June was a respectable month for U.S. stocks (though you wouldn't know it from our portfolios…) but a down month for bonds and foreign stocks. Emerging market stocks were the big loser among foreign stocks — down 4.44% — primarily on trade war fears .

Our Conservative portfolio declined 0.52% in June. Our Aggressive portfolio fell 0.84%. Benchmark Vanguard funds for June 2018 were a­s follows: Vanguard 500 Index Fund (VFINX) up 1.22%; Vanguard Total Bond Market Index Fund (VBMFX) down 0.33%; Vanguard Developed Markets Index Fund (VTMGX) down 0.83%; Vanguard Emerging Markets Stock Index (VEIEX) down 4.44%; Vanguard Star Fund (VGSTX), a total global balanced portfolio, up 0.12%.

U.S. growth stocks were hot while value-oriented stocks lagged again. In an odd turn interest rate sensitive funds with higher yields were top sectors even though value stocks in general lagged.

Real estate funds jumped 4.6% (though still down for the year) while utilities and communication funds were up 3.15% and 2.85% respectively. Other than our short on gold (which had a good month) only our holdings in these three areas beat the S&P 500 last month, with Vanguard Telecom Services ETF (VOX) and Vanguard Utilities (VPU) scoring 2.83% and 1.53% returns respectively.

These gains could be because recent weakness in these sectors created bargains, but could also be because interest rates stopped rising (by and large) with a strange 3% ceiling forming across the treasury yield curve at most maturities. This is relevant to our positions in telecom funds which we are in the process of changing to global telecom funds because U.S telecom indices are evolving to include tech stocks like Facebook and Google.

At the end of June we made some trades in the Conservative portfolio largely because one of our holdings, ETRACS 1xMonthly Short Alerian MLP (MLPS), was liquidated for lack of investor interest.

The trade brought two new holdings to the Conservative portfolio: iShares Global Telecom ETF (IXP) and Dodge & Cox Global Bond Fund (DODLX).

iShares Global Telecom ETF (IXP) is a new global telecom fund, an index fund based on a global telecom index. The yield is attractive if interest rates don't rise significantly and will offer extra benefits over a domestic telecom fund should our dollar fall.

Dodge & Cox Global Bond Fund (DODLX) was added because it's becoming a good time to consider low fee active management in general as indexing takes over the investing landscape. In addition, our previous no-transaction fee ETF in this area is no longer NTF at TD Ameritrade (the brokerage platform we use for our real money model portfolios and client accounts). This is a global fund so there is significant US exposure. We went with a larger allocation here (30%) but are getting some currency oomph from global telecom stocks as well.

The very low fee choice that is NTF iShares Core International Aggregate Bond ET (IAGG) for us at TD Ameritrade is hedged to the dollar which defeats the main purpose of owning non-US dollar denominated bonds which is diversification and protection from a slide in the U.S. dollar. Otherwise, unless you go with a higher risk emerging markets bond fund you wind up with 1% yielding government bonds. We can do better than that in yields from our own debtor nation which is paying near 3% as our deficit widens (while other major economies are seeing shrinking debt to GDP levels in this strong global economy).

With this trade we removed 4 holdings (not including the fund company liquidation and cash settlement in ETRACS 1xMonthly Short Alerian MLP (MLPS) which would make it 5):

It was time to cut back on junk bonds, which have been doing well, and our pick in this area, Artisan High Income Fund (ARTFX), was in the top 10% of this category for much of the fund's existence (including this year). At $3 billion in assets the top percentile returns and 5-star rating are no longer likely given the high 1% fees.

Artisan Global Equity Fund Investor Class (ARTHX) has been a solid performer and is still smallish but is too expensive at 1.40%

SPDR Barclays Intl. Treasury (BWX) is no longer transaction-fee free at TD (where we keep our real-money portfolios), and it's too expensive for a non-NTF fund. Recent weakness could get you a tax loss. In general active management with low fees should do slightly better than indexing in coming years.

We're trying to get away from higher credit risk yield though may come back to this on weakness. The iShares Mortgage Real Estate ETF (REM) mortgage REIT ETF, which owns mortgages purchased with borrowed money, has been a decent performer for us with a roughly 41% return (with dividends reinvested) since January 7th 2016.

