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Old 01-10-2015, 12:15 AM   #21
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What will you do if VTSAX takes a big drubbing?
In a perfect world: sell it all, buy a similar fund low, and use the tax writeoff against capital gains on a property sale. As it is the rentals are mostly depreciated out, which means the tax man thinks anything we get for them is pure taxable profit. That makes selling them without an offsetting loss unattractive when they are renting quite profