Have you bumped up your equity allocation?

[Spanky]

In anticipation of low return from bonds, have you bumped up your equity allocation? We are currently at 40/60 (equity/fixed-income) but thinking about increasing the allocation of equity to 50%. It's true that motivation for a change is heavily influenced by recency of stellar equity return relative to bond.

 

[gcgang]

Market is up 170% from the bottom, and now you want to add to stocks? Are we being pranked?

My equity allocation has been bumped up by the gains, as has my overall assets, and my time frame is another year shorter. I'm trying to figure out what stock to sell without triggering excessive taxes, to reduce my risk, as I no longer need as much equity allocation to meet my goals. Mostly just adding to my cash cushion.

 

[Russman]

I guess it all depends on your age as well as your tolerance for risk.
My portfolio is currently 65% equities and 15% bonds and 20% cash/money market. I took early retirement about a year and a half ago, and will be turning 55 this month. Since I plan to be invested for the long haul, equities seem to be the only way to go. There may be a correction here and there, but as long as you don't panic sell, the long term gain should favor a more heavily weighted equity portfolio. If the return rate on bonds improves, then I may do some re-balancing.

 

[obgyn65]

No.

 

[ETFs_Rule]

In anticipation of low return from bonds, have you bumped up your equity allocation? We are currently at 40/60 (equity/fixed-income) but thinking about increasing the allocation of equity to 50%. It's true that motivation for a change is heavily influenced by recency of stellar equity return relative to bond.

For a long time I've been
87% equities
10% gold
3% cash

But now thinking about shifting 10% into bonds as a hedge against stock correction.

Another alternative to bonds is XLP (the consumer staples index). I found this chart that shows how it held up during the 2008 - 2009 collapse. It did pretty well. Only dropped 33% from its peak.

 

[panacea]

No, just the opposite. Since the stock market has fully recovered from it's 2008 correction, I've backed off to around 60-40 (stocks to bonds) from 80-20. I maintain a pretty moderate target unless the stock market is way undervalued.

 

[easysurfer]

I rebalanced at the start of the year (scaled down a bit in equities to reach my target allocation). Don't plan on doing any rebalancing, if at all, until 2015 (that sounds [-]lazy[/-] good).

 

[utrecht]

I bumped up our stock allocation on 7/8/13 (I wrote the date down). I've tracked the difference in results since then and it's been fairly significant. I was right this time but just as easily could've been wrong. Now my problem is that I don't know when it's time to move my AA back to my long term goal. I'm thinking that it's getting pretty close to time now.

 

[Dash man]

My equity allocation remains the same, but I got rid of all bonds and put that into cash/CDs. To me, the bond market is very risky at this point. If stocks do take a significant dip, I may use the cash to take advantage of that and increase my equity stake then.

 

[prototype]

No. I am just leaving my basic AA of ~60/40 alone for now. I am looking at and starting to tweak some sub-asset allocations that are out of whack.

 

[Lsbcal]

In anticipation of low return from bonds, have you bumped up your equity allocation? We are currently at 40/60 (equity/fixed-income) but thinking about increasing the allocation of equity to 50%. It's true that motivation for a change is heavily influenced by recency of stellar equity return relative to bond.

How would you react if the market went down for some months after you went to 50% ? Would a 10% decline cause you to loose sleep or sell?

Hopefully a decline will not happen but it could. Since 1950 about 8% of months had declines worse then -5%. That's about an average of 1 month each year, and they could cluster too.

 

[Spanky]

How would you react if the market went down for some months after you went to 50% ? Would a 10% decline cause you to loose sleep or sell?

Hopefully a decline will not happen but it could. Since 1950 about 8% of months had declines worse then -5%. That's about an average of 1 month each year, and they could cluster too.

I will not be losing any sleep over such a decline and most likely do nothing. A 50% allocation to equity is pretty conservative anyway.

 

[karluk]

IMHO the answer to this should be a clear "no". Expected future stock market returns are the lowest they've been in the last five years. If you weren't allocating more money to stocks in February of 2009, 2010, 2011, 2012, or 2013, why on earth would you think that now is the time to buy?

 

[Lsbcal]

I will not be losing any sleep over such a decline and most likely do nothing. A 50% allocation to equity is pretty conservative anyway.