We also rebalanced some holdings to slightly different allocations just to make the trade more cost efficient: Vanguard Mortgage-Backed Securities (VMBS) from 14% to 12%, Vanguard Long-Term Bond Index ETF (BLV) from 20% to 19% and Homestead Value (HOVLX) from 6% to 7%. These ETFs (but not HOVLX) also stopped being NTF for us at TD so small trades don't make sense at this time and we may eventually move out of some of these for this reason.

Alternates to consider here:

For iShares Global Telecom ETF (IXP): Because domestic telecom indexes are getting tech stock updates, this category is about to get noticeably higher risk and lower yield. You might try Fidelity Select Telecommunications Portfolio Fidelity Select Telecommunications Portfolio (FSTCX) and you can stick with Vanguard Telecom Services ETF (VOX) if need be but don't also own tech funds. The ETFs in this area are heading in the direction of T. Rowe Price Comm & Tech Investor (PRMTX) which already went tech years ago and has big stakes in Amazon (AMZN) so you won't be worse off than in Vanguard Telecom Services ETF (VOX) after the changes. In general we’re not in telecom to increase tech exposure – rather to avoid it - which you already get plenty of in regular stock indexes and just about everything these days.

For DODLX you can continue to use SPDR Barclays Intl. Treasury (BWX) or the cheaper iShares International Treasury Bond ETF (IGOV). Those who want more risk and higher yield could consider iShares J.P. Morgan EM Local Currency Bond ETF (LEMB) which is NTF at TD Ameritrade. In active management, if you can avoid the sales load one of the classes of Strategic Global Bond Fund (MAWIX) can work. AB FlexFee International Bond Advisor (FFIYX) is cheap and new and small and the flex fee is interesting (at 0.20% for now until the fund performs well against a benchmark) but the dollar hedging is unappealing right now PIMCO Foreign Bond (Unhedged) (PFUIX) if you can avoid the sales commission or load and get a cheaper class no more than 0.75% a year.

April was not a particularly good month for stocks or bonds but once again the modest monthly change disguised the intramonth and often intraday volatility that is becoming more common in the stock market. Foreign non-emerging market stocks performed well. Riskier debt moved up slightly but longer-term, investment grade bonds and foreign bonds slid as the dollar reversed a steady decline. Our government debt now pays substantially higher interest rates than other major economies, and it's likely attracting inflows of cash which could push our currency back up in value.

Our slant towards longer-term bonds didn't help in April compared to benchmarks. Our Conservative portfolio declined 0.88%. Our Aggressive portfolio fell 0.56%. Benchmark Vanguard funds for April 2018 were as follows: Vanguard 500 Index Fund (VFINX) up 0.37%; Vanguard Total Bond Market Index Fund (VBMFX) down 0.83%; Vanguard Developed Markets Index Fund (VTMGX) up 1.55%; Vanguard Emerging Markets Stock Index (VEIEX) down 2.03%; Vanguard Star Fund (VGSTX), a total global balanced portfolio, down 0.07%.

Much of the volatility in stocks appears to be related to ten-year government bonds getting to around the 3% level. The worry is that rates will blow through that threshold and shoot up to 4% and beyond with rising inflation fears. The already strong economy is now getting fanned by increased spending and tax cuts. Effectively we've got a small stimulus package kicking in when unemployment is already below 4%. Nobody really knows what will happen to the economy if borrowing costs rise significantly but if interest rates rise in anticipation of higher inflation it could cause problems — particularly for the government than needs to rollover trillions in debt at higher interest rates.

This interest rate focus may be taking away from an issue which is more about growth stocks: are these earnings growth rates and rocketing stock prices sustainable? Or are we near the end of another boom cycle in tech with signs of over-indulgence everywhere?

A more value and yield-oriented portfolio could beat a more growth and risk-oriented portfolio in coming years, which would be a near-reversal of the last decade or so. We may still see gains in growth, but the risk-vs-return is becoming unfavorable in the types of stocks that rely more on earnings growth to rationalize higher prices.

We're getting close to year-2000 levels (when value was where you wanted to be, not growth) and farther away from 2008 (when growth, particularly U.S. growth stocks, was where your portfolio should have tilted). Growth index funds have now beat value index funds by just over 2% a year over the last decade — a sizable difference.

