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 December 1, 2021. 

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.

Q&A On MyPlanIQ Strategies And Portfolios

Over time, we have received various questions from our users. For example, recently, we have a user who has been persistent to pursue answers on how our strategies work. In this newsletter, we intend to revisit and clarify several important questions on our strategies and portfolios. 

We have written several newsletters on our strategies and portfolios. The following three are from our newsletter collection page: 

Asset Allocation Composite:

We strongly suggest any new and existing users to read the above newsletters if they are interested in our services. 

We also intend to make this newsletter as a must read for new subscribers. 

What’s behind composite momentum indicator?

Specifically, the following question is on portfolio P Composite Momentum Market VFINX listed on  Advanced Strategies page. 

This strategy looks quite good. Is this based on 200 day moving average as a trigger signal? Please clarify the method and whether it is repeatable and does not involve human forecast, does the method change on certain scenarios.

First of all, all MyPlanIQ portfolios are totally mechanic or solely driven by algorithms or programs. No human intervention is performed. We do improve strategies over time but the improvements are kept minimal as we believe that investing is a statistical process that can only become validated or useful if a strategy or a method is pre-set and evaluated based on its behavior over a long period (i.e. sample data). Remember the saying: ‘a strategy is NOT a strategy if it keeps changing‘?

The portfolio in question basically buys VFINX (Vanguard S&P 500 index fund) if our Composite Momentum indicator signals an uptrend (buy signal). It then sells VFINX and goes to a US Treasury fund (such as Vanguard interm term Treasury fund VFITX) if the indicator signals a downtrend (sell signal). The portfolio does the above rebalance at the end of the month. Notice, most of times, the portfolio will remain unchanged (i.e. holding the same VFINX (if buy) or VFITX (if sell)). 

It’s a showcase for our Composite Momentum Indicator (apart from our momentum ranking on assets and funds). 

Here is the updated description of the Composite Momentum Indicator from November 11, 2019: Market Indicator And Momentum:

This indicator will signal a downtrend (sell) when the following conditions are met:

  • General stock market indices such as S&P 500 index are in a downtrend. Specifically, we use a momentum indicator that’s similar but not the same as 200 days simple moving average over S&P 500 index and a few other indexes. 
  • Increased credit risk such as widening spread between the yields of treasury bonds and high yield bonds. Here we use yield sensitive bonds and stock sectors to gauge the credit risk. 
  • Market internals such as stocks in various sectors are all converging into a downtrend. Here we utilize several stock sectors and their internals for this purpose. 
  • Market valuation. Long term stock valuation plays some minor role in this composite indicator. 
  • Economic indicators. Our indicator incorporates several important economic indicators that include consumption activities, industry production and employment. 

Simply put, our indicator is a composite of several factors. It’s not a simple 200 days moving average, though market index momentum plays a significant role in it. 

The indicator has been pretty steady and we have no reason to modify it. Our goal is to keep it as stable as possible. It’s intended to avoid significant or a secular market downtrend, not for a short term or even a short to intermediate term purpose. 

What’s the momentum ranking method for AAC (Asset Allocation Composite) and TAA (Tactical Asset Allocation) portfolios? 

Notice both AAC and TAA use the same momentum ranking or scoring method to rank funds and major assets. The momentum score method is a modified version of the trend scores shown on our 360° Market Overview. It’s a weighted average of the total returns of last 1, 4, 13, 26 and 52 weeks of a fund or an asset (such as US stocks), adjusted with volatility and some other factors. 

Notice that an AAC portfolio such as MPIQ ETF Allocation Moderate uses BOTH the composite momentum indicator and individual asset/fund momentum scores to decide its portfolio holdings. 

What are the recommended portfolios from MyPlanIQ?

MyPlanIQ as a quantitative or mechanical system provides many powerful investing strategies or model portfolios based on these strategies. However, over time, we have found our customers are often confused with too many choices. We have thus streamlined our model portfolios and would strongly suggest that customers to start with the following portfolios. Unless you are absolutely experienced with tools and investments, we don’t recommend you to utilize other strategies and portfolios. 

