Why Your Investment Portfolio Is Like A Bar of Soap
July 05, 2018

Why Your Investment Portfolio Is Like A Bar of Soap

Plenty of investors start out well. They build a diversified portfolio of low-cost index funds. But then an analyst on Bloomberg says bonds are going to crash. An expert on CNBC says U.S. stocks will fall. A financial magazine says Asian stocks will soar. The headline reads, “These Are The ETFs To Buy Right Now!” Suddenly, you have an itch that’s begging to be scratched. By tweaking your portfolio, you might gain a performance edge.

But here’s something to remember: your portfolio is much like a bar of soap. The more you mess with it, the smaller it’s likely to get. Many DIY investors can’t resist the urge to tinker. But they aren’t alone. Professionals also play with soap, and the results aren’t pretty.

Tactical Asset Allocation funds provide a great example. They differ from traditional mutual funds because their managers don’t have to stick to a consistent asset class. Their expertly trained analysts can pick U.S. stocks, developed international stocks or emerging market stocks. They can increase or decrease their U.S. or international bond market exposure as they see fit. These professionals keep their eyes on global interest rates. They monitor elections, pending tax cuts, corporate earnings projections and market valuations.

They often tilt their asset classes daily, weekly or monthly to provide their funds with the sharpest profit edge. But here’s the rub. If you can build a diversified portfolio of low-cost index funds (and leave it alone) you can whip these pros with a bathroom towel.

If you’re a low-cost index fund investor, I can hear what you’re thinking: “I can win because they charge high fees.” But let’s pretend they don’t charge fees. Their analysts work for free. Their companies’ mission statements say, “One hundred percent of our funds’ gains fuel your retirement.” That would mean no load fees. No expense ratio costs. Your index funds, by comparison, would look rather expensive.

But remember that bar of soap. These analysts trade to exploit tactical edges. Unfortunately, it rarely works. That’s why your portfolio of index funds, if you leave it alone, can beat them silly.

Morningstar tracks 308 Tactical Asset Allocation funds. Just 182 of them have five-year track records. Poor performing funds get delisted, or they get merged with more successful funds. That’s why the average listed performance of these 182 funds is overstated. It doesn’t include many of the worst performing funds. In other words, these are the cherry-picked survivors.

During the 5-year period ending June 13, 2018, these top survivors averaged a compound annual return of 4.74 percent. According to Morningstar, fees for Tactical Asset Allocation funds average 1.37 percent per year. If we pretended that these funds didn’t charge expenses, we would add 1.37 percent to the average fund’s return. That would give them a compound average return of 6.11 percent per year.

Compare that to Vanguard’s Balanced Index Fund (VBIAX). Over the same time period, it averaged a compound annual return of 8.75 percent. A more diversified portfolio of indexes, including 40 percent U.S. bonds, 40 percent U.S. stocks and 20 percent international stocks would have averaged a compound annual return of 7.75 percent.

In other words, these professionals could have worked for free, but only a handful would have matched a diversified portfolio of low-cost index funds. If you’re invested in such a portfolio, you can trounce the pros. Just don’t fall victim to their hubris. If you’re working, add money every month. Rebalance once a year and resist the urge to tinker. Most pros can’t gain a strategic edge, so it’s best to learn from their mistakes.

If We Avoid The Urge To Tinker, It’s Easy To Beat The Pros

Compound Annual Returns To June 13, 2018

5-Year Annual Returns
Average Tactical Asset Allocation Fund Performance 4.74%
Vanguard’s Balanced Index Fund 8.75%
40% U.S. bonds, 40% U.S. Stocks, 20% International Stocks 7.75%

How Do The Tactical Asset Allocation Funds Stack Up?