The most surprising action in April was the performance of yield oriented stocks like those in utility and telecom funds. These did well even as the stock market was barely up and while interest rates moved higher. Vanguard Utilities (VPU) climbed 2.47% and Vanguard Telecom Services ETF (VOX) rose 1.36%. This may because these areas have been so weak that they are attracting value investors. In general value stocks are getting attractively priced relative to growth stocks after about a decade of growth beating value by upwards of 2% a year.

Oil continued to move higher even as the U.S. dollar rose, which is typically bad for oil prices. Our oil short fund PowerShares DB Crude Oil Dble Short (DTO) fell 10.65% in April, and this time ETRACS 1xMonthly Short Alerian MLP (MLPS) fell 7.51%, reversing some of the recent gains. While this likely won't happen if the economy remains strong, oil is now priced for a near 50% hit if we get a global slowdown.

The problem with a fast climbing market is that sometimes it falls just as fast. This was the case in 1929, 1987, and 2000. Valuations like P/E ratios are relevant to long-term returns but don't mean much when facing extreme short-term volatility. Investors want to make money during sharp rises but don't want to get caught without a chair when the music stops; they tend to leave quickly and in droves at the first hint of a downturn.

February's dramatic drop was briefly more than 10% and technically qualified as a "correction". Almost immediately after the drop, the market rebounded sharply. Then in early March, on new trade war fears that could also impact prices in America and cause an economic drag, the market dropped anew.

We are now in a pretty volatile market after many months of relative stability. Everything fell in February (including bonds) as future interest rate increases where the major concern. Inflation investments like TIPS, gold, and commodities, perhaps even Bitcoin to some, didn't do well so this narrative is a little suspect. Because our short positions have dwindled in size relative to the portfolio after a long rise in stocks, and our longer--term bond funds were hit almost as hard as stocks, we fell along with the markets. Our combined portfolio returns only did about as well as our total portfolio Vanguard benchmark.

Our Conservative portfolio fell 2.39% in February. Our Aggressive portfolio dropped 3.35%. Benchmark Vanguard funds for February 2018 were as follows: Vanguard 500 Index Fund (VFINX) down 3.70%; Vanguard Total Bond Market Index Fund (VBMFX) down 1.03%; Vanguard Developed Markets Index Fund (VTMGX) fell 5.23%; Vanguard Emerging Markets Stock Index (VEIEX) down 4.73%; Vanguard Star Fund (VGSTX), a total global balanced portfolio, dropped 2.74%.

As discussed last month, this is a bit of a too much of a good thing crash all around — tax cuts into a strong economy sending inflation and interest rates high enough to lead the Federal Reserve to (potentially) over react and raise rates too high, causing a recession and growing debt issues as the government refinances debt at higher rates, all while a tax cut reduces federal revenues.

The best- broad 'style box' category in the U.S. was larger--cap growth funds which fell just 2.6%. The worst was small-cap value category funds — down 4.8% on average. The gap in one year returns between these two categories at the opposite ends of the style box is stark: large-cap growth is up about 24% in the last twelve months while small-cap value is up just 4%. This is the why we were in larger-cap funds and shorting small-cap stocks: because this would have created a nice lower risk return in a low yield environment not tied to rate fluctuations with limited stock market downside as you earn the gap between these two performance streaks. Even with the costs and problems of these inverse funds, a simple portfolio with the S&P 500 ETF and an inverse small-cap fund a year ago would have delivered a positive return of about 6% over the last 12 months with a sub 1% downside in the February slide. An actual large-cap growth ETF and an actual short position in a small-cap value ETF (where you borrow the shares and sell them) could have delivered a higher return with an almost market neutral risk profile — especially just looking at the capital invested in the long position minus any margin fees and borrowing costs.

Riskier bonds and longer-term bonds were both hit in February; down 1%-3% typically. Only cash and very short-term bond funds were near flat. There was really no fund category up for the month with heavy losses in energy funds, down just over 10% for the month. Energy is now the second worst traditional category of funds over the last five years down 7% per year on average (with only precious metals funds down more at over 8% a year on average). The whole dividend value/ foreign stock/real return /commodity focus that was popular in recent years has really underperformed a late 1990s style tech and growth portfolio.

While we were right to be short gold and energy related stocks gold the metal which we short hasn't done as poorly as gold mining stocks which are what makes up most of the precious metals fund category holdings. That plus the costs of shorting often make right calls so to say less profitably than they should be especially over longer periods of time which is why mere avoidance of hot areas is the main goal for most investors — but it is difficult in this index focused world.

