It was a rough-and-tumble 2015 - a year in which most funds fell. Very few total portfolios of bonds and stocks posted gains in 2015. We've made some changes to keep portfolio downside risk low for the time being, and we're taking some winnings off the table. 

Broadly speaking, we've been right about focusing on investment-grade long-term debt over higher-risk debt (though both were down last year), and especially on U.S. large-cap stocks over everything else. Our mistakes were not following our own logic and holding some smaller cap funds, allowing a long/short fund in the portfolio that didn't share our negative commodity philosophy, and jumping back abroad too soon before the money that's flooded in during recent years flooded out again.

More beneficial was our long-term strategy of shorting commodities. The negative aspect of our success shorting oil in 2015 is that we now need new ways to protect our portfolio from significant downside if we get another recession and a major market slide. The stock market isn't that bad a deal historically (if we avoid recession), and bonds and cash still yield very little; this is no late 1999 or even 2007. These new portfolios should capture a good chunk of the market's upside and protect downside. Expect to see increased stock allocations on further weakness.

We're still taking significant interest rate risk, most notably in the conservative portfolio, where we have less offsetting stock allocation in case a hot economy lifts rates and stocks. We are now adding back some credit risk here with a new pick, Artisan High Income Fund (ARTFX). This is not because we are big on junk bonds quite yet, even after the drop in recent months. In fact, our MLP short (added a little late in the game, unfortunately) should offset any losses in higher-risk debt in our new pick. This risky credit slide has more to go, but the fund is benefiting from other factors. It's also possible that this strategy is wrong and this is as good as it gets in lower junk bond prices. We're sticking with our bet on the euro recovering. If it doesn't, it should be good for Italy - a new holding that, unlike many other places, has minimal natural resource exposure.

As for new shorts, while these will not be in the portfolios for long periods of time like commodity shorts over much of the last decade, biotech stocks and small cap stocks sort of capture the over-exuberance of investors and will likely fall faster than the other funds we own in a slide. Larger-cap stocks are still a better deal than smaller cap stocks, and the popular (and wrong) bet was thinking that small cap is where you want to be into the next wave of U.S. recovery. (This morphed into another bad bet, which is that the rising U.S. dollar would not hurt smaller cap companies as much as the more internationally focused larger cap companies.)

The real risk to the economy and investors going forward is the next wave of the commodity collapse. Does oil go to $20? Or will it just stick in the $30s and $40s for the next few years? Natural resource-driven economies like Canada and most emerging markets are already in big trouble, and this could spiral into an even larger problem worldwide. Most speculative producers and miners rely on debt and could default with continued low prices. Layoffs will increase. All of the essentially related businesses will have major problems. Until very recently, it was popular to say, "Oh well, they still have to transport the commodities, even at low prices." Such logic didn't save investors in shipping companies in the last recession or business-to-business internet plays in 2000—2002. If and when these production facilities shut down, there won't be anything to pump or transport. Was this bubble as big as real estate? No, but it was bigger in raw employment and debt than the dot-com bubble of the late 1990s. If we get a recession in the U.S. and market slide, this will be why.

If our portfolios underperform in 2016, it will be because rates go up and riskier credits do well, with higher-risk U.S. stocks doing better than lower-risk stocks - all while the U.S. dollar goes up even more.

Fund-Specific Notes

Vanguard Mortgage-Backed Securities (VMBS) We're adding a riskier leveraged mortgage REIT so we don't need as high an allocation here. Expect to see this holding switched to TIPs if they continue to perform poorly.

Vanguard MegaCap Growth (MGK) Large cap growth did well, and larger cap value should do better (especially relatively speaking) in a down market.

Vanguard Telecom Services ETF (VOX) Not as attractive as recent years, but we'll keep some of it in one portfolio until something better comes along.

Wasatch Long/Short (FMLSX) Bad bets on energy are inexcusable. Maybe they have a good year next year, but we don't own funds that short to fall faster than ordinary stock funds in a down market. We are using Vanguard Market Neutral in client accounts, but the minimum is too high for the model portfolios. Watch out for the 2%/60 day short-term redemption fee.