Tactical Asset Allocation Fund 5 Year Compound Annual Return
Horizon Active Asset Allocation Investor AAANX 8.79
Absolute Capital Asset Allocator A AAMAX ---
Absolute Capital Asset Allocator Inv AAMCX ---
Absolute Capital Asset Allocator Instl AAMIX ---
American Indep Glbl Tac Allc A AARMX ---
AmericaFirst Tactical Alpha A ABRFX 7.29
AmericaFirst Tactical Alpha U ABRUX 6.77
AmericaFirst Tactical Alpha I ABRWX 8.32
Salient Adaptive Balanced Instl ACGAX 1.97
Absolute Capital Defender A ACMAX ---
Absolute Capital Defender Investor ACMDX ---
Absolute Capital Defender Institutional ACMIX ---
American Indep Glbl Tac Allc C ACRMX ---
AllianzGI Global Dynamic Allocation R6 ADYFX ---
AmericaFirst Quantitative Strategies A AFIAX 4.19
AmericaFirst Quantitative Strategies I AFIIX ---
AmericaFirst Quantitative Strategies C AFISX 3.46
AmericaFirst Income A AFPAX 1.23
AmericaFirst Income I AFPIX 2.05
AmericaFirst Income U AFPUX 0.74
AllianzGI Global Dynamic Allocation Inst AGAIX 5.18
Salient Adaptive Balanced Investor AGALX 1.45
AllianzGI Global Dynamic Allocation Adm AGFAX 4.92
Salient Adaptive Balanced C AGGGX 0.95
AllianzGI Global DynamicAllocation P AGSPX 5.08
Salient Adaptive Income Institutional AIAAX 3.05
Salient Adaptive Income C AIACX 2.02
Salient Adaptive Income Investor AIAIX 2.52
Salient Adaptive Income A AILAX 2.79
ALPS/Stadion Tactical Growth III ALSGX ---
ALPS/Stadion Core ETF III ALSTX ---
Salient Adaptive Balanced A AOGAX 1.61
Pinnacle Sherman Multi-Strategy Core A APSHX ---
AQR Risk Parity I AQRIX 4.73
AQR Risk Parity N AQRNX 4.44
AQR Risk Parity R6 AQRRX ---
AllianzGI Global Dynamic Allocation C ASACX 4.11
AllianzGI Global Dynamic Allocation R ASFRX 4.61
AllianzGI Global Dynamic Allocation A ASGAX 4.91
Astor Sector Allocation A ASPGX 8.24
Astor Dynamic Allocation I ASTIX 7.69
Astor Dynamic Allocation A ASTLX 7.42
Astor Dynamic Allocation C ASTZX 6.63
Arabesque Systematic USA Institutional ASUIX ---
ATAC Inflation Rotation Investor ATACX 6.39
ATAC Inflation Rotation Institutional ATCIX ---
Transamerica Dynamic Allocation A ATTRX 6.26
Transamerica Dynamic Allocation T1 ATTTX ---
BlackRock Multi-Asset Income Investor A BAICX 4.51
BlackRock Multi-Asset Income Investor C BCICX 3.72
Beech Hill Total Return A BHTAX 7.32
Beech Hill Total Return C BHTCX 6.50
BlackRock Multi-Asset Income Instl BIICX 4.76
BlackRock Multi-Asset Income Portfolio K BKMIX ---
Meeder Balanced Adviser BLNAX ---
Meeder Balanced Institutional BLNIX ---
BlackRock Tactical Opportunities Inv C BRBCX 3.73
AB Global Risk Allocation B CABBX 3.92
AB Global Risk Allocation I CABIX 5.15
AB Global Risk Allocation A CABNX 4.73
Cavalier Dynamic Growth C CADYX 5.64
Cavalier Growth Opportunities A CAGOX ---
Cornerstone Advisors Income Opps Instl CAIOX 2.46
Columbia Adaptive Risk Allocation Adv CARRX ---
Columbia Adaptive Risk Allocation Inst3 CARYX ---
Cavalier Growth Opportunities C CATDX 10.03
Cavalier Growth Opportunities Instl CATEX 11.01
Cavalier Tactical Rotation C CATOX 7.68
Cavalier Tactical Rotation A CAVTX ---
AB Global Risk Allocation C CBACX 3.95
AB Global Risk Allocation K CBSKX 4.70
AB Global Risk Allocation R CBSRX 4.38
AB Global Risk Allocation Adv CBSYX 5.00
Chadwick & D'Amato CDFFX 1.96
Cavalier Dynamic Growth Institutional CDYGX 6.67
