5 Years: Is It A Benchmark For Well-Diversified Portfolios?

Introduction

In my recent articles, the 3-years-or-longer was illustrated as a “long term” time frame. “For Long-Term (in three years or longer) investors, three portfolio templates with six Charles Schwab ETFs (From How to Manage Trading and Portfolios) were offered.

In my other Articles in the late 2010s, the 5-7 year time frame was used as “long term”. In 2022, “If you are a long-term (5 years or longer) investor, you don’t have to do market timing.” (From Real-Time Trading and Real-Time Controlling).

These numbers of years seem somewhat arbitrary but they are firmly based on my investment records over three decades.

Of course, historical evidence doesn’t guarantee for future performance. In my opinion, going without a historical guide is much better.

The Focus

The focus is: 1) how to justify my claim of the benchmark 5 years for portfolios in general, 2) making a weekly update of the current uptrend, and 3) weekly updating The New Control System: The C/C Ratio and The Shadow A-A Decision.

The 5-Years Benchmark For Long-Term Portfolios In General

Investing in a long term time frame has two distinguishable periods: 1) The Accumulation Period (“AP”), and 2) The Performing Period (“PP”):

The AP takes about 7 years, by contributing a relatively small amount of money, and by adding additional money many times. The Dollar Cost Average (DCA) method works nicely for most investors.

If some investors contribute a significant amount of lump sum initially, the AP can be skipped entirely or may take less than 3 years. Let’s assume the 3 years as the lower bound.

As a result, we have the 7 years as the upper bound and the 3 years as the lower bound of AP. The middle of the AP spectrum is the 5 years.

During AP, dividends and capital gains are reinvested piecemeal, compounded frequently. The whole and patient productive process is the backbone of long-term investing, even though it’s unnoticeable by most investors.

As shown in my various articles in the late 2010s, my Vanguard Mutual-Fund Portfolios, TIAA Intelligent Annuity, and Transamerica Insurance Annuity (via Vanguard) had clearly started their powerful self-growth after about 3-5 years.

A long upswing of the current bull market (started on March 09, 2009), according to my previous article, helped the outstanding performance greatly. Still investors would expect the help of the last leg of the bull for at least a couple of years. Although I would take a longer time to reach the PP, perhaps, not 2-5 years but 5-7 years.

A Special Notice

The Two Weekly Updates as of Dec. 2, which are a) The Current Six-Week Uptrend, and b) The C/C Ratio And The Shadow A-A Decision are the continuation of the weekly updates (which were made in A Single System... five times, and How to Manage…in the week ending Nov. 25, respectively).

A Weekly Update Of The Six-Week Uptrend As Of Dec. 2, 2022

A Friday gain in the equity market was very rare in recent years. We, however, had the Friday rally five times in a row:

1. A Jumbo +2.4% on Oct. 21.
2. A Whopping +2.5% on Oct. 28.
3. A Very Unusual Dramatic + 1.4% Gain in the Last Minute after fluctuations on Nov. 4.
4. A Decent +0.92 Again on Nov. 11.
5. A Weak +0.48% on Nov. 18, but the inching was very special because it was a really last-minute U-turn of the S&P 500 which moved up and down persistently, after Nasdaq joined the DOW which was in the plus column all session. The market weakened in the last three weeks.
6. On Nov. 25, the S&P 500 was in A Pause (or Virtually No-Change, registered -0.03%, as shown in Table 1).
7. In the last week (Nov. 28 through Dec. 2), a Big Shoot +3.09% on Wednesday (Nov. 30) was easily offset -1.91%, combining four negligent downs: a) -1.5% on Monday (Nov. 28), -0.16% on Tuesday (Nov. 29), Thursday (Dec. 1), and Friday (Dec.2) -0.12. Actually, it was flat or no change because S&P 500 fluctuated along the 0% line in the last minutes.
8. Money transfer between Charles Schwab Checking Account and two Goldman Sachs Bank’s online Savings Accounts through ACH (Automatic Clearing House), that seems not to be known broadly, but it is the most secured, fast, and free money-transfer service, provided by the U.S. government.
9. For five weeks, 8 withdrawals ($30,400) to GS and 7 deposits ($25,400) from GS. Notice some countercyclical or contrarian transfers which made withdrawals when getting gains, and deposits when having losses. During weeks (11/28-12/02) $5,700 (= $8,700 – $3,000) transferred to Charles Schwab Checking account which needed more money to buy some mispriced equities in the temporarily weakened market from Savings (which earns 3.0% APR at Marcus: Goldman Sachs Bank).