The following are the essential portfolios that we recommend: 

  • For a taxable or IRA brokerage investment account, start with the two ETF portfolios (you can customize with your own risk allocation) listed on your Dashboard as follows: 

We also support a few total return bond mutual fund based fixed income portfolios customized for major brokerages. See Income Investors page, Fixed Income Mutual Fund Portfolios section (click on Latest performance for those portfolios): 

As always, you can find newsletters on newsletter collection page that describe these mutual fund based portfolios such as 

  • For a pre-defined retirement plan such as a company’s 401k plan or an organization’s 403b plan (see example portfolios or search for a plan from Retirement Investor page), we recommend you to customize an AAC or an SAA portfolio (if desired). Furthermore, we encourage you to submit the latest updated fund lineup either by email (to support at MyPlanIQ) or Click on Modify Investment Options button on a detailed plan page (to get to a detailed plan page, click on ‘Click here for more plan details and features‘ button on a plan page). The following is the detailed plan page for Stanford University retirement plan: 

What about other mutual fund and ETF portfolios for brokerages?

We have found there are quite some old customers who are still following other mutual fund or ETF portfolios for brokerages such as Schwab or Fidelity. For these portfolios (or the plans behind these portfolios), our policy is as follows:

  • For basic plan subscribers, we don’t suggest you to follow these portfolios anymore. In fact, we will no longer update a brokerage plan such as Fidelity extended fund picks or Etrade All Start or Schwab Commission Free ETFs etc. So you might run into a situation that these portfolios might be using outdated funds. 
  • For expert plan subscribers who are interested in these portfolios, we suggest you to create a personal plan for such a portfolio. It’s your responsibility to keep your plan updated (for example, if a mutual fund is no longer available in a brokerage, you’ll have to delete it from your plan by yourself). 

In a word, we no longer actively update these plans. If you have any questions, please email us and we can help you to migrate. 

What about the portfolios on Advanced Portfolios page?

We maintain Advanced Strategies page. However, users should be aware that we don’t recommend all of these portfolios. The purpose of this page is to show some interesting portfolios for advanced users (expert or pro subscribers). Specifically, we would only actively support portfolios listed on ‘Practical Advanced Portfolios‘ section. Even among these portfolios, we strongly suggest a user to fully understand their behavior before actually following them in real investments. You would also need to consider to properly allocation your capital to these portfolios. 

Among the portfolios in ‘Practical Advanced Portfolios‘ section, investors should pay special attention to the high volatility for the two portfolios: 

Even though these two portfolios can provide higher returns over time, their high volatility or drawdowns are not suitable to those who are not experienced and not comfortable with high fluctuation. 

Other portfolios on this page should be treated as some interesting reference portfolios. We don’t recommend them and experienced investors should investigate and modify as they see fit. 

Market Overview

The Q3 earnings report period is almost over as 92% of S&P 500 companies have reported results. The positive surprise streak continues: the blended earning growth streak is 39.1% (last Friday), 39.1%, 36.6%, 32.7%, 30% and 27.6% for past weeks. See Factset for more details. Overall, this has been a stellar quarter. This again pushed headline stock indexes to all time highs. 

However, we do notice that market internals are not impressive at all. For example, the percent of stocks above 200 day moving average for Nasdaq stocks still remain at a very worrisome level. 

We also see a similar picture for NYSE stocks. In a word, major stock indexes are pushed higher by few stocks. Many stocks have not participated in this year’s rally at all: for Nasdaq stocks, that means only 39% of them are in an up trend!

As always, we remain cautious and advocate the following practice:

  • 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 longer. 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) 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 is still extremely high by historical standard. For the moment, we believe it’s prudent to be cautious while riding on market uptrend. 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.

Enjoy Newsletter

How can we improve this newsletter? Please take our survey 

–Thanks to those who have already contributed — we appreciate it.

Latest Articles

Any investment in securities including mutual funds, ETFs, closed end funds, stocks and any other securities could lose money over any period of time. All investments involve risk. Losses may exceed the principal invested. Past performance is not an indicator of future performance. There is no guarantee for future results in your investment and any other actions based on the information provided on the website including, but not limited to, strategies, portfolios, articles, performance data and results of any tools. All rights are reserved and enforced. By accessing the website, you agree not to copy and redistribute the information provided herein without the explicit consent from MyPlanIQ.