AdvisorOne CLS Shelter N CLSHX 10.05
Pinnacle Sherman Multi-Strategy Core C CPSHX ---
Columbia Adaptive Risk Allocation A CRAAX 5.41
Columbia Adaptive Risk Allocation C CRACX 4.62
Columbia Adaptive Risk Allocation T CRAWX 5.43
Columbia Adaptive Risk Allocation Inst CRAZX 5.68
Columbia Adaptive Risk AllocationInst2 CRDRX 5.74
Columbia Adaptive Risk Allocation R CRKRX 5.16
Astor Sector Allocation C CSPGX 7.41
Cavalier Tactical Rotation Institutional CTROX 8.58
Transamerica Dynamic Allocation C CTTRX 5.47
CVR Dynamic Allocation Institutional CVRAX ---
Spouting Rock/Convex Glbl Dyn Risk Adv CVXAX ---
Spouting Rock/Convex Glbl Dyn Risk Instl CVXIX ---
Day Hagan Tactical Allocation A DHAAX 4.02
Day Hagan Tactical Allocation C DHACX 3.28
Day Hagan Tactical Allocation I DHAIX ---
DoubleLine Multi-Asset Growth A DMLAX 5.42
DoubleLine Multi-Asset Growth I DMLIX 5.71
Arrow DWA Tactical A DWTFX 7.60
Arrow DWA Tactical Institutional DWTNX 7.84
Arrow DWA Tactical C DWTTX 6.78
Eaton Vance Rich Bern All Asst Strat A EARAX 6.31
Eaton Vance Rich Bern All Asst Strat C ECRAX 5.50
Eaton Vance Rich Bern All Asst Strat I EIRAX 6.58
Carillon Cougar Tactical Allocation A ETAFX ---
Carillon Cougar Tactical Allocation C ETDFX ---
Stadion Tactical Growth A ETFAX 8.55
Stadion Tactical Growth C ETFCX 7.73
Stadion Tactical Growth T ETFDX ---
Stadion Tactical Defensive T ETFHX ---
Stadion Tactical Growth I ETFOX 8.81
Stadion Tactical Defensive A ETFRX 5.18
Stadion Tactical Defensive I ETFWX 5.42
Stadion Tactical Defensive C ETFZX 4.38
Carillon Cougar Tactical Allocation I ETIFX ---
Carillon Cougar Tactical Allocation R3 ETRFX ---
Carillon Cougar Tactical Allocation R5 ETSFX ---
Carillon Cougar Tactical Allocation R6 ETUFX ---
Carillon Cougar Tactical Allocation Y ETYFX ---
EValuator Tactically Managed RMS R4 EVFTX ---
EValuator Tactically Managed RMS Service EVTTX ---
Meeder Balanced Retail FLDFX 7.00
Meeder Muirfield Adviser FLMAX ---
Meeder Muirfield Retail FLMFX 10.04
Meeder Muirfield Institutional FLMIX ---
PSI Opportunistic A FXCAX ---
PSI Strategic Growth A FXSAX -0.13
PSI Tactical Growth A FXTAX 1.65
Gabelli Global Rising Income and Div C GACCX 5.98
Gabelli Global Rising Income and Div A GAGAX 6.73
Gabelli Global Rising Income and Div AAA GAGCX 6.80
Gabelli Global Rising Income and Div I GAGIX 7.16
Goldman Sachs Balanced Strategy P GAOPX ---
Goldman Sachs Growth & Inc Strat P GGSPX ---
Good Harbor Tactical Select A GHSAX ---
Good Harbor Tactical Select C GHSCX ---
Good Harbor Tactical Select I GHSIX ---
Good Harbor Tactical Core US A GHUAX 0.22
Good Harbor Tactical Core US C GHUCX -0.52
Good Harbor Tactical Core US I GHUIX 0.48
Goldman Sachs Balanced Strategy A GIPAX 4.36
Goldman Sachs Balanced Strategy C GIPCX 3.57
Goldman Sachs Balanced Strategy Instl GIPIX 4.76
Goldman Sachs Balanced Strategy R GIPRX 4.16
Goldman Sachs Balanced Strategy Svc GIPSX 4.41
Goldman Sachs Balanced Strategy Inv GIPTX 4.61
Goldman Sachs Balanced Strategy R6 GIPUX ---
GuidePath® Tactical Allocation Instl GITUX 5.84
Invesco Macro Allocation Strategy A GMSDX ---
Invesco Macro Allocation Strategy C GMSEX ---
Invesco Macro Allocation Strategy Y GMSHX 4.89
Invesco Macro Allocation Strategy R GMSJX ---
Invesco Macro Allocation Strategy R5 GMSKX ---
Invesco Macro Allocation Strategy R6 GMSLX ---