ETRACS 1xMonthly Short Alerian MLP (MLPS) Risky small ETN that bets against MLP index prices. MLPs move energy production in a weird tax-avoiding structure. They were way over-owned and have high dividends that are going to get cut to zilch in many cases. Use limit orders - the spread is wide because of low assets and limited trading volume.

Artisan High Income Fund (ARTFX) A new junk bond fund that is avoiding energy collapse, ARTFX is also benefiting from inflows and other fund family advantages at this early stage. Risky if we get a real credit crash like 2008.

Vanguard Utilites (VPU) Utilities underperformed last year, and as we think interest rates aren't going up more, on the long end this fund should do well in a rocky market this year.

Homestead Value (HOVLX) Oldie but goody, cheap and NTF; we have owned it in client accounts for years. HOVLX should do well relative to the market if larger cap value outperforms.

iShares Mortgage REIT (REM) Speculative high-yield leveraged mortgage REIT. High yields are not from high credit risk, but rather from extreme leverage. If rates go up - especially short-term rates relative to longer-term rates - the yield could collapse, but if the fed doesn't raise rates much and long-term rates stay about the same, this fund could do quite well. Best in IRA accounts because of high taxable yield. Worst in an IRA because you won't get a tax loss if we're wrong….

SPDR Barclays Intl. Treasury (BWX) We're increasing our existing stake in BWX. It's a wager on the euro doing well. Lower fee iShares International Treasury Bond ETF (IGOV), which we also own in client accounts, is the cheaper choice if you don't benefit from BWX being NTF at TD Ameritrade or are buying large quantities (over $25k-ish).

PRIMECAP Odyssey Growth (POGRX) You've got to know when to hold 'em and know when to fold 'em, people. We've owned POGRX for a long time, but other fund experts with questionable track records like this now popular fund too much, and the heavy biotech and tech allocations will hurt when those hot areas sink. In the past, we had to do the same to Janus, Fairholme, and Royce. PRIMECAP, no hard feelings - we'll be back someday, I'm sure.

PowerShares DB Crude Oil Dble Short (DTO) Our lowest buys are up several hundred percent. This was up just shy of 100% in 2015, and while oil definitely can go lower and isn't going back to $50+ anytime soon, these leveraged funds are risky on a rebound. Remember what happened after we cut back early in 2015? Big slide. We're keeping some for now largely for lack of better ways to play the continuing commodity bubble pop.

Proshares Ultrashort NASDAQ Biotech (BIS) Risky shorter-term pick here. We've been in healthcare (even biotechs) for much of the model portfolio's history because it really is the best sector from pure demographics, rising insurance coverage, and near limitless pricing power for drug makers. But the game is over. Valuations are too high, the area is too popular, and political heat is building over high drug cost. The hard question is coming - just how much should taxpayers and insurance companies be paying for a few extra months of life? How many tens of thousands a year should insurance pay for hot new cholesterol drugs because you want to eat more donuts? This may not play out this year, but expensive growth stocks are under attack, and we need downside protection.

Proshares Ultrashort Russel2000 (TWM) Should have bought this last year, as small cap stocks have underperformed larger cap (which we own). This should continue. Keep in mind this is a risky way to profit from such a performance gap; the sensible low-risk strategy is just avoiding hot areas, as we primarily try to do, especially in lower-risk portfolios.

iShares MSCI Italy Capped (EWI) Italy has been under fire in the markets from debt problems years ago. However, it is benefiting from a weak euro and isn't going to have the problems many oil-rich countries are having (like Canada and Brazil). Likely has no more downside than U.S. stocks from here and more upside. If we get a huge fire sale from foreign stocks across the board (not just in emerging markets), this fund could fall.

Technical Info

We are not realizing any short-term capital gains in this trade, and you shouldn't have to either. Those with non-IRA portfolios be aware if you purchased after we did - you may want to hold off on realizing gains if you have no offsetting losses. Many of these trades could be put off a few months if needed for tax reasons. We have also owned these funds well beyond any short-term redemption fees, either by the fund or brokerage platform; check your own info. There is no need to realize a short-term redemption fee for any of these trades. SATMX has a 2% redemption fee for any sales made within 360 days. FMLSX has a 2% redemption fee for any sales within 60 days. Most of the larger ETF allocations we are using are NTF (no transaction fee) at TD Ameritrade if held for 30 days, which is why this is a good brokerage choice to follow our portfolios.

