’s. However, if we extend our view to 15 years’ (since 1/5/2003), we can see that these portfolios are still showing better returns than the US centric VBINX, indicating a long term diversification benefit by exposing to other asset classes.
Though we hate to show off our ‘lousy’ crystal ball to predict any possible outcome, we feel it’s warranted to make our comments on the general state of the assets we are investing in.
- Stocks: as stated previously, we believe US stocks are at a very overvalued level. See for example, December 18, 2017: Record Highs And Risk. Compared with international developed country stocks (European stocks in particular) and emerging market stocks, US stocks are also more expensive. However, the expensiveness of US stocks is somewhat mitigated by the recently passed tax bill, which clearly has some short term benefits for stock shareholders.
- Bonds: as central banks around the world are exiting from loose monetary policies and interest rates are rising, bonds will be under some pressure. However, as we repeatedly pointed out several times, even in a rising rate environment, it’s still possible to derive reasonable returns in fixed income (bonds). Investors just need to be more nimble and adopt a more active fixed income strategy such as the ones adopted in our total return bond fund portfolios (see, for example, August 28, 2017: Total Return Bond Fund Portfolios: Where Do They Fit?).
- Commodities and gold: assuming the bull market can continue its last leg for some time, commodities will do reasonably well as they usually do in a late stage bull market cycle.
Key major risk factors:
- High valuation and very overbought stock and bond markets
- Rising interest rate
- Full or peak employment will start to put wage pressure to corporations, which in turn will stoke inflation (fear). This will have adverse impact on company earnings.
- Geopolitical risks in middle East and Asia.
In general, we again are cautious on the environment. It’s thus important to revisit one’s overall risk exposure and keep it at a comfortable level even in the face of 50% or so stock correction. However, once that’s settled, investors in strategic portfolios should be prepared to hold on the assets in the portfolio for a long time to come to reap benefits of long term reasonable returns that are inherent in stock and bond assets. Again, we refer our readers to various newsletters on this subject (such as October 31, 2016: Economy Power And Long Term Stock Returns).
The incredible stock market clam continued in the new year: stocks continued to break record highs in the first week of 2018. Here are some of interesting (or surprising) facts on US stocks in 2017:
- Courtesy of New York Times, this bull market has been one of the longest, only trailing the one from 1987 to 2000.
- There wasn’t a single day S&P 500 index dropped more than 2% in 2017. That’s unseen since mid-1960s. Similarly, we have shown the CBOE implied volatility index VIX has been the lowest since 1990 when it had data.
Even though the tax bill has been signed into law, investors are still looking forward to it’s potential benefits to stock shareholders and economy. However, the unusual clam of the markets and their overvaluation are something investors shouldn’t be too complacent about. As always, stay the course.
For more detailed asset trend scores, please refer to 360° Market Overview.
Now that the Trump administration has been in the office for more than a year, the economy and financial markets are in general still in a good shape. Whether the economy will continue to benefit from the supposedly trickle down of the tax cut, the deregulation and the promised infrastructure spending remains to be seen. On the other hand, stocks continued to ascend, regardless of the progress. Looking ahead, however, we remain convinced that markets will experience more volatilities at some point when reality finally sets in.
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.
- December 18, 2017: Record Highs And Risk
- December 11, 2017: Cash Return And Interest Rate Update
- December 4, 2017: Mutual Fund Star Ratings: Are They Useful?
- November 20, 2017: Thankful And Mindful
- November 13, 2017: Is This A Good Time For Retirees Or Would Be Retirees?
- November 6, 2017: Newsletter Collection Update
- October 30, 2017: Rising Interest Rates
- October 23, 2017: A Primer For Portfolios
- October 16, 2017: REITs As An Asset Class
- October 9, 2017: Conservative Portfolios Revisited
- October 2, 2017: The Role of Short Term Bond Funds
- September 25, 2017: Fees In Cash Investments
- September 18, 2017: Conservative Portfolios Review
- September 11, 2017: International Diversification Effect
- September 4, 2017: Invest And Speculate Revisited
- August 28, 2017: Total Return Bond Fund Portfolios: Where Do They Fit?
- August 21, 2017: Portfolio Performance: A Walk In The Past
- August 14, 2017: Fidelity Commission Free ETFs Update
- August 7, 2017: I Didn’t Learn Anything — Mistake vs. Temporary Underperformance
- July 31, 2017: Asset Classes And Fund Choices: A Primer
- July 24, 2017: Total Return Bond Fund Portfolios And Cash
- July 17, 2017: Long Term Stock Holding Periods For Retirement
- July 10, 2017: Half Year Asset Trend Review
- June 26, 2017: How To Beat The Best Balanced Allocation Fund
- June 19, 2017: Newsletter Collection Update
- June 12, 2017: A Mixed Bag Performance of Momentum Investing
- June 5, 2017: How To Start A New Portfolio
- May 29, 2017: Alternative Assets And Their Role In Portfolios
- May 22, 2017: Summer Seasonality And Portfolio Management
- May 15, 2017: Cash: Banking Or Investing?
- May 8, 2017: Holding Period of Long Term Timing Portfolios
- May 1, 2017: Debate on Risk vs. Volatility
- April 24, 2017: The Long Term Stock Market Timing Return Since 1871
- April 17, 2017: Risk vs. Volatility: Long Term Stock Market Returns
- April 10, 2017: Total Return Bond ETFs And Portfolios
- April 3, 2017: Quarter End Asset Trend Review
- March 27, 2017: Practical Consideration For IRAs And 401k Accounts
- March 20, 2017: Fund Fees: That’s (Still) Outrageous
- March 13, 2017: Long Term Stock Valuation Review
- March 6, 2017: Asset Classes for Retirement Investments
- February 27, 2017: Fidelity Total Bond Fund Review
- February 20, 2017: Long Term Stock Timing Based Portfolios And Their Roles
- February 13, 2017: Alternative Investment Portfolios Review
- February 6, 2017: Tax Free Municipal Bond Investments Review
- January 30, 2017: Brokerage Specific Conservative Portfolios
- 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 12, 2016: Enhanced Index Funds
- 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 14, 2016: Asset Trends After The Election
- 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