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 Monday, April 1, 2024. 

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.

Rolling Returns: A Better Way To Evaluate & Compare Investments

In Portfolio Calculator (Simulator) And Rolling Returns, we introduced the rolling returns in our Portfolio Calculator. In this newsletter, we discuss how to utilize our newly upgraded comparison tool to better understand, evaluate, and even rate funds and portfolios. 

Rolling returns: a continuous measurement of risk-adjusted returns

The concept of rolling returns involves continuously measuring the performance of an investment, such as a fund or portfolio, at any given time for a specific timeframe. For instance, a rolling 5-year return, as of a specific date, reflects the investment’s performance over the preceding five years leading up to that date. Instead of solely examining returns over fixed periods like 3, 5, 10, and 15 years at the present date, one can create a chart to visualize the history of continuous returns (fluctuations) over specific timeframes such as 3, 5, or 10 years.

The choice of different timeframes for rolling returns holds significant importance. For instance, a rolling 5-year return chart illustrates the historical returns of investing in this asset over 5 years. From a practical standpoint, for an investor with a 5-year investment horizon in mind, this chart provides a much clearer historical perspective than merely looking at a single 5-year return at the current date.

For example, if we look at S&P 500 Index (Vanguard 500 Index fund VFINX) rolling 3-year chart in the following: 


We observe that for investors who entered the market from 1999 to 2001 for a 3-year period or from 2005 to 2008 for a 3-year period, their investment returns in VFINX (S&P 500) were negative. Conversely, it is noteworthy that from 1979 to 1998, any 3-year investment in VFINX yielded a positive return (spanning almost 20 years). Similarly, this positive 3-year return persisted since late 2008, another 15 years. Therefore, we can see that even for investors with a relatively short investment horizon of 3 years, the outcomes have been quite rewarding at the extremes of these periods, except for the period from 1999 to 2008. The phenomenon can undoubtedly foster complacency among investors, making it easy for them to dismiss risk.

For investors who have longer investment time horizons such as 10 or 20 years, investing in S&P 500 index seems to be more stable now: 

In addition to negative and positive rolling returns, minimum rolling returns serve as a crucial gauge to assess the volatility of an investment within a specific time horizon. For instance, from 12/26/1979 to 03/22/2024, the lowest annualized return of 3-year rolling returns for Vanguard 500 Index Investor (VFINX) is -14.76%, whereas the lowest annualized return of 10-year rolling returns for Vanguard 500 Index Investor (VFINX) is -2.24%. Caution! the -2.24% is the annualized 10-year return that translates to more than -20% loss for that 10-year period!. Such information can be found on the fund page. While average or maximum rolling returns are also available for review, we consider the worst or minimum rolling returns to be an excellent measure of risk. It’s worth noting that the average of rolling n-year returns tends to converge towards the average returns as n becomes sufficiently large. For instance, the average of rolling 20-year returns for VFINX since 1979 is approximately 10.6%, closely resembling its 11% annualized returns from 1979 to the present day.

In brief, rolling returns provide a more accurate historical depiction of an investment within a given time horizon.

Fund/Portfolio Evaluation/Rating Based on Rolling Returns

Let’s now utilize our newly upgraded comparison tool (Resources->Comparison Tool)  to compare investments’ returns and risks. 

MPIQ ETF Allocation Moderate vs. DGSIX (DFA Global Allocation 60/40 I)

Note DFA stands for Dimensional Funds Advisors and its index funds are widely invested by financial advisors. In general, DFA index funds are comparable to or slightly better than Vanguard’s. 

The comparison (link): 

Ticker/Portfolio Name Max Drawdown YTD
1Yr AR 3Yr AR 5Yr AR 10Yr AR 15Yr AR 20Yr AR
MPIQ ETF Allocation Moderate 22% 2.5% 15.0% 0.5% 6.3% 6.4% 7.6% 7.5%
DGSIX (DFA Global Allocation 60/40 I) 42% 4.6% 17.5% 4.8% 8.0% 6.4% 9.0% 6.5%

AR: Annualized Returns

MPIQ portfolio has underperformed DGSIX for the past 1,3,5,10, and 15 years. It did 1% better annually for the past 20 years. 

