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, April 17, 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.

Practical Consideration For IRAs And 401k Accounts

It’s very common for many users to have several accounts – some of them are 401k or employer sponsored retirement accounts, some of them are IRAs and some of them are taxable accounts. In this newsletter, we look at IRAs and 401k type accounts in more details and offer some observations. For a related topic on how to allocate overall capital across multiple accounts, please refer to December 16, 2013: Tax Efficient Portfolio Planning

Brokerages for IRAs

Many major brokerages still target active traders instead of portfolio builders. To the extent we have investigated, we are really not satisfied with what’s provided for retail investors who just want to construct a balanced asset allocation portfolio instead of trading ETFs and stocks.  For example, so far, no brokerages other than FolioInvesting provide a basket portfolio rebalance feature that allow investors to rebalance a portfolio at once, not being forced to issue many sell and buy orders. The good news is that such a feature exists in many 401k accounts. However, if you limit yourself to only finding a brokerage that’s good for portfolio construction, here are some of our observations: 


You want to find a brokerage that provides ETFs commission free or low commission. If you consider Vanguard’s ETFs are good enough for your portfolio construction, you might as well open an account in Vanguard brokerage. The other choice is TDAmetrade, that provides most of Vanguard ETFs commission free. If you still want to get some exposure to other ETFs, the other choice is Merrill Edge, which allows you to have 30 commission free trades in each month if you have over $50,000 in your combined Bank of America bank accounts and brokerage accounts. Other firms provides commission free ETFs that are either very illiquid (such as Schwab’s many commission free ETFs) or incomplete. Fidelity offers half baked commission free ETF trades that are only buy commission free, but not sell. We think you can be better off in other brokerages that offer real commission free trades. 

Here is the summary:

  •  Vanguard brokerage: commission free Vanguard ETFs which are relatively complete and extremely low cost. 
  • TD Ameritrade: provides most Vanguard ETFs commission free. 
  • Merrill Edge: if you have over $50,000 in combined accounts, you are entitled to 30 commission free ETF trades. 

Index funds

For this purpose, we found that Vanguard brokerage is probably the best that provides all Vanguard funds without transaction fees. Fidelity and Schwab also provide some good low cost index funds (though they are not as complete as Vanguard’s). Other than these, many firms have limited low cost index funds and thus making it very hard to construct a low cost portfolio. Furthermore, many brokerages put a minimum 3 month holding period for a mutual fund, otherwise, they will charge transaction fee. In TD Ameritrade case, it has an unusual 6 month requirement, rendering itself almost not useful. 

IRA or 401k accounts

If you have a 401k plan from your current employer, you don’t have much choice as you can’t abandon your 401k and establish a new IRA or add to an existing IRA. However, if you have a 401lk/403B or other retirement accounts, you do have a choice whether you should retain your old 401k account or just roll over to an IRA or to your current 401k account. Things to consider:

  • 401k might have some ultra low cost funds, especially index funds. Sometimes, for a large plan, your administrator can manage to negotiate extremely low fees for some funds (mainly for Collective Investment Trust funds or CITs). However, considering today’s rock bottom expenses of index ETF or index mutual funds, this has become less attractive. 
  • 401k might allow you to access to some good funds that are not available to retail investors in a discount brokerage (in which your IRA is most likely to reside). Examples include DFA (Dimensional Fund Advisors) funds that can be only purchased through financial advisors in a retail brokerage account or some load waived share classes (such as institutional or class A) of funds. 
  • As stated above, 401k has a one click feature to allow you to rebalance your account based on the percentage allocation. That makes your rebalance trades much easier. 

In general, even if the above does exist, to simplify your life and consolidate your financial accounts (lots of people are really bogged down by too many accounts), it’s still a good practice to just pick a good low cost brokerage for your IRA and move your old 401ks there. 

How to allocate among IRAs and 401k accounts

If you have both IRA and 401k accounts, you need to decide what asset classes or styles of portfolios to be held in what accounts. For general allocation between taxable and tax deferred accounts, we outlined some suggestions in  December 16, 2013: Tax Efficient Portfolio Planning.  But among tax deferred IRA and 401k accounts, there are more to consider:

  • IRAs can allow access to a relatively complete list of total return bond funds (see June 3, 2013: Total Return Bond Fund Portfolios For Major Brokerages on using these funds to construct a fixed income portfolio) that are generally not available in a 401k plan. In fact, we have observed that many plans actually ignore or overlook the importance of having good choices of fixed income funds. Most plans only feature a few fixed income funds and leave investors not many choices to enhance the fixed income side returns. For example, here are the fixed income funds in DEUTSCHE BANK MATCHED SAVINGS PLAN. In this case, a major investment bank has decided to only offer a bond market index fund, an active intermediate bond fund and a high yield bond fund for all of its fixed income lineup. 
  • IRAs in general have more asset class choices. If you choose a brokerage right, you can also choose funds with low expense. 

In general, we would suggest that first allocate your fixed income portion as much as possible in an IRA if your 401k plan lacks of good fixed income funds (which is usually the case). You then try to leave the active or tactical portion as much as possible in IRAs if you can do this part in index mutual funds or commission free ETFs. That would also mean if you have a strategic portion, try to do that in the 401k account in this situation. 

Unfortunately, the above suggestion seems to under utilize the good portfolio level basket rebalance feature available in 401k plans as the more active (tactical) portfolios would need this feature most. But investors just have to make some tradeoff in this situation. 

To summarize, even among retirement accounts, investors should make an effort to consider how to allocate funds and assets by looking at the pros and cons in these types of accounts. From the above discussion, one can see both discount brokerage based IRAs and employer sponsored (401k) accounts have weakness to avoid. 

Market Overview

The politics induced volatility was in full display last week. US stocks and high yield bonds fell. The failed health care law repeal effort reminds investors of a harsher reality that the new administration’s promised reform is not a smooth sailing. The highly overvalued markets can only make things more susceptible to downside. We remain cautious. Investors should stay the course. 

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. 

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