Normally I don't ask for advice but

[ejman]

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]

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!]

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]

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-view/ahead-of-the-curve/whats-a-normal-day-in-the-market.htm

 

[kumquat]

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]

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]

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//download/?file=periodic/free/548.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]

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]

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."

 

[Lsbcal]

Seems a decent time to trot out my updated "SP500 Off Lows" chart:

It won't foretell the future but it might cause one to analyze how tactics to be employed now would have worked in the past.

 

[NW-Bound]

As I reported more than once in other threads recently, even Malkiel, the author of the well-known "Random Walk" book and a proponent of EMH, a director of Vanguard and buddy of Bogle, repeatedly said publicly that foreign stocks and bonds were better buys than US counterparts.

In my non-Vanguard accounts, I do own Vanguard ETFs such as the 3 following. Note the dividend yields.

VSS World Ex-US small Cap 3.06%
VEU World ex-US 3.33%
VWO Emerging Market 2.26%

In my Schwab accounts, I bought Schwab ETFs as it would be a commission-free trade, plus these ETFs have even lower expense ratios than Vanguard (Imagine that!). Schwab offers the following.

SCHC International Small Cap 3.41%
SHCE Emerging market 2.40%
SCHF International 3.09%

The above ETFs have been trailing their US counterparts, although they offer higher dividends and better future prospects according to Malkiel.

SPY S&P500 1.98%
VFINX S&P500 1.84%

SCHA US small cap 1.25%
SHCB US total market 1.82%

I also own country-specific ETFs as well as ADRs of individual foreign companies, but will refrain from mentioning them here. Some even pay higher dividends than the above, but of course may be higher risks.

 

[MBAustin]

This "Callan Periodic Table of Asset Classes" gives a useful historical view: http://www.callan.com/research//download/?file=periodic/free/548.pdf

Thanks for posting this - I'd seen a copy somewhere a number of years ago but didn't know where to find it. It is very useful to remind me why diversification across asset classes is important for the long term.

 

[samclem]

Yep, that's the chart that keeps the customers pulling the handle. All we need to know is when the market is at the low point.

 

[audreyh1]

Seems a decent time to trot out my updated "SP500 Off Lows" chart:

It won't foretell the future but it might cause one to analyze how tactics to be employed now would have worked in the past.

I know it's looking pretty good so far, but I think it's far more likely that we go flattish, like after the '74 recovery, have another bear market in the 2016/2017 timeframe, and THEN start following the '82 trajectory, maybe .

 

[Lsbcal]

I know it's looking pretty good so far, but I think it's far more likely that we go flattish, like after the '74 recovery, have another bear market in the 2016/2017 timeframe, and THEN start following the '82 trajectory, maybe .

If flatish means returning an average of 3% per year out to 2016, that would probably beat bonds.

I don't invest by my guesses at where things are going but I'm optimistic. Might as well be since I'm fully invested now.

 

[NW-Bound]

Here's a recent article by Malkiel.

Burton Malkiel: What Does the Prudent Investor Do Now? - WSJ.com

Some excerpts follow.

"Bonds are the worst asset class for investors. Usually thought of as the safest of investments, they are anything but safe today...
Equities on the other hand are still attractively priced, despite their substantial rise from the October 2011 lows...
The economies of the euro zone are getting worse, not better...
Emerging market equities are particularly attractive...
Real estate is a particularly attractive asset class. Investors who are currently renting the place in which they live should strongly consider buying..."​

 

[brewer12345]

Veremchuka, to be blunt (my specialty) you need to grow a pair. If you are really an asset allocator, then start a DCA to get your portfolio back to 50/50 and stop all the mental masturbation over what asset class is rich or cheap. If you are a market timer, get to it and don't bother asking the unwashed masses here what move you should make.

 

[Lsbcal]

I think Veremchuka is asking good questions. Frequently we are pushed to and fro by our emotions. Investing is best to do rationally (focus on data and process), but we are emotional beings too.

Over the years I've had similar emotions, wanting to have my cake and eat it too. Things that go through the primitive mind:

Stocks are up, yea! But that means the party is well under way. What's next?
Made a lot of money in stocks, yea! Damn those taxes.
Expert X is saying stocks are good value. Expert Y is saying bad value, run for hills.
My friend is saying (take your pick: sell, buy, jump out window).

BTW, Lsbcal does take his showers.

 

[NW-Bound]

I always like to be a bit more active in investing. I've always tried to conquer my greed and fear. Of course if I were really successful, I would have a whole lot more.

I am never interested in gambling when going to Las Vegas. And it may surprise you but I do not know any card game. A friend taught me a game some time ago, but I quickly forgot the rule. I am just not interested. I don't care about truly random games. And when it comes to games like poker that require some skills against human adversaries, I just do not do well. In investing, it is mostly you against yourself. I love it.

 

[audreyh1]

If flatish means returning an average of 3% per year out to 2016, that would probably beat bonds.

I don't invest by my guesses at where things are going but I'm optimistic. Might as well be since I'm fully invested now.

I'm going by the general idea of a long bull cycle then long bear cycle - a pattern that has been repeating since the 1920s, which is why I focus on the patterns of other bear periods. Having come of age at the tail end of the last bear cycle (ending 1981), lived through the euphoria of a strong bull cycle (1982-2000), and then experienced what has happened since 2000, I've been pretty much been convinced that these cycles continue to exist. Which would indicate probably 2016-2017 earliest to climb out of this funk. Some people cite demographic trends to suggest that the current cycle should last longer, but we'll see.

Markets still go up (not just down) during the bear cycles, so rebalancing can really help out.

 

[ejman]

I dunno, I've sort of resigned myself to one of those Firecalc lines that bounce along the bottom and "make it" but just barely. I certainly like your "2016 -2017 climb out of this funk" statement. What drives that?

 

[NW-Bound]

If we keep talking charts, cycles, and stuff like that, isn't it getting more like DMT talk? How long until someone starts mentioning head and shoulders and breakouts, etc...? I dunno.

 

[traineeinvestor]

If the concern is that emotional factors (fear of regret, fear of loss) are holding you back from implementing a financial plan that you believe is right for you, then some reading on behavioural investing/economics may be helpful.

Jason Zweig's "Your Money and Your Brain" is a good one: Amazon.com: Your Money and Your Brain: How the New Science of Neuroeconomics Can Help Make You Rich (9780743276689): Jason Zweig: Books

 

[traineeinvestor]

If we keep talking charts, cycles, and stuff like that, isn't it getting more like DMT talk? How long until someone starts mentioning head and shoulders and breakouts, etc...? I dunno.

Or for a really ominous chart formation: The Rare and Dangerous Black Swan Chart Formation

 

[audreyh1]

I dunno, I've sort of resigned myself to one of those Firecalc lines that bounce along the bottom and "make it" but just barely. I certainly like your "2016 -2017 climb out of this funk" statement. What drives that?

Who knows? I'm not sure that anyone can predict what drove each cycle. Maybe it's nothing more than finally working out the excesses of the prior cycle?