Goldman Sachs Growth & Inc Strat A GOIAX 6.24
Goldman Sachs Growth & Inc Strat C GOICX 5.45
Goldman Sachs Growth & Inc Strat Instl GOIIX 6.66
Goldman Sachs Growth & Inc Strat Svc GOISX 6.13
Goldman Sachs Growth & Inc Strat R6 GOIUX ---
Goldman Sachs Growth & Inc Strat R GPIRX 5.97
Goldman Sachs Growth & Inc Strat Inv GPITX 6.51
GuidePath® Tactical Allocation Svc GPTUX 5.20
James Alpha Macro A GRRAX -1.76
James Alpha Macro C GRRCX -2.47
James Alpha Macro I GRRIX -1.52
James Alpha Macro Portfolio S GRRSX ---
Hartford Multi-Asset Income A HAFAX ---
Hartford Multi-Asset Income F HAFDX ---
Hartford Multi-Asset Income I HAFIX ---
Hartford Multi-Asset Income R3 HAFRX ---
Hartford Multi-Asset Income R4 HAFSX ---
Hartford Multi-Asset Income R5 HAFTX ---
Hartford Multi-Asset Income Y HAFYX ---
Hartford Multi-Asset Income C HAICX ---
Horizon Active Asset Allocation A HASAX ---
Horizon Active Asset Allocation I HASIX ---
Hilton Tactical Income A HCYAX ---
Hilton Tactical Income C HCYCX ---
Hilton Tactical Income Instl HCYIX ---
Hancock Horizon Dynamic Asset Allc Inv HDAAX ---
Hancock Horizon Dynamic Asset Allc C HDACX ---
Hancock Horizon Dynamic Asset Allc Instl HDAIX ---
Hundredfold Select Alternative Inv HFSAX 5.62
Hancock Horizon Diversified Income Inv HHIAX 1.49
Hancock Horizon Diversified Income C HHICX 0.74
Hancock Horizon Diversified Income Instl HHIIX 1.76
Hussman Strategic Total Return HSTRX 1.80
Hanlon Tactical Dividend & Momentum A HTDAX ---
Hanlon Tactical Dividend & Momentum C HTDCX ---
Hanlon Tactical Dividend & Momentum I HTDIX ---
Hanlon Tactical Dividend & Momentum R HTDRX ---
Dynamic US Opportunity I ICSIX 6.70
Dynamic US Opportunity N ICSNX 6.46
IMS Strategic Income IMSIX -9.25
Pinnacle Sherman Multi-Strategy Core I IPSHX ---
Transamerica Dynamic Allocation I ITTOX 6.54
JHancock Diversified Strategies I JDSIX 2.86
JHancock Diversified Strategies A JDSTX 2.51
Lazard Capital Allocator Oppc Str Instl LCAIX 6.47
Lazard Capital Allocator Oppc Str Open LCAOX 6.07
Leuthold Core Investment Retail LCORX 7.59
Leuthold Core Investment I LCRIX 7.70
Issachar N LIONX ---
QS Strategic Real Return A LRRAX -0.26
QS Strategic Real Return C LRRCX -1.00
QS Strategic Real Return I LRRIX 0.01
QS Strategic Real Return IS LRRSX 0.09
QS Strategic Real Return A2 LSRAX -0.45
Matisse Discounted Cl-End Fd Strat Instl MDCEX 7.83
AMG FQ Global Risk-Balanced Z MMAFX 5.78
AMG FQ Global Risk-Balanced I MMASX 5.71
AMG FQ Global Risk-Balanced N MMAVX 5.27
Power Momentum Index A MOJAX ---
Power Momentum Index C MOJCX ---
Power Momentum Index I MOJOX ---
NWM Momentum MOMOX ---
ACR Multi-Strategy Quality Ret (MQR) A MQRAX ---
ACR Multi-Strategy Quality Ret (MQR) I MQRIX ---
Pioneer Flexible Opportunities R MUARX ---
Sector Rotation Fund NAVFX 10.56
VanEck NDR Managed Allocation A NDRMX ---
VanEck NDR Managed Allocation I NDRUX ---
VanEck NDR Managed Allocation Y NDRYX ---
Newfound Risk Managed US Sectors A NFDAX ---
Newfound Risk Managed US Sectors I NFDIX ---
Newfound Risk Managed Global Sectors A NFGAX ---
Newfound Risk Managed Global Sectors I NFGIX ---
Newfound Multi-Asset Income A NFMAX ---
Newfound Multi-Asset Income C NFMCX ---
Newfound Multi-Asset Income I NFMIX ---
PIMCO All Asset Instl PAAIX 3.66
PIMCO All Asset Admin PAALX 3.41
