Useful Links

pb4uski · 08-18-2012, 11:51 AM

Is this in your taxable account? In other words, are you trying to take some gains since cg gain taxes are attractive or to offset existing loss carryovers and get in again?

For me, while it may feel like a top - who knows! I have long ago given up trying to call tops and bottoms to eek out more return because it seems to me that the likelihood of being able to correctly call a top AND a bottom which is necessary to profit from market timing MUCH lower than missing more of a rally or not getting back in before the next rally.

Anyway, it seems that your hesitation is that you think this may be a top so if I were you I would just stand pat and then start moving between fixed income and equities once the S&P crosses 1325 on some pre-decided pace until you get to your target AA.

veremchuka · 08-18-2012, 12:03 PM

No these funds are in my rollover IRA and Roth.

Gotadimple · 08-18-2012, 12:21 PM

Verumchuka,
You don't say what kind of equities you are invested in, just that they are mutual funds. You also say you have investigated ETFs but are concerned.

Here's an alternative to consider: index funds, either purchased as a mutual fund, i.e., Vanguard S&P 500 Index fund or as an ETF. In both cases, the price of the fund (net asset value) is a fair statement of the market worth of the basket of funds. In both cases, the expense ratio becomes the deciding factor. Usually ERs of ETFs are lower than the mutual fund.

The good news is that Vanguard has both index mutual funds and ETFs versions of those same funds. So, making choices about your equity allocation becomes a little easier. As long as:

* you understand the index the fund/ETF is tracking and you are comfortable with the index being tracked,
* then the choice is mutual fund which requires you wait until the end of the day to make the buy/sell, or ETF that let's you buy/sell during the day. Which one has a lower ER?

Secondly, you expressed some concern about having to wait the 60 day period to avoid a wash sale. As you know the wash sale tests if you are re-investing in a substantially similar investment during the 60 day period. To avoid this, you might want to:

* Take your equity profits, as you have explained
* Start investing into your equity 50/50 allocation (assuming the 50% equity is not just a single class like large company stock) and invest on dips in the market. That means it will take longer to get to your allocation, but should hopefully resolve the issue you have of buying high.
* Know that it will go down, it always does. But if you've picked an index that is reasonably stable for the basket of stocks it tracks, it will go back up over time. Time means more than 1 year, more like 5 years.

No one likes to see an investment go down, but it does happen. They also go back up.

easysurfer · 08-18-2012, 01:34 PM

Quote:

Originally Posted by veremchuka

Yes but did you read what I did in April 2010? That has a lasting effect on these types of 'big' moves!

Like you are saying, each move can be thought of as a good or bad move. For example, let's say you decide not to buy into equities now because it's close to an all time high since some time before. But what if the market then goes up on a bigger run and because you had a low percentage in equities, then it'll be even more painful to jump back in for you.

IMO, the very reason why I only deal with AA and rebalancing is to keep my emotions out of the equation. I don't trust myself enough to say I know if the market is headed up or down. But I do know how to do the math to keep track of my allocations and rebalance. Plus, the AA and rebalance approach makes me sleep a lot better at night.

LOL! · 08-18-2012, 02:15 PM

Without a taxable account and only IRAs, wash sales are moot for veremchuka. And so is tax-loss harvesting. I think the 60-day story was a Vanguard frequent-trading restriction.

Lsbcal · 08-18-2012, 06:00 PM

Quote:

Originally Posted by veremchuka

...(snip)...
Fear of doing the wrong thing as LOL pointed out is creating a conflict. I could be right or wrong whichever way I go. TR accounts do have an advantage as another poster said!

I have done some market timing but only after extreme backtesting. If my forward planning ideas did not work in the past, then I would not be confident in it for the future. Even if it works in the past, it may fail in the future. That is why I settled on picking the AA and slicing off the equites at 1% over my allocation. I did not pick this approach simply by listening to others talk about hopes and fears for the future.

If you are not willing to do the backtesting homework (most people are not) then it would be best to listen to a reasonable expert and go with that plan. By experts I'm thinking of people like Bernstein or Swedroe types.

ejman · 08-18-2012, 07:00 PM

Quote:

Originally Posted by Lsbcal

I have done some market timing but only after extreme backtesting. If my forward planning ideas did not work in the past, then I would not be confident in it for the future. Even if it works in the past, it may fail in the future. That is why I settled on picking the AA and slicing off the equites at 1% over my allocation. I did not pick this approach simply by listening to others talk about hopes and fears for the future.

If you are not willing to do the backtesting homework (most people are not) then it would be best to listen to a reasonable expert and go with that plan. By experts I'm thinking of people like Bernstein or Swedroe types.

