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Help me convince DH to diversify
Old 06-11-2007, 08:45 AM   #1
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Help me convince DH to diversify

Thanks to discovering FIREcalc, I have recently realized that DH should be able to semi-re in four years, based on his retirement account balances (both tax-deferred & taxable). We do not include my retirement savings b/c I am 20 years younger, all savings are in 401k and Roth, and I will continue to w*rk for many years. I also do not include our household savings/emergency fund in his retirement savings. I have been educating myself by reading this forum and others, and reading some of the books recommended here.

My trouble is that in reviewing DH's accounts, I realized that he has one 403b account completely invested in a utilities fund. This accounts for almost half of all his retirement savings. We are in the process of deciding our exact asset allocation, and allocation among each class, for the next four years - we are close but still tweaking. Theoretically he agrees with the concepts of AA, diversifying, and periodic rebalancing to maintain your plan.

However, since this fund has gone down over 5% in the last few days, he wants to wait for it to go back up before re-allocating. I say we should re-allocate now, and fine tune over the coming weeks when we decide on our specific allocations.

I would greatly appreciate your thoughts!
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Old 06-11-2007, 08:49 AM   #2
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I think you can find a happy medium. Sell a portion now and then maybe once a month until you get your allocation the way you want it. You can DCA in selling just like you do when buying. It doesn't have to be an all or nothing proposition.
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Old 06-11-2007, 02:39 PM   #3
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I think kaudrey hit the nail on the head. There is no rush to sell things immediately. Sell some now, sell some every month, keep selling small bits over a year or two.

Then if utilities head up, you'll get some of the gain. If they keep heading down, at least you'll get some of the money out of them and properly spread out.
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Old 06-11-2007, 02:40 PM   #4
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Thanks guys, that does seem reasonable!
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Old 06-11-2007, 03:32 PM   #5
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Hey PBAT,

Quote:
We are in the process of deciding our exact asset allocation, and allocation among each class,
It appears to me that you both need to do bit of reading to as to fully understand why an asset allocation is ~so~ important to the long term success of an investment plan.

Have you done any reading outside of FIRECALC? Have you read The Boglehead's Guide to Investing, The Coffeehouse Investor, A Random Walk Down Wall Street or any number of other excellent personal investing books?

IMHO, without the basic knowledge contained in these and other books on the subject, it is nearly impossible to get it all correct. It's not a difficult subject, however if you make errors (i.e.100% in a utility fund) you could do serious long term damage.
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Old 06-11-2007, 03:57 PM   #6
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Since everything went down between 3% and 5% through last Thursday, it really doesn't matter what the utilities fund does. By switching, you get things cheaper than before. By waiting for the utils to go up, everything else will go up as well and you will end up with roughly the same number of shares in the funds you exchange into.

Anyways, y'all are in one of those behavioral finance traps talked about in the book "Why Smart People Make Big Money Mistakes".

The idea to switch some now and some later is helpful.
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Old 06-12-2007, 06:46 AM   #7
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If it were not the whole market going down but just utilities, AA would have you buying more on the dip, not selling. With the whole market down, you would be selling fixed income to increase your equity holding back to their target allocation.
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Old 06-12-2007, 07:30 AM   #8
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However, since this fund has gone down over 5% in the last few days, he wants to wait for it to go back up before re-allocating. I say we should re-allocate now, and fine tune over the coming weeks when we decide on our specific allocations.
Set a timeframe for the wait or the amount of increase sought. Good luck!!! Waiting has opportunity cost!!
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Old 06-12-2007, 07:32 AM   #9
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Yes, I have read Bogleheads, am reading Random Walk, and checked out a couple other books, including Buckets. Of course I have also been reading this forum and Diehards.

Keith - I do understand that principle now, the problem is that we have never sat down and made a plan. We were uneducated about investing, and choosing among limited retirement plan options without looking at the whole picture. Now that we are waking up, my first step is to get our AA where we want it, and properly diversified. Then going forward I will rebalance correctly.

Right now we are over 90% in stocks, and with planning for semi-re in four years, I want to get a safer ratio. Withdrawals the first few years will be minimal, but we won't be contributing much if at all, so I don't feel comfortable with 90/10 mix. We don't need that high level of risk at this point.

Thanks everyone!
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Old 06-12-2007, 07:35 AM   #10
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It's hard convincing someone to change on things like that. I'd probably buy one or two of the books mentioned here (or others you'll see pop up from time to time), read them with conspicuous interest ("hmmm..that's interesting... it says here that...") and leave them around.

I'd second the Bogelhead book, Lucia's Buckets of Money, Frank Armstrong's online book, and Jonathan Pond's book.
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Old 06-14-2007, 11:37 AM   #11
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Quote:
Originally Posted by PBAT View Post
...Withdrawals the first few years will be minimal, but we won't be contributing much if at all, so I don't feel comfortable with 90/10 mix. We don't need that high level of risk at this point.

Thanks everyone!
If you are not forced to make withdrawals, then 90/10 is about right. Once you need to w/d then 70/30 would probably be more sound.
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