Never miss a trade! Sign up for MAXfunds Powerfund Portfolio’s FREE email alerts! CLICK HERE!

November 2021 Performance Review

December 4, 2021

The market is too hot, so we cut back on stocks in late November until things cool off a little. This exuberance has mostly been in US growth stocks lately as global stocks, notably emerging markets, have been weak. We lost money last month relative to the US market, which we don't normally do in a down market, as did Vanguard's global balanced fund. The S&P 500, largely weighed to big-cap growth stocks, barely declined at all. If early December is any indication, beating the S&P 500 in December will be easier.

Our Conservative portfolio declined 1.74%, and our Aggressive portfolio declined 2.43%. Benchmark Vanguard funds for November 2021 were as follows: Vanguard 500 Index Fund (VFINX), down 0.70%; Vanguard Total Bond Index (VBMFX), up 0.33%; Vanguard Developed Mkts Index (VTMGX), down 4.72%; Vanguard Emerging Mkts Index (VEIEX), down 3.22%; and Vanguard Star Fund (VGSTX), a total global balanced portfolio, down 2.02%.

There was no stock fund category that beat the S&P 500 last month, which is almost impossible, especially in a down market. Somehow the mix of stocks in the popular index was the only way to not lose more than about 1% last month.

On November 26, we decreased our official stock allocation from 67% to 62% in our Aggressive Portfolio and 45% to 42% in our Conservative Portfolio.

Given the current world of low rates and high inflation, it may seem like a very stupid time to cut back on stocks and buy more bonds. It seems especially stupid to cut back on inflation-adjusted bonds in favor of bonds that will almost definitely lose to inflation this year.

While we certainly could be early (it won't be the first time) and miss more gains in stocks, when something seems like the clear way to go, it often is not. It was just last year that we added energy fund Vanguard Energy (VDE) and inflation-oriented bonds when everybody thought the oil business was done and oil futures were even near zero at one point of the negativity. When we bought Vanguard S/T Infl. Protect. (VTIP), our bond fund that owns TIPS or Treasury Inflation-Protected Securities, inflation expectations were for under 1% a year over the next five years.

The dumbest thing we did in hindsight was not buy more risky stocks - because that seemed dumb during a global economic shutdown.

Now that we made almost 10% in these safe bonds while non-inflation-adjusted government bonds went down a few percent and inflation expectations now are for 3%-ish a year, it is time to switch back to regular non-inflation-adjusted bonds. The more likely situation is the Fed tries to clip inflation and sends it down, along with stocks. Investors have been flocking to TIPS funds, which is another bad sign. If you want inflation protection beyond what your house, social security checks, and likely stocks offer, consider buying Series I Savings Bonds direct from the Treasury as they have a better risk-reward now because you won't "lose" 10% if inflation expectations go back down as can happen here.

We moved out of energy and small-cap stocks as the gains have been strong and the risk of downside too great. We sold all the inflation-adjusted bonds in favor of low-risk and low-return government mortgages in a new holding, Vanguard Mortgage-Backed Securities (VMBS), which barely yields over 1% but is a nice place to sit out the next down stock market, which could take inflation-adjusted bond funds down 5%-10%. We'll get some inflation protection, if this is even needed, from utilities stocks through Vanguard Utilities (VPU), which we increased.

Our new allocation to Japan through Franklin FTSE Japan ETF (FLJP) is more to own a safer stock market that has some relative value now compared to hotter markets, as well as potential currency-positive action. There will be a time soon when we will double down on China, which has been weak of late, but we don't want to be too early.

You can view a table detailing changes to the Aggressive portfolio by clicking here.

Changes to the Conservative Portfolio can be seen here.

We also rebalanced where appropriate to get closer to the official allocation percentages.

Stock Funds1mo %
[Benchmark] Vanguard 500 Index (VFINX)-0.70%
Franklin FTSE Brazil (FLBR)-1.52%
Vanguard Utilities (VPU)-1.59%
Invesco CurrencyShares Euro (FXE)-1.99%
Homestead Value Fund (HOVLX)-2.70%
Vanguard Value Index (VTV)-3.04%
[Benchmark] Vanguard Emerging Mkts Stock Idx (VEIEX)-3.22%
ProShares UltraShort QQQ (QID)-4.58%
Vanguard FTSE Developed Mkts. (VEA)-4.64%
[Benchmark] Vanguard Tax-Managed Intl Adm (VTMGX)-4.72%
Vanguard FTSE Europe (VGK)-4.89%
VanEck Vectors Pharma. (PPH)-4.95%
ProShares Decline of Retail (EMTY)-5.16%
Franklin FTSE South Korea (FLKR)-5.17%
Franklin FTSE China (FLCH)-5.49%
Franklin FTSE Germany (FLGR)-6.45%
Bond Funds1mo %
Vanguard Extended Duration Treasury (EDV)3.60%
Vanguard Long-Term Bond Index ETF (BLV)1.10%
[Benchmark] Vanguard Total Bond Index (VBMFX)0.33%
iShares JP Morgan Em. Bond (LEMB)-3.20%