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, May 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.

Holding Period of Long Term Timing Portfolios

Our previous newsletter April 24, 2017: The Long Term Stock Market Timing Return Since 1871 generated some questions from our users. Specifically, some users are wondering whether using a timing strategy such as the 10 month moving average mentioned in the article can now reduce the required hold time to achieve a long term average return. We believe this is an extremely important question and want our readers to understand clearly on this concept. 

Rolling period returns

Recall that in that newsletter, we show using the timing strategy not only improves the long term average return slightly, but it dramatically reduces volatility of the portfolio. We further look at how fluctuated the moving average rolling period returns are using the following table:

  S&P Rolling 10 Yr S&P Rolling 15 Yr S&P Rolling 20 Yr  MA Rolling 10 Yr  MA Rolling 15 Yr  MA Rolling 20 Yr 
AVERAGE 9.2% 9.2% 9.3% 9.4% 9.4% 9.4%
STDEV 5.0% 4.1% 3.3% 3.9% 3.1% 2.3%
MIN -4.0% -0.3% 2.1% 0.9% 2.6% 3.2%
MAX 21.1% 19.3% 17.9% 19.4% 16.7% 15.3%

MA: Moving Average

One can see that the moving average rolling 10 year returns are all positive for every month since 1871. However, there is still a period when the rolling 10 year return is only 0.9%. Though positive, the return is still too low for investors who have invested in this portfolio for the past 10 years. 

This implies that for the investors who want to utilize the capital within 10 years, it’s not a good idea to put 100% into a timing portfolio. To further reduce the volatility, one has to rely on diversification into other ‘safer’ assets, especially bonds. 

Now let’s understand further how much hold time the timing portfolio can shorten, compared with the buy and hold of an S&P 500 index fund. The following is an extended table for moving average rolling period returns and their volatility.

10 Month Moving Average Timing Portfolio Return Stats Since 1871:

  MA Rolling 5 Yr MA Rolling 7 Yr  MA Rolling 10 Yr  MA Rolling 15 Yr  MA Rolling 20 Yr 
AVERAGE 9.6% 9.5% 9.4% 9.4% 9.4%
STDEV 6.3% 4.7% 3.9% 3.1% 2.3%
MIN -12.2% -3.5% 0.9% 2.6% 3.2%
MAX 31.9% 24.5% 19.4% 16.7% 15.3%

We make the following observations:

  • MA Rolling 15 Yr stats are better than Buy and Hold S&P 500 Rolling 20 Yr’s.
  • MA Rolling 10 Yr stats are also better than S&P 500 Rolling 15 Yr’s
  • However, MA Rolling 5 Yr stats are worse than S&P Rolling 10 Yr’s: the minimum return -12.2% is much worse than -4% of S&P 500 and STDEV (Standard Deviation) is also higher (6.3% vs. 5.0%). 
  • MA Rolling 7 Yr stats are close to (slightly better than) S&P 500 10 Yr’s. 

We also want to quote another chart we published earlier on long term returns of our trend following portfolios (see January 16, 2017: Long Term Trend Following Portfolio Review). The following is for the rolling 5 year returns of our representative portfolio P Relative Strength Trend Following Six Assets or  P Goldman Sachs Global Tactical Include Emerging Market Diversified Bonds:

The above data are only from 1991. However, the rolling 5 year minimum return for any month can be still as low as 5%. 


So to answer how much time a timing strategy like Moving average or trend following can shorten the required hold time (so that the capital can be withdrawn or used), from the studies of the past S&P 500 data, we can say that it probably reduces 3-5 years. A safer general guideline for the minimum hold period should be 10 to 15 years. Of course, the longer, the better. 

What the above implies is also that investors should not have any delusion about a timing strategy: it can reduce volatility but its returns can still vary very much. It can not be used as a short term investment. One has to commit a long time to invest in such a portfolio, just like buy and hold an S&P 500 index fund, just a few years less. There is no magic bullet here. 

The (poor) performance of our tactical portfolios in the past 5 -7 years have repetitively demonstrated that one has to commit to such a strategy for a long time. We believe, at minimum, it should be 7 to 10 years, if a worst case low sub 5% annual return is acceptable. Otherwise, it should be 10-15 years in order to reap a long term equity average return. 

Finally, we also want to caution that the above studies are only based on one index S&P 500’s past performance, so one should take a more conservative stance to draw a conclusion. 

Market Overview

So far, investors are more optimistic with news like France election result and the good last quarter’s earnings reports. Stock indices are mostly at or close to all time high. However, small cap stocks have started to show some weakness compared with large cap stocks last week. As always, we can’t predict what will happen in the near term. We will just need to be risk conservative and navigate through accordingly.  

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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