Nevertheless, when examining the rolling returns comparison (please refer to the provided link for comprehensive information), the following table illustrates the minimum or worst 3-year rolling returns:

Annualized Rolling Returns Comparison (Minimum)
Ticker/Portfolio Name 3 Year 5 Year 10 Year 15 Year
MPIQ ETF Allocation Moderate 0.63%
Oct 2020 – Oct 2023
Oct 2018 – Oct 2023
Oct 2013 – Oct 2023
Sep 2008 – Sep 2023
DGSIX (DFA Global Allocation 60/40 I) -7.52%
Feb 2006 – Feb 2009
Sep 2006 – Sep 2011
Apr 2008 – Apr 2018
Oct 2008 – Oct 2023

So we can see that the MPIQ portfolio’s minimum rolling returns for timeframe 3,5,10 and 15 years are all better than DGSIX. This is of course somewhat reflected by the Max Drawdown figures in the first table (22% vs. 42%). 

The Rolling Returns Comparison Chart would reveal more details on the volatility:

So for an investor with 3-year investment time horizon, the MPIQ portfolio is clearly a winner. In fact, its latest 1,3,5,10, and 15-year underperformance was mostly due to its recent underperformance since 2021 or so. 

If we move to a 15-year investment time horizon, we see the portfolio has outperformed DGSIX by some large margins in all periods:

The concept of rolling returns can be somewhat complex. Essentially, the information above indicates that for individuals with a 15-year investment horizon, investing in the MPIQ portfolio would have consistently outperformed investing in DGSIX at any point in the past. However, for a 3-year time frame, the portfolio’s performance has been poorer since around 2018.

In comparison to a single data point like the maximum drawdown, rolling returns provide a more comprehensive measure of historical performance. Moreover, they are directly correlated with investors’ investment time horizon, which is the most crucial factor to consider when making investment decisions.

Similarly, if we look at P Composite Momentum Scoring Factor ETFs (see Resources->Advanced Strategies) and VFINX (S&P 500), we again see the following: 

Annualized Rolling Returns Comparison (Minimum)
Ticker/Portfolio Name 3 Year 5 Year 10 Year 15 Year
P Composite Momentum Scoring Factor ETFs 9.06%
Mar 2017 – Mar 2020
Oct 2018 – Oct 2023
Mar 2010 – Mar 2020
VFINX (Vanguard 500 Index Investor) -2.23%
Aug 2008 – Aug 2011
Sep 2008 – Sep 2013
Mar 2009 – Mar 2019

And the 3 and 10 year rolling return charts: 

So it’s almost certain we can claim that the P Composite Momentum Scoring Factor ETFs is much better than S&P 500 (VFINX) for any investor who has 3, 5, 10 year investment time horizon 

Due to space limitations, we will conclude here and highly recommend users to utilize our powerful Resources->Comparison Tool. We are confident that this tool can assist you in evaluating, comparing, and rating ETFs, mutual funds, or portfolios more effectively. The rolling returns and their associated metrics provide a robust and reliable foundation for investment evaluation.

Market Overview

Although the S&P 500 and Nasdaq 100 indexes have been reaching all-time highs due to slightly better-than-expected earnings and the frenzy of AI investments (anyone invested in Nvidia?), there are several notable underlying trends that we want to bring to our readers’ attention.

Firstly, major economic indicators have all decreased. These include year-over-year declines in Retail Sales and Industrial Production, along with the continued increase in unemployment rates in February. These three metrics are the key indicators to gauge the economy in consumer spending, industrial activities, and the labor market. Given that these indicators may lag, we are concerned that the US economy may have slowed more than what the stock markets indicate.

Secondly, we observe that other broad-based stock indexes such as the Russell 2000 small-cap stock index have still struggled to surpass their previous highs. For instance, the Russell 2000 small-cap index remains almost 20% below its previous high reached in 2021!

As always, we claim no crystal ball and we call for staying the course which is guided by the well defined and sound strategic and tactical strategies:

  • For strategic allocation (buy and hold) investors, ignore the current market behavior. Remember, as 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, preferably much longer, given the current high valuation. 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 and preferably many more 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 during this time. Human emotion, both optimistic and pessimistic, and human desire, both greedy and fearful, are your worst enemies. This is true time and time again.

Stock valuation has dropped, and now valuation is becoming less hostile. However, it is still not cheap by historical standards. For the moment, we believe it’s prudent to be extra cautious. 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 market 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.

Struggling to Select Investments for Your 401(k), IRA, or Brokerage Accounts?


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