Our shorts (unsurprisingly) led the way in February with ETRACS 1xMonthly Short Alerian MLP (MLPS) up just over 10% thanks to a drop in energy and related stocks. Our shorts made up our five best performers this month as would almost be expected in a down month for everything. Shorting gold in theory shouldn't have worked if we really have rising inflation fears but again that story is taking the blame a bit for just a collapse in speculative euphoria.

Our performance problem last month is our longer-term bond funds Vanguard Long-Term Bond Index ETF (BLV) and Vanguard Extended Duration Treasury (EDV) were down between 3.13% and 4.29% respectively last month and our other stock funds mostly underperformed the S&P 500.

We were too value and interest rate oriented in this growth dominated market where tech funds were among the least hurt by the slide down — down just 1% on average after their rebound late in the month. The current most pressing fear continues to be inflation. and tech companies are presumably the most insulated from higher interest rates and inflation. Of course, these presumptions by investors have a way of coming undone rapidly when the money really starts evaporating. You can expect the best performing areas (and hence those that attracted the most money) to fall the hardest regardless of whether they are insulated from the current economic issues.

In 2017 the Powerfund Portfolios gained 13% and 12.1% in our Conservative and Aggressive portfolios respectively.

It must have been a hot year in the markets because these were underwhelming returns, not considering downside. Vanguard Star Fund Vanguard Star Fund (VGSTX) was up a whopping 18.33% in 2017, the best showing in our total portfolio benchmark since a 24.85% big-crash-rebound return in 2009. This fund has more in stocks than our portfolios, and of course no shorts.

In general, a 50/50 portfolio of S&P 500 and bond-focused index funds would have been up 12.56% because the Vanguard bond index fund was up 3.46% for the year while the 500 Index fund climbed 21.67%. If you owned both of our portfolios you would have earned about this return, though perversely our more conservative account did better. The real question is, do we beat these benchmarks in the inevitable down market that's sure to follow?

As Warren Buffett said, you don't know who is swimming naked until the tide goes out. In all likelihood we're under a 50/50 stock/bond downside risk level as we're just 30% in stocks in our Conservative account in real money terms today (the rest being 61% bonds, 6% Mortgage REITs, and 2.6% short); our Aggressive portfolio is now about 54% stocks, 39% bonds and 7% leveraged short (and less stocks and more shorts in real money terms at the beginning of the year). That means that we were up 13% in an account with just 30% stocks…not too bad.

It was a hard year to lose money in 2017. Most riskier fund categories gained double digits. The weakest areas were U.S. smaller-cap value, up just 8.56%, and energy stocks, down just shy of 5%. Telecom gained just over 7%.

The hottest areas (besides cryptocurrencies) were Indian stocks, up 46%, and China which gained 41%. We captured most of this with our holding iShares MSCI BRIC Index iShares MSCI BRIC Index (BKF) up 41.81% for the year — our best position. Almost all foreign markets beat the U.S. as our dollar slid in 2017.

In December our Conservative portfolio gained 0.33% and the Aggressive portfolio gained 0.12%. Benchmark Vanguard funds for December 2017 were as follows: Vanguard 500 Index Fund (VFINX) up 1.10%; Vanguard Total Bond Market Index Fund (VBMFX) up 0.44%; Vanguard Developed Markets Index Fund (VTMGX) up 1.68%; Vanguard Emerging Markets Stock Index (VEIEX) up 3.49%; Vanguard Star Fund Vanguard Star Fund (VGSTX), a total global balanced portfolio, up 1.09%.

For the month of December our foreign and value stocks were the benchmark beaters with Homestead Value (HOVLX) up 1.91%, iShares MSCI BRIC Index iShares MSCI BRIC Index (BKF) up 1.83%, and Vanguard Value (VTV) up 1.65%. Besides shorting, the losses we saw in December were in utilities and Italy, with Vanguard Utilities (VPU) down 5.88% for the month and iShares MSCI Italy Capped (EWI) down 1.3% (though Italy had a great year with a 28.7% return compared to utilities 12.5%).

In debt, longer-term bonds did well with Vanguard Extended Duration Treasury (EDV) up 2.16% and Vanguard Long-Term Bond Index ETF Vanguard Long-Term Bond Index ETF (BLV) up 1.55%. In general, longer-term investment grade as well as high risk bonds are doing well, with shorter-term investment grade debt a so-so area as shorter-term interest rates climb. Vanguard Long-Term Bond Index ETF Vanguard Long-Term Bond Index ETF (BLV) was up 10.74% for the year compared to 3.46% for the bond index most investors measure success by. In general, we had good stock and bond picks relative to the indexes and certainly relative to other fund choices; our drag was shorting and just not enough stocks.