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Disclosures

We own all of these holdings in client accounts as well as personal accounts. We also own similar funds - either higher minimum, institutional access only, or load-waived - that are the same portfolio with a lower fee structure or target the same broad strategies.

The stock market's rebound seems over but was strong enough to make a positive return for 2015 seem likely. Considering how things looked a few months ago, we'll take it.

Shorting commodities is really what pushed the Aggressive portfolio above the market benchmarks in November, with our two holdings in this area generating double-digit returns. As the S&P 500 was up just slightly and the bond market was down by about the same amount, most blended portfolios were basically flat — unless they owned heavy allocations in foreign markets.

Our Conservative portfolio fell 0.86% in November. Our Aggressive portfolio gained 0.77%. Benchmark Vanguard funds for November 2015: Vanguard 500 Index Fund (VFINX) up 0.29%; Vanguard Total Bond Market Index Fund (VBMFX) down 0.27%; Vanguard Developed Markets Index Fund (VTMGX) down 0.90%; Vanguard Emerging Markets Stock Index (VEIEX) down 3.25%; Vanguard Star Fund (VGSTX), a total global balanced portfolio, gained 0.12%.

Without any shorts and a heavy longer-term investment-grade bond allocation, our Conservative portfolio underperformed the lower duration U.S. bond index.

Also a drag was our foreign bond allocation to SPDR Barclays Intl. Treasury (BWX), down 2.41% for the month, as the euro slid to new lows. We may increase this allocation on further slides in the euro. Or just go on a vacation to Italy and drink $2 cappuccinos.

On the plus side for our Conservative portfolio, we weren't in high-yield junk bonds which posted another lousy return — down about 2% and now down just shy of -4% over the last 12 months (almost as bad as emerging market bonds). Inflation protected bonds have now logged a negative three-year return while longer-term bond funds (like we own) are up over that period. This of course doesn't bode well for all those funds that short treasuries and are long junk bonds that I fingered for future trouble this past summer.

That inflation demon just hasn't appeared and these inflation-linked bonds were priced for rising inflation back in the 'real' return investment boom a few years ago. They may soon be attractive for our portfolios. For now, we (still) prefer deflation wagers like long-term bonds and shorting commodities, though we've squeezed most of what we can get out of this unique strategy off and on since 2008.

Our best showing was with PowerShares DB Crude Oil Dble Short (DTO) and Gold Short (DZZ), up 23.60% and 13.57% respectively, as oil slid again and may wind up way down in the $30s. Gold is getting close to $1,000, a meaningless mark that may still cause alarm to gold bugs as all the gold coins they horded recently are now only priced in the triple digits (in fiat currency of course). Just wait until emerging markets have to start selling gold if commodity prices keep falling and the economies worsen. Look out below.

Smaller-cap U.S. stocks were at the top of the heap in November, but the top of the heap wasn't very high — only in the +2% range. Most foreign markets were weak, except Japan which was up just over 1%. Energy was down, notably so called energy MLPs (or master limited partnerships), which were down 8% in November and 30% over the last 12-months after way too much interest by individual investors looking for yield. The pitch was that these MLPs were insulated from commodity price slides because they mostly make money moving the dino-sludge from point a to point b, but I've got a 30% 1-year decline that says different. The billions of dollars that's in dozens of MLP-oriented funds soon it will be just millions.

The stock market continues down, but in September bonds did well again, notably longer-dated government and investment grade bonds. This bond boost, plus our short positions, kept us falling less than the market — even with many foreign funds underperforming the S&P 500.

Our Conservative portfolio was down 0.71%. Our Aggressive portfolio fell 0.57%. Benchmark Vanguard funds for September 2015: Vanguard 500 Index Fund (VFINX) down 2.49%; Vanguard Total Bond Market Index Fund (VBMFX) up 0.76%; Vanguard Developed Markets Index Fund (VTMGX) down 4.08%; Vanguard Emerging Markets Stock Index (VEIEX) down 3.25%; Vanguard Star Fund (VGSTX), a total global balanced portfolio, down 2.12%.

