Performance of Models

[USPFA Team]

I'll start by answering one of the most common questions we receive...

Many pilots write to us and ask why their own performance doesn't match the models in the newsletter. So some background may help.

The models were designed to comply with the rules of your 401k plan - holding periods after purchase, restrictions of all kinds and to give good results while balancing growth and safety.

They are NOT designed to "beat the market" in every time period. You will notice though, that over the long term, they have handily beaten the S&P 500 Index.

That said, you will get the best performance if you make the changes on the first available day. Each day after day 1, the performance will degrade. After day 8, you would still have positive returns, but obviously not as good as trading sooner. After Day 8, wait until the next beginning of the month ranking period.

How accurately you follow a model, and which day you
consistently trade your account will determine how closely your account performance matches the model.

In the early years, we spent time tracking these issues for individual pilots. It was time consuming and always came back to whether the trades were accurately made (percentages) and when the trades were made. After tracking this down numerous times, we no longer devote manpower to analyzing individual accounts.

Neither of those two items can be controlled by us, but can be controlled by you.
Best,
Dave

[Nathan Pate]

I understand the need to follow the suggested trades on the suggested days to fully take advantage of the models.

My question is..... Why have the models been so heavily invested in bonds over the recent months when the overall market has been on an upward vector? I think we've missed out on significant gains.

Thanks for your time.

Nate

[Ben Bayless]

Dave,

To piggyback on Nate's question on why the models are currently so heavily invested in bonds during the current record breaking stock market rally, your July 1, 2013 newsletter went into great detail about why the investment models should exit the bond market completely. I realize at the time that bond prices had fallen quite a bit, but with the Federal Reserve Bank still seemingly committed to tapering, how does the bond market picture look so much better today than it did six months ago? Looking at the Vanguard Total Bond Market Index (VBTIX) and (VBMPX), the closing price on July 1, 2013 was 10.56, which was the exact closing price on Dec 31, 2013. Why are bonds so attractive again? What am I missing?

Thanks,

Ben

[David Lucca]

@Nate - "Why have the models been so heavily invested in bonds over the recent months when the overall market has been on an upward vector? I think we've missed out on significant gains."

The post above yours answers your question - I wrote, "The models were designed to comply with the rules of your 401k plan - holding periods after purchase, restrictions of all kinds and to give good results while balancing growth and safety. They are NOT designed to "beat the market" in every time period. You will notice though, that over the long term, they have handily beaten the S&P 500 Index."

I want to add that YOU can override the configuration of the models any time you want to take more risk. The models have trounced the market over the past 13 years. They did that by taking a reasonable approach. At times they missed getting destroyed and at other times, they lagged the market. The long-term result is what you see in the chart.

If you want to completely ignore bonds, you can choose to put things into just the topped ranked equity funds. Just realize that you too will at times be right and at other times lose half your money.

In the end, for pilots on the road a lot, the models were designed to live within the rules of the plan, while creating a stable investment return. It has done this will. Adjust as you will.

@Ben - The model went back into its normal allocation to bonds. We create a system that works over a wide variety of market conditions and then follow the system - unless the whole thing gets hosed by world events.

The Fed will find tapering difficult. I am betting it is like dancing with a bear. You can start, but you can't stop. Despite what they say, I don't see it happening. The economy here and overseas in Europe is lethargic. +44 million Americans receive food stamps. If we did not have the new EBT (credit card) food stamps, you would be witnessing soup lines like the great depression. I could go on, but I believe the Fed will be forced to prop up the economy, even as the Congress and Administration continue to spend wantonly.

As I mentioned above, you are ultimately in charge of whether you want to follow a model or adjust it to your specific circumstances or risk tolerance. If you read the report on understanding the models, you will understand how they make decisions.

Kindest Regards,
Dave

[Michael Johnson]

I am a new member. My question on the models is, when does Day 1 start. If I get the Sep 1, 2015 newsletter, does Day 1 start on Sep 1 for me? I am looking to readjust and was waiting for the next newsletter and the updated models in it. Would this be the smart way to go about it? I know we have limitations on how many times we can reallocate with Vanguard.

Thanks,
Mike

[USPFA Team]

Good afternoon Mike,

Welcome to USPFA! Sorry for the delay in responding. The newsletters are published on the 3rd business day of each month, and most members make their trades on that day as long as any holding or repurchase restrictions have been satisfied. In short months there will be times when you have to wait a day or two.

It is VERY important that you keep track of your trades dates to know when you can trade.

The Fast Start Guide explains a lot. If you haven't read it yet, please do.

Have a safe Labor Day weekend!

The Team

[David Wojtkowski]

Hi - returning member and have some questions. When I look at the Fedex May2016 newsletter the graphs show that each model - conservative, moderate and aggressive beat the S&P over time. However when you look at the chart that doesn't appear to be the case. Take 5 year and 10 year results - the S&P is over 11%/year, yet the best your models due is slightly over 5% annualized. That seems pretty anemic growth. Would it be better just to invest everything in an S&P index fund and leave it rather than using one of your models? I think most of us are targeting at least 6% growth but had you followed your exact plans for the last 10 years, the best you'd have is 5% -am I reading this wrong? Thanks

Dave

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