I agree that a 50% allocation is conservative.

I went to 65% stocks a few years back thinking that bonds weren't going to be a good trip. But bonds have been OK so far. Stocks in the future ... stay tuned for further exciting events.

 

[Spanky]

IMHO the answer to this should be a clear "no". Expected future stock market returns are the lowest they've been in the last five years. If you weren't allocating more money to stocks in February of 2009, 2010, 2011, 2012, or 2013, why on earth would you think that now is the time to buy?

I do not think now is the time to buy or sell stocks. Our allocation to equity is quite low. Bumping up to 50% will still be very conservative.

 

[Lsbcal]

IMHO the answer to this should be a clear "no". Expected future stock market returns are the lowest they've been in the last five years. If you weren't allocating more money to stocks in February of 2009, 2010, 2011, 2012, or 2013, why on earth would you think that now is the time to buy?

Timing is a tough decision. All we can say is that the past 5 years were good and they are history now.

I do not think we can make a case for valuations being wildly out of line now. Valuation methods like PE1 or PE10 have a pretty poor correlation with returns out just a few years.

I don't mean to be too challenging but if you have data that shows expected future returns and how those methods have done in actually predicting the future returns, then I'd like to see it. Always willing to learn something new. I've seen some models but rarely if ever have they been discussed in terms of past outcomes. Pfau did a bit of stuff on PE10 but that was long term timing oriented. I've some stuff myself on PE10 but was not impressed.

 

[karluk]

OP is contemplating a "buy high" strategy by allocating an extra 10% to stocks. Whether he will succeed in "selling higher" is of course yet to be determined. The danger is that he will end up "selling low". I was simply pointing out that stocks were a better bargain every single February for the past five years than they are today, yet for some reason he didn't feel the urge to bump up his stock allocation back then. I perceive a heavy dose of emotion pushing this decision, as indeed OP admits in his first post:

It's true that motivation for a change is heavily influenced by recency of stellar equity return relative to bond.

 

[Lsbcal]

Yes, it's extremely hard to be unemotional about large money matters. I cannot be and that is baked into my methodology. Actually today I sold some to keep below my upper limit but that is a long term approach. I set my max allocation a few years back.

Buying now cannot yet be called "buy high" though. It is a fact that we hit a bottom 5 years ago. It is possible we will have some bad times in the future. Also it is possible that the next 10 years see the equity markets going (with some volatility) up.

 

[Options]

No market timing here. Along those line, Buffet's latest annual letter is a good read.

Buffett's annual letter: Learn from my real estate investments - The Term Sheet: Fortune's deals blogTerm Sheet

 

[Animorph]

I like to be 100% stocks. However, another 3% portfolio gain and I'll be selling stocks and raising cash for 2015 expenses. So I guess I may be decreasing my equities. At least until the cash is spent.

 

[RetireAge50]

I usually go with about 90% stocks and 10% bonds. Do not bother with reallocation just let it go up and down.

But I am still working and do not need the money for a few years. Plan on keeping 3-5 years income in cash (or pension, or salary).

 

[Tortoise]

In anticipation of low return from bonds, have you bumped up your equity allocation? We are currently at 40/60 (equity/fixed-income) but thinking about increasing the allocation of equity to 50%. It's true that motivation for a change is heavily influenced by recency of stellar equity return relative to bond.

Agreed that 50/50 is still pretty conservative, but chasing returns is not wise. Do you have an Investment Policy Statement? If so, stick with that. If not, you might think about creating one. Please read Investment policy statement - Bogleheads

 

[Animorph]

Here's what happens when you chase returns.

Mind the Gap 2014

A permanent AA change is not necessarily chasing returns, but the timing is a bit suspicious. If you don't like bonds, cash like CD's and online savings accounts will work while bonds recover.

 

[foxfirev5]

As the ER window approaches I'm sticking to my 45/35/15 allocation. It would be terrible if I had to delay ER a year or two because of a major downturn.

 

[karluk]

As the ER window approaches I'm sticking to my 45/35/15 allocation. It would be terrible if I had to delay ER a year or two because of a major downturn.

Not to mention that, since your allocations only add up to 95%, you have an extra 5% floating around in there somewhere as cushion against any major downturn.