Going forward we'll likely shift more towards the dividend-oriented areas that have had a rough time lately (those rough times caused largely by investors getting too focused on stock dividends as the end-all-be-all in the middle of the 2000s after getting pummeled in growth stocks). Now growth is back and value funds should beat tech funds again — though the valuation gap isn't nearly as great as it was in 2000. Foreign markets are no longer the relative bargain they were in early 2017.

We're watching for the Federal Reserve to push up short-term rates too far in anticipation of an economic boost from tax cuts that have driven much of the excitement in the markets recently. The boost the economy gets from lower taxes without significantly lower spending is financed by government borrowing. If the Federal Reserve raises rates because of fears of an overheated economy from tax cuts during a period of good growth and low unemployment we get even more government borrowing because the government must pay these higher interest rates on new debt. Go too far and we get a recession, no economic growth, just lots of new government debt. In general, we're well positioned for market turbulence yet continue to capture a decent chunk of the upside.

OK it's official: the market is overheating. What minor skittishness there was around the 30th anniversary of the 1987 crash evaporated faster than a Bartles & Jaymes wine cooler spilled on the hood of a VW Rabbit in the parking lot of a summer concert featuring Poison, Ratt, and Cinderella.

Our Conservative portfolio gained 0.77% in October. Our Aggressive portfolio gained 0.93%. Benchmark Vanguard funds for October 2017 were as follows: Vanguard 500 Index Fund (VFINX) up 2.32%; Vanguard Total Bond Market Index Fund (VBMFX) up 0.11%; Vanguard Developed Markets Index Fund (VTMGX) up 1.87%; Vanguard Emerging Markets Stock Index (VEIEX) up 2.44%; Vanguard Star Fund (VGSTX), a total global balanced portfolio, up 1.38%.

When the market gets hot, we tend to lag. We're underperforming the stock market so far in 2017, as we did in 2007 before the drop in the market. Most of this current drag is from our bond allocation, but more recently we've also suffered from being in lagging fund categories like telecom.

Because stocks fell so far between 2007-2009, the market still hasn't caught up to our Aggressive portfolio for the trailing 10 years (which includes this drop) even though we've been at a significantly lower risk level than the stock index for essentially all of this time (though our risk level was quite a bit higher than today in late 2009).

A too-hot market is one where you have to explain why you are up just 8.5% and 9.3% over the last twelve months in our Conservative and Aggressive portfolios respectively as opposed to a 23.5% gain in stocks.

Much of this current excitement is with the large tech stocks in the NASDAQ index where several companies are now in the $500 billion to $1 trillion market value range. The NASDAQ index level is up a bit more than 30% over the last 12 months as opposed to the still impressive 22% gain (just over 23.5% including dividends) in the S&P 500.

As hot as these stocks are now, it's noteworthy that the NASDAQ index is up only about 35% from its early 2000s peak — while we broke that level just over a year ago. Sure, this doesn't include dividends, but for much of this time the NASDAQ's dividends were minimal because of its high stock prices.

The NASDAQ of today is a far better deal than the early 2000 NASDAQ and neither plunge 80% from these levels or gain 2% a year going forward, which is about the average annual return since 2000. This also highlights the error of investing near peak enthusiasm. We're not at peak enthusiasm, but we're at levels where future returns will be modest.

Sort of surprisingly, Vanguard Utilities (VPU) was up 4.77% while a similar lower risk yield investment Vanguard Telecom Services ETF (VOX) was down 2.2%. Telecom stocks are getting attractively priced. In other odd parings our crude oil short PowerShares DB Crude Oil Dble Short (DTO) was down 9.27% as oil continued up on global economic strength while ETRACS 1xMonthly Short Alerian MLP (MLPS) which shorts companies that move energy around the country was up 4.8%.

Europe was weak compared to emerging market stocks which held back some of our foreign holdings like Vanguard Europe Pacific ETF (VEA) and Vanguard European ETF (VGK).

Bonds were quiet in October. Higher risk bonds like in Artisan High Income Fund (ARTFX) beat the bond index again.