Something is not quite right. Most of the world's economies are sluggish to flat out recessionary. The world's central bankers know it; that's why nobody wants to raise rates. Investors are catching on. There's been too much money going abroad in recent years looking for higher stock returns or bond yields than what American markets have to offer. Some of the outflows were caused by flat out America declinism — "our best days are behind us", "a falling dollar and rising inflation are just around the corner".

As it turned out, they were half right. And half right means you can lose half your money. Even if America's best years are behind us, our not-so-best years are still better than what others got, which increasingly seems like circular commodity booms (we need more trucks, fuel, and drill bits to get the higher-priced X out of the ground) or centrally planned economies with too much money to spend. We had our bridge to nowhere; China builds entire train lines to nowhere. At least we didn't build an economically unviable city on the other side of the bridge.

Falling foreign and emerging markets have recently dragged down higher-risk U.S. debt and stocks. Part of the problem is our dollar is strong because we are now the global winner and the money is coming back, tail between its legs, looking for safer, single-digit returns. A rising dollar isn't ideal for our (or any) economy in a weak global economy.

Eventually the rising yields on risky assets will be attractive again. For now we're sticking with safe lower yields and watching the spread widen.

Many categories of funds are now down double digits for the year. Recently, even hot healthcare headed south with a near 10% slide for the month. In our own portfolios all of our bonds funders were up, but all of our stock funds were down, most more than the S&P 500. Only our short funds PowerShares DB Crude Oil Dble Short (DTO) and Gold Short (DZZ) scored positive returns, the former by almost 14%. We're going to need something new to short to protect us from further downside in global markets — something that can fall much faster than the stock market as a whole. Stay tuned.

With interest rates heading back down and a global commodity slide intensifying, the Powerfund Portfolios are back to doing well relative to benchmarks. Our Aggressive portfolio matched the performance of the S&P 500 in July, even with the Aggressive port's 40% (roughly) bond allocation.

Our Conservative portfolio gained 1.63% in July. Our Aggressive portfolio was up 2.07%. Benchmark Vanguard funds for the month: Vanguard 500 Index Fund (VFINX) up 2.08%; Vanguard Total Bond Market Index Fund (VBMFX) up 0.76%; Vanguard Developed Markets Index Fund (VTMGX) up 1.25%; Vanguard Emerging Markets Stock Index (VEIEX) down 6.81%; Vanguard Star Fund (VGSTX), a total global balanced portfolio, up 0.92%.

There is a bit of a chicken before the egg issue here. Are commodities collapsing because emerging market economies are sliding and demand is faltering, or are emerging markets economies — many fueled by profits generated by selling commodities at inflated bubble prices — following commodity prices down?

The real cause, of course, is too much money going into commodities and emerging markets over the last decade or so. Investors collectively decided a globally diversified portfolio with a smart allocation to 'real' assets and fast-growing emerging markets was a can't miss proposition. We prefer emerging markets when they're out of fashion. Unfortunately, our own small emerging markets allocation is preforming poorly, but the upside in shorting commodities has made up for it.

In general, being short earnings and yield-less commodities and long real businesses with earnings and dividends is a good lower volatility strategy, if not for the high cost overhang and general difficulties shorting commodities for smaller investors. Too bad all the lousy high-fee market neutral funds out there missed this one.

The only real equity strength in July was in larger-cap U.S. and developed economy foreign stocks. The hardest hit areas were emerging markets, and smaller cap stocks. Long term investment grade bonds were the best in fixed income. Real estate, healthcare, and utilities did well while energy, natural resources, and notably precious metals funds (down almost 20% for the month — which is also about the average annualized yearly return for the last five years) fell.

Emerging markets are underperforming U.S. and developed markets by some of the widest margins since the 1990s. Investors seem to be getting the message and bailing out of emerging markets, which should lead to an opportunity to increase emerging market allocations. But don't hold your breath — there is still so much money for others to lose.