You can reconcile the fearless holding of the six-week Uptrend with the support of an almost 14 years old Bull, which should move higher in the coming weeks.

You can view more details about the tracking of the current Uptrend in the previous two Articles which are closely related, as advised by the above “A Special Notice”.

Table 1: ACH TRANSFER BETWEEN CHECKING & SAVINGS CS CHECKING DATE CLOSE %CH m/P DEBIT CREDIT 10/28/22 3,901.06 +2.46% P $4,000 $3,000 10/31/22 3,871.98 -0.75% m 11/01/22 3,856.10 -0.41% m $3,000 11/02/22 3,759.69 -2.50% m $3,000 11/03/22 3,719.89 -1.06% m $1,000 11/04/22 3,770.55 1.36% P 11/07/22 3,806.80 0.96% P 11/08/22 3,828.11 0.56% P $500 $2,500 11/09/22 3,748.57 -2.08% m 11/10/22 3,956.37 5.54% P 11/11/22 3,992.93 0.92% P $4,000 11/14/22 3,957.25 -0.89% m 11/15/22 3,991.73 0.87% P $10,000 11/16/22 3,958.79 -0.83% m $5,900 11/17/22 3,946.56 -0.31% m 11/18/22 3,965.34 0.48% P $4,200 11/21/22 3,949.94 -0.39% m 11/22/22 4,003.58 1.36% P 11/23/22 4,027.26 0.59% P 11/25/22 4,026.12 -0.03% * 11/28/22 3,963.94 -1.54% m $3,900 11/29/22 3,957.63 -0.16% m $4,800 11/30/22 4,080.11 3.09% P $3,000 12/01/22 4,076.57 -0.09% m 12/02/22 4,071.70 -0.12% m $3,000 SUM $30,400 $25,400 NOTE 1. CLOSE: The S&P 500 Index’s Closing 2. %CH: The Percent Change. 3. m/P: minus/Plus. 4. * : No Change (between +0.05 and -0.05) 5. DEBIT: Withdrawal to Savings. 6. CREDIT: Deposit from Savings 7. Data Source: Yahoo Finance Click to enlarge

Click to enlarge

Table 2: The C/C Ratio, The Shadow A-A Decision, S&P 500
				“A-A D”		S&P 500
DATE	TRD	SAV	C/C R	“STOCK”	“BOND”	CLOSE	%ch
10/28/22	100	99.1	49.8%	50.2%	47.0%	3,752.75	2.37%
10/31/22	110.2	100.0	47.6%	52.4%	47.6%	3,797.34	1.19%
11/1/22	110.6	100.0	47.5%	52.5%	47.5%	3,859.11	1.63%
11/2/22	113.7	92.7	44.9%	55.1%	44.9%	3,830.60	-0.74%
11/3/22	112.6	92.7	45.1%	54.9%	45.1%	3,807.30	-0.61%
11/4/22	114.7	91.4	44.4%	55.6%	44.4%	3,901.06	2.46%
11/7/22	111.3	95.4	46.1%	53.9%	46.1%	3,871.98	-0.75%
11/8/22	111.5	95.3	46.1%	53.9%	46.1%	3,856.10	-0.41%
11/9/22	117.6	95.3	44.8%	55.2%	44.8%	3,759.69	-2.50%
11/10/22	125.4	93.5	42.7%	57.3%	42.7%	3,719.89	-1.06%
11/11/22	115.8	100.0	46.3%	53.7%	46.3%	3,770.55	1.36%
11/14/22	114.8	100.0	46.6%	53.4%	46.6%	3,806.80	0.96%
11/15/22	104.2	113.0	52.0%	48.0%	52.0%	3,828.11	0.56%
11/16/22	98.6	115.6	54.0%	46.0%	54.0%	3,748.57	-2.08%
11/17/22	96.0	115.6	54.6%	45.4%	54.6%	3,956.37	5.54%
11/18/22	95.2	115.6	54.8%	45.2%	54.8%	3,992.93	0.92%
11/21/22	92.9	115.6	55.4%	44.6%	55.4%	3,957.25	-0.89%
11/22/22	99.7	110.0	52.4%	47.6%	52.4%	3,991.73	0.87%
11/23/22	101.6	110.0	52.0%	48.0%	52.0%	3,958.79	-0.83%
11/25/22	95.2	115.6	54.8%	45.2%	54.8%	3,946.56	-0.31%
11/28/22	93.8	114.8	55.0%	45.0%	55.0%	3,963.94	0.44%
11/29/22	96.9	114.0	54.1%	45.9%	54.1%	3,957.63	-0.16%
11/30/22	107.5	107.8	50.1%	49.9%	50.1%	4,080.11	3.09%
12/1/22	101.6	111.9	52.4%	47.6%	52.4%	4,076.57	-0.09%
12/2/22	106.0	108.0	50.5%	49.5%	50.5%	4,071.70	-0.12%
		MEAN	49.8%	50.2%	49.6%	3,890.54	0.43%
NOTE
1. TRD: Two Trading A/Cs. SAV: Two Savings A/C.
2. The figures are index, based on the $ value of TRD on Oct. 21 (100).
3. C/C R: The C/C Ratio. “A-A D”: The Shadow A-A Decision.
4. “STOCK”: The Shadow Stock Component.
5. “BOND”: The Shadow Bond (actually, C/C R) Component.
7. CLOSE: The S&P 500 Index’s Closing
8. %CH: The Percent Change.
9. Data Source: Yahoo Finance

