The Kelly Letter’s first-quarter rebalance demonstrated anew why we do not get caught up in endless discussions about bond market fluctuation.
During the quarter, small-cap stock funds stole the show:
Q1 2021 Price Change (%)
– – – – – – – – – – – – – – –
+18.1 S&P SmallCap 600 (IJR)
+12.7 Russell 2000 (IWM)
General bond funds lagged:
Q1 2021 Price Change (%)
– – – – – – – – – – – – – – –
-3.7 iShares Aggregate Bond (AGG)
-3.9 Vanguard Total Bond (BND)
-3.7 Schwab Aggregate Bond (SCHZ)
Even as their prices dipped during the quarter, all three bond funds paid distributions:
Q1 2021 Distributions ($/Share)
– – – – – – – – – – – – – – –
0.382 AGG
0.268 BND
0.206 SCHZ
Our 3Sig plan signaled selling excess IJR profit and moving the proceeds into BND’s lower price. We paid 3.9% less for BND on Monday ($84.67) than we paid on January 4 ($88.07).
This dynamic offsets short-term price changes, making them a wash over the long term. Our plans enjoy generally rising lines on both sides of our fund pairings, thanks to:
<> Rising earnings in the stock market
<> Steady distributions from the bond market
Conclusion: Stick with bond funds in your Sig plans.
4 Comments
Hi Jason,
I was referred to you by a friend and have started reading The 3% Signal, and I already hold positions in IJR, MVV, TQQQ, and BND.
I am curious to know if you could recommend any small-, mid-, and large-caps in CDN$ + a bond ETF besides the Vanguard (VFV) that I currently hold.
I would like to apply your 3% rules to my Canadian RSP and TFSA accounts as well.
Thank you for your help,
Rebecca
Hi Rebecca,
Good work getting your plans going!
The 3% rules will work with Canadian funds, and most likely the ones in your RSP and TFSA accounts. For backgrounder on this, see How to Run The 3% Signal in Canada.
I hope this helps,
Jason
Jason, thank you for the reminders to stick to your, our, or my plan for growing wealth. Stick to the basics, and do not get tempted to wander off the reservation.
The recent fiasco with very large banks losing billions of dollars by lending to a gambler is instructive. It is amazing that big financial institutions keep screwing up big time. It seems they never learn! This proves how difficult it is to stay the course when the lure of mega dollars is just over the horizon. Human nature certainly adds spice to the challenge.
My pleasure, Kent, and thank you for adding to the idea.
Indeed, the financial industry keeps scoring own-goals. That will never change. Meanwhile, financial media encourages a constant tinkering mindset with portfolios that is harmful to performance, but great for the ad business.
Sticking with a proven system through whatever fireworks are currently going off is helpful to the psyche and the bottom line. I’m glad you’re doing it with me.