In big winners, PowerShares DB Crude Oil Dble Short (DTO) was up just over 43% for the month. Yep — we should have doubled down after selling a good chunk of this stake at even higher levels earlier this year. Vanguard Extended Duration Treasury (EDV) spiked 7.04% and basically wiped out the previous months fall as rates went back down. Gold Short (DZZ) was up 13.61% as hoarders, gold bugs, and America declinists are just starting to get the message that the 40%+ slide in gold since 2011 probably isn't going to turn around anytime soon. If you want a good scare, take a look at the performance of an ETF that owns shares of gold mining companies over the last few years. And they still have billions in assets.

In big losers, iShares MSCI BRIC Index (BKF) was in the eye of the emerging market's storm with its significant allocation to China (the C in BRIC stand for China, after all). The fund slid 7.77% for the month.

It wasn't our best month, that's for sure. With the S&P 500 rising just over 1% in May, we lost a fraction of a percent in both Powerfund portfolios, thanks mostly to bond underperformance, along with a weak foreign stock chaser. Even with the stumble, the Aggressive portfolio's 3.17% return year-to-date is still within 0.10% of the S&P 500.

The Conservative portfolio fell 1.20% in May. Our Aggressive portfolio dropped 1.39%. Benchmark Vanguard funds for May 2015: Vanguard 500 Index Fund (VFINX) gained 1.27%; Vanguard Total Bond Market Index Fund (VBMFX) fell 0.45%; Vanguard Developed Markets Index Fund (VTMGX) fell 0.15%; Vanguard Emerging Markets Stock Index (VEIEX) dropped 3.38%; Vanguard Star Fund (VGSTX), a total global balanced portfolio, gained 0.35%.

Stocks and bonds falling at the same time is the 'sum of all fears' for investors. When stocks have declined in recent years, interest rates have followed the market down — causing government bonds (and often higher-risk junk bonds) to do quite well. This has allowed the diversified investor (which has become just about everybody) to earn a decent return with minimal downside.

This might not be the case going forward. Interest rates are not going to rocket upward like everyone thinks, and if they do it will be because of inflation and economic growth that is good for stocks. Nobody thinks a 1% yielding ten-year Treasury bond is as likely in the future as a 5% one even though the current yield was recently at around 2.36% (which is still higher than Germany or Japan). People are investing accordingly, pumping trillions in lower duration (less interest rate risk) and higher-default-risk bonds, mere billions in longer-term investment grade bonds. Can't speak for the next few months, but in the long run, the herd is usually wrong.

In specific fund action, our only wow holding was PRIMECAP Odyssey Growth (POGRX), which rose 2.55% and continues to squeeze every last drop from the healthcare and biotech orange. Artisan Global Equity (ARTHX) had a nice 2.41% gain considering the relatively poor showing in May from many foreign stocks. Our biggest loser was iShares MSCI BRIC Index (BKF), which dropped 4.35% on general weakness in emerging markets after a nice rebound recently.

Two disappointing performers were newly added SPDR Barclays Intl. Treasury (BWX), off 3.23% as interest rates rose in Europe and a mild comeback in foreign currencies fizzled, and Wasatch Long/Short Wasatch Long/Short Wasatch Long/Short (FMLSX) which sank a resounding 2.46% as the primarily long/long short fund (net long) managed to lose a lot in relatively flat market.

Long/short funds like Wasatch Long/Short Wasatch Long/Short Wasatch Long/Short (FMLSX) usually underperform during flat markets because its short holdings do so much worse than its longs that returns don't end up covering these funds' high costs. That wasn't the problem with FMLSX in May. This time the culprit appears to be heavy long bets on energy — the worst sector last month and last year — on top of another major long holding, Iron Mountain (IRM), tanking at the end of the month. The short story is Wasatch Long/Short Wasatch Long/Short Wasatch Long/Short (FMLSX) is not pulling its weight around here — unfortunately there are not many attractive alternatives. It's the same old problem: cash yields nothing, and how much more can we stuff into bonds? (The answer: a lot if rates keep going up.)