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.

Major Asset Returns In The Past Twenty Years

The pandemic turns out to be a nirvana for stocks: their prices have been on fire since last March. Now that it looks like it’s very likely this pandemic will be over (more on this later), stocks continue their nonstop rise. 

The following shows S&P 500 total return (SPY) and total bond index (BND) return since last April

From the above chart, it’s a non brainer to invest in stocks. In fact, investing seems to be so easy: all you need to do is just to buy some diversified stock funds or follow those hot stocks in Reddit. You are set, double digit returns every year!

In this context, it’s a good time to review how major assets (US stocks, US REITs (Real Estate Investment Trusts), international developed market stocks, emerging market stocks, commodities (gold) and bonds) have fared for the past 20 years. 

Major asset returns for the past twenty years

The following chart shows the total returns since 2001: 

Here are the total returns (dividend reinvested): 

100 dollar invested becomes 
Fund name Total return since 1/1/2001 Total return since 11/4/2011
VTSMX (Vanguard Total Stock Mkt Idx Inv) 514 450
VGTSX (Vanguard Total Intl Stock Index Inv) 257 203
VEIEX (Vanguard Emerging Mkts Stock Idx) 420 158
VGSIX (Vanguard REIT Index Inv) 976 285
VBMFX (Vanguard Total Bond Market Index Inv) 271 133
GLD (SPDR Gold Shares) 592 99


  • Turns out that REITs (VGSIX) had highest returns for the past 20 plus years. As most of readers know, we believe REITs are special major asset that can greatly help diversification and enhance returns.
  • International developed market stocks (VGTSX) had the lowest return, even lower than bonds (VBMFX). The euro zone’s highly leveraged economy has dragged down company profits and their stock prices. It’s a pity that a major stock asset can’t even outperform bonds for 20 plus years, a very long (or at least long enough) period for an investor. 
  • Emerging market stocks returned better mostly because of their earlier years’ strong returns.

10 year returns since 11/4/2011

For the past 10 years: 

  • US stocks and REITs are the strongest, way better than others
  • International stocks recovered from their huge loss before 2011. In fact, majority of returns since 2001 came from the past 10 years (203 out of 257)!
  • Emerging market stocks barely did better than bonds. 
  • On the other hand, gold’s(GLD) returns for the past 20 plus years all came from those before 2011 (592 vs. 99). The past decade has been a deflationary period. No wonder gold languished. 

The above reveals that however how much returns investors are getting, only US investors have done well for the past 20 plus years. In fact, even among US investors, many who have diversified globally haven’t gotten those glittering returns. 

US stocks still underperformed a bond portfolio

One interesting observation we made while studying these returns is shown in the following chart: 

Well, even with the current thrust, S&P 500 (VFINX) is still no better than our total return bond portfolio (in the above chart, we use Schwab Total Return Bond, a bond fund portfolio customized for Schwab investors since 2001. For more information on portfolios for other brokerages, see our fixed income investor page).  Since 12/31/1999, S&P 500 (VFINX) has annualized return 7.4% while our boring bond portfolio returned 8.5% annually.

Though the above comparison is just a data point that just happened to start from a date when stocks were close to their peaks (12/31/1999), this nonetheless shows that even for a very long period (20 plus years), a well crafted fixed income bond portfolio can certainly add a lot of value, sometimes even better than stocks. 

A generation of meme investors

The phenomenal stock returns in the past ten plus years are creating a generation of meme investors: meme stocks, crypto currencies like bitcoin are all going up and up. For those of us who are old enough, this is just like late 90s or more. What’s more, in addition to the ‘wonderful’ investment environment, this generation of young investors (twenty and thirty-something) are accommodated with easy online trading (Robinhood anyone?) and commission-free trades. You just need to latch on those hot stocks and trade all days to reap profits. No wonder retail investors are beating professional investors left and right, earning big bragging right in cocktail parties. 

However, just a simple reasoning will tell you things can’t go up forever. At some point, they will have to revert back to their normal course (reverse to mean). What’s more, when such a ‘correction’ happens, they tend to go to the other extreme: prices will undershoot. No wonder more and more rational and experienced investors are predicting a 50% to even 80% extreme loss in the coming bust. 

We again have no strong conviction on how much stocks will correct in the coming downturn. Whether this correction will be a bust is also subject to debate in its scale and its precise semantic definition. However, one thing we are pretty sure about is that there will be a substantial correction at some point in the future, maybe in the near future, considering how long the current bull market has been. In a word, it’s not a good idea to forget about the history and risk, even in a good time. 

Market Overview

Two recent developments are very favorable to stocks. First, companies continued to report better than expected earnings for third quarter (Q3): with 89% of S&P 500 companies reporting actual results, the blended earning growth streak is 39.1% (last Friday), 36.6%, 32.7%, 30% and 27.6% for past weeks. See Factset for more details. 

Second, Pfizer just announced some encouraging data on its latest Covid antiviral pill that can slash the potential for hospitalization or death by 89% in adults at risk for severe complications. This new development, coupled with the moderation of delta virus wave of infection, may well signal the end of the pandemic is near (see, for example, former FDA commissioner, Pfizer board member Dr. Gottlieb’s comment). 

As always, we are cautiously optimistic 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.

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