PIMCO All Asset I-3 PAANX ---
Putnam Dynamic Asset Allocation Cnsrv A PACAX 5.44
Putnam Dynamic Asset Allocation Cnsrv B PACBX 4.67
Putnam Dynamic Asset Allocation Cnsrv C PACCX 4.67
Putnam Dynamic Asset Allocation Cnsrv R5 PACDX 5.76
Putnam Dynamic Asset Allocation Cnsrv M PACMX 4.92
Putnam Dynamic Asset Allocation Cnsrv R PACRX 5.18
Putnam Dynamic Asset Allocation Cnsrv Y PACYX 5.69
PIMCO All Asset I2 PALPX 3.58
PIMCO All Asset A PASAX 3.18
PIMCO All Asset C PASCX 2.41
PIMCO All Asset R PATRX 2.92
PIMCO All Asset All Authority A PAUAX 0.59
PIMCO All Asset All Authority C PAUCX -0.13
PIMCO All Asset All Authority Inst PAUIX 1.09
PIMCO All Asset All Authority I-3 PAUNX ---
PIMCO All Asset All Authority I2 PAUPX 0.96
BlackRock Tactical Opportunities Instl PBAIX 4.76
BlackRock Tactical Opportunities K PBAKX ---
PGIM Income Builder B PBCFX 3.55
BlackRock Tactical Opportunities Inv A PCBAX 4.45
BlackRock Tactical Opportunities Service PCBSX 4.47
Putnam Dynamic Asset Allocation Cnsrv R6 PCCEX 5.81
PGIM Income Builder C PCCFX 3.55
PGIM Income Builder A PCGAX 4.33
PGIM Income Builder R6 PCGQX ---
PGIM Income Builder R PCLRX 4.08
PGIM Income Builder Z PDCZX 4.59
RiskPro® Tactical 0-30 R PFTEX ---
Pioneer Flexible Opportunities A PMARX 7.05
Pioneer Flexible Opportunities Y PMYRX 7.37
Putnam PanAgora Risk Parity B PPRLX ---
Putnam PanAgora Risk Parity C PPRNX ---
Putnam PanAgora Risk Parity R PPROX ---
Putnam PanAgora Risk Parity A PPRPX ---
Putnam PanAgora Risk Parity M PPRVX ---
Putnam PanAgora Risk Parity R6 PPRWX ---
Putnam PanAgora Risk Parity Y PPRYX ---
Pioneer Flexible Opportunities C PRRCX 6.24
Pinnacle Sherman Tactical Allocation A PTAFX 2.13
Pinnacle Sherman Tactical Allocation C PTCFX 1.41
Pinnacle Sherman Tactical Allocation I PTIFX 2.37
AQR Risk Parity II HV I QRHIX 5.00
AQR Risk Parity II HV N QRHNX 4.69
AQR Risk Parity II HV R6 QRHRX ---
AQR Risk Parity II MV I QRMIX 3.80
AQR Risk Parity II MV N QRMNX 3.53
AQR Risk Parity II MV R6 QRMRX ---
FundX Conservative Upgrader RELAX 7.87
American Indep Glbl Tac Allc Instl RMAIX ---
AlphaCentric Asset Rotation A ROTAX ---
AlphaCentric Asset Rotation C ROTCX ---
AlphaCentric Asset Rotation I ROTIX ---
RESQ Dynamic Allocation A RQEAX ---
RESQ Dynamic Allocation C RQECX ---
RESQ Dynamic Allocation I RQEIX ---
SEI Multi-Asset Accumulation F (SIMT) SAAAX 4.78
Hundredfold Select Alternative Svc SFHYX 4.67
SEI Multi-Asset Income F (SIMT) SIOAX 4.67
SEI Multi-Asset Income Y (SIMT) SLIYX ---
SMI Dynamic Allocation SMIDX 3.82
SEI Multi-Asset Accumulation Y (SIMT) SMOYX ---
Salient Adaptive Growth A SRPAX 5.29
Salient Adaptive Growth C SRPCX 4.46
Salient Adaptive Growth I SRPFX 5.59
Astor Sector Allocation I STARX ---
AmericaFirst Seasonal Rotation A STQAX ---
AmericaFirst Seasonal Rotation I STQIX ---
AmericaFirst Seasonal Rotation U STQUX ---
Teberg TEBRX 6.59
Toews Tactical Growth Allocation THGWX 2.06
Topturn OneEighty TTFOX ---
USAA Managed Allocation UMAFX 3.76
USAA Target Managed Allocation UTMAX ---
Virtus Rampart Multi-Asset Trend A VAAAX 2.49
Virtus Rampart Multi-Asset Trend C VAACX 1.72
Virtus Rampart Multi-Asset Trend I VAISX 2.76
WesMark Tactical Opportunity WMKTX ---
WOA All Asset I Class I WOAIX 5.36

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