Click to enlarge

The C/C Ratio And The Shadow A-A Decision As Of Dec. 2

As shown in Table 2, the new system:

• Consists of two components: a) The C/C Ratio that is a single real component, and b) The shadow “A-A Decision” that has the shadow “Stock” and the shadow “Bond”: The former is the residual of the C/C ratio, and the latter is a duplicate of the C/C Ratio which is the only fixed income or bond category.
• The single control (the C/C Ratio) has a range (i.e., 45% to 55%), which gives a room to move toward to either the target of the C/C Ratio (i.e., 55%) or the target of the shadow “A-A Decision” (i.e., “Stock”: “Bond” is 50%:50%).
• During between Oct. 28 and Dec. 02, the C/C Ratio has moved along 49.8% (average), recording a peak (55.4%) on Nov. 21, and a trough (42.7 %) on Nov. 10). It started at 43.6% on Oct. 28, and ended at 55.5% on Dec. 02 (Friday).
• You can clearly see my contrarian strategy which is a pillar on top of two pillars in the System (C/C Ratio and the Shadow A-A Decision). When the S&P 500 was in a lower range between 3,750-3,800 on Oct. 28 and Nov. 14, the C/C Ratio was smaller (e.g., 42.7% – 49.8%, respectively). When the S&P was higher (e.g., around the 4,000 level) in 11/17 – 12/02, the C/C Ratios were boosted to be higher than 50.1% (e.g., 50.1% – 55.4%.

The Concluding Remark

The 5 Years is a benchmark for well-diversified portfolios in my historical records over three decades. This finding is rudimentary at best, but it clearly gives an important guidance to long-term investors.

Market cycles, business cycles, and inflation seem not to be well-analyzed by any heavy software: They are still analyzed mainly with a pencil-and-paper approach, (as Burns and Mitchell did), with a minimum help from computers, as is investing.

My simple approach surely yields some fruits on the highly complex topic to monitor the trend of market cycles. The incoming data in a few weeks are crucial for the fate of the current upswing of the market.

SPY (which is the S&P ETF) is trading globally all the time so SPY movement is crucial for the current Uptrend in the coming weeks.

Six Long-Term Portfolio Templates For TD Ameritrade:

For Long-term (in three years or longer) investors, three portfolio templates for TD Ameritrade:

Six TD ETFs: Vanguard Total Stock Market ETF (VTI), Vanguard Extended Market ETF (VXF), Vanguard Total International Stock ETF (VXUS), Vanguard Total Bond Market ETF (BND), iShares TIPS Bond ETF (TIP) and Vanguard Total Int’l Bond ETF (BNDX).

Three TD Portfolios:

· A: VTI (50%) BND (50%)

· B: VTI (30%) VXF (20%) BND (40%) BNDX (10%)

· C: VTI (30%) VXF (15%) VXUS (5%) BND (30%) TIP (15%) BNDX (5%)

“We are thus led to put forward for most of our readers what may appear to be an oversimplified 50–50 formula. Under this plan the guiding rule is to maintain as nearly as practicable an equal division between bond and stock holdings.” (From Graham’s “The Intelligent Investor”)