I'm curious as to the practical application of the 1% rule. Markets often have a 1-2% swing even on a daily basis. So presumably, you would occasionally have rebalancing events in rapid sequence at times. How do you deal with this?

LOL! · 08-18-2012, 07:41 PM

While 1% is a little too tight even for me, think of this: A 1% swing in equities for a 60:40 portfolio means you went to 60.6/100.6 = 60.2%, so you ain't at 61% yet.

But a 5% swing in equities would be 63/103 = 61.2%.

utrecht · 08-18-2012, 08:02 PM

Quote:

Originally Posted by veremchuka

Yes, I have considered this as a rebalancing option. It is hard to buy poor performing assets! Rebalancing is not easy, it is something I have never done. When I worked I just poured money into equity funds and it wasn't until a few years before retiring that I had a more balanced AA. My employer hired an an outside financial company to console us and they asked if I was crazy doing what I was doing if I wanted to retire in 3 years!

NWBound, excellent observations, thank you for them!

Fear of doing the wrong thing as LOL pointed out is creating a conflict. I could be right or wrong whichever way I go. TR accounts do have an advantage as another poster said!

So you don't want to buy international equities because they are a poor performing asset right now and you don't want to buy US equities because they are at 4.5 year highs and are assets that are performing great right now?

Lsbcal · 08-18-2012, 08:14 PM

Quote:

Originally Posted by ejman

I'm curious as to the practical application of the 1% rule. Markets often have a 1-2% swing even on a daily basis. So presumably, you would occasionally have rebalancing events in rapid sequence at times. How do you deal with this?

I think LOL got it right above. As I mentioned, this only triggers about 4 times a year on average. I just like the idea that I'm at my max equity allocation and have defined a limit. Making small changes is easier on me emotionally -- which I think this thread is mostly about, dealing with your emotions. This is definitely not the only way to handle rebalancing, just an easy one for me.

Also I don't rebalance if equities decline. However, if they decline enough under certain circumstances I might sell equities.

ejman · 08-18-2012, 08:19 PM

Quote:

Originally Posted by LOL!

While 1% is a little too tight even for me, think of this: A 1% swing in equities for a 60:40 portfolio means you went to 60.6/100.6 = 60.2%, so you ain't at 61% yet.

But a 5% swing in equities would be 63/103 = 61.2%.

I guess mathematically it would take a 2.5% swing in equities to make it to 61/39. 625,000/1,025,000 = .61 still more or less a frequent occurrence.

ejman · 08-18-2012, 08:26 PM

Quote:

Originally Posted by Lsbcal

I think LOL got it right above. As I mentioned, this only triggers about 4 times a year on average. I just like the idea that I'm at my max equity allocation and have defined a limit. Making small changes is easier on me emotionally -- which I think this thread is mostly about, dealing with your emotions. This is definitely not the only way to handle rebalancing, just an easy one for me.

Also I don't rebalance if equities decline. However, if they decline enough under certain circumstances I might sell equities.

Fair enough. On the sell equities side, I was getting ready to do so in early March 2009 (I use much wider 10% bands before I do anything) and just as I was getting ready to sell bonds and buy equities for the first time since I started investing in 1987 the market turned and has been on an uptrend ever since (Until W2R's wheee call

)

LOL! · 08-18-2012, 08:58 PM

Quote:

Originally Posted by ejman

I guess mathematically it would take a 2.5% swing in equities to make it to 61/39. 625,000/1,025,000 = .61 still more or less a frequent occurrence.

I think your math is screwy. You had equities go from 60 to 61 which is a 1.67% increase in equities, but you also had bonds drop 39/40 which is a 2.5% drop in bonds (LARGE!).

625,000/600,000 = 1.042, so that would be a 4.2% swing in equities alone if the bonds stay the same at 400,000. I would guess that a 4.2% swing is much less frequent than a 2.5% swing.

ejman · 08-18-2012, 09:45 PM

Quote:

Originally Posted by LOL!

I think your math is screwy. You had equities go from 60 to 61 which is a 1.67% increase in equities, but you also had bonds drop 39/40 which is a 2.5% drop in bonds (LARGE!).

625,000/600,000 = 1.042, so that would be a 4.2% swing in equities alone if the bonds stay the same at 400,000. I would guess that a 4.2% swing is much less frequent than a 2.5% swing.

Yes, I can see your point. 25000/600000 = 4.2% I apologize for my faulty math thank you for correcting it. Just for the fun of it I found that in 2011 there were seven days with volatility greater than 4% and only one with volatility greater than 5% http://m.briefing.com/investor/our-v...the-market.htm

kumquat · 08-18-2012, 10:10 PM

From the OP I think he had an underweight in equities according to his plan. He wanted our support to reduce this equity exposre to 0% in order to take advantage of his view on what the market is going to do. In other initials DMT.

Hiding it as a tax question is still hiding it. If you're worried about holding periods, sell SPY and buy VTI.

WADR, if you understand the NAV of an MF you can understand the (underlying) value of an ETF.

If you actually have an AA follow it. If you are a DMT, admit it and ~~plan~~ be prepared for a LR.

audreyh1 · 08-19-2012, 06:51 AM

Looking at my portfolio recently I was wondering where that Wh**** was going to be. So it's hidden in this thread! Unfortunately, it seems to pop up when my portfolio just barely exceeds a previous high - like by 0.37% as of Friday. I sure would appreciated at least a few percentage points gain before the Wh**** shows up!

Veremchuka - I think you have to ask yourself why you are looking at rebalancing/taking action now instead of back around June 1? Is it just because someone announced new highs in the news? Were you not aware of your allocation back on June 1? If you were, but did not feel comfortable rebalancing back then, then I suspect you may always find it hard to rebalance when your target asset class has dropped recently.

If you want to rebalance when the market is lower, just wait for the market to go lower. Youll have even more in bonds and less in equities then. Supposedly you are rebalancing because you believe it will eventually recover again. I doubt trimming a little now and then waiting will help much - it might even hurt if there is no near term drop. Oh - you don't want to see your investments go lower before rebalancing? Well - that'll be tough to pull off.

Folks using AA - you have to believe that assets classes underperforming now, will eventually outperform, otherwise there is no point in using AA and rebalancing. If you don't want to buy international stocks now, for example, because they are "down" and might stay down for a while, then you will never get around to buying them. It is precisely when an asset class falls behind that you add to it, thus "buying low".

audreyh1 · 08-19-2012, 06:59 AM

When using AA with rebalancing as your investment strategy, it's useful to look at the relative performance of asset classes over time to see how year after year different asset classes can take the lead or fall behind.

This "Callan Periodic Table of Asset Classes" gives a useful historical view: http://www.callan.com/research//down...free%2f548.pdf

Some asset classes may fall behind for a few years, but when they change position it can be very sudden. Best to just add when they're down, then you'll eventually be able to trim when they're up.

veremchuka · 08-19-2012, 07:00 AM

I looked at percentages last night. My TISMI is 22% of the total equity portion of the portfolio and I am comfortable with that but it is only 8% of the total portfolio's value. Exchanging most of the TSMI profits would increase the TISMI to 29% of the equity portion of the portfolio which is a bit more than I want but I could live with it and it brings the TISMI up to 10% of the total portfolio which I am ok with.

Larry Swedroe made a good (and timely for me) case about how international equities are a better buy today than domestic equities based upon their P/E ratios. Should you dump your international stocks? - CBS News

So maybe taking the TSMI profit and putting it into TISMI fund would rebalance the domestic to international side and I'll live with a 37/63 AA for the time being. Of course you all know that these percentages I stated will be deeply impacted by the "Wheee" factor introduced by W2R so by Monday at 3:45 pm it'll all look different when the market is down 5%!

pb4uski · 08-19-2012, 07:36 AM

Quote:

Originally Posted by veremchuka

I looked at percentages last night. My TISMI is 22% of the total equity portion of the portfolio and I am comfortable with that but it is only 8% of the total portfolio's value. Exchanging most of the TSMI profits would increase the TISMI to 29% of the equity portion of the portfolio which is a bit more than I want but I could live with it and it brings the TISMI up to 10% of the total portfolio which I am ok with.

Larry Swedroe made a good (and timely for me) case about how international equities are a better buy today than domestic equities based upon their P/E ratios. Should you dump your international stocks? - CBS News

So maybe taking the TSMI profit and putting it into TISMI fund would rebalance the domestic to international side and I'll live with a 37/63 AA for the time being. Of course you all know that these percentages I stated will be deeply impacted by the "Wheee" factor introduced by W2R so by Monday at 3:45 pm it'll all look different when the market is down 5%!

To have international equities 22% of total equities would be at the low range of what VG suggests and 29% would be near the middle of the range. My target AA is 25% international/75% domestic but I am considering letting it creep up to 30% if internationals ever rally.

From VG: "Holding more foreign stocks can potentially increase the level of diversification in your portfolio. Allocating within a range of 20% to 40% of your stock portfolio to foreign stocks is a reasonable amount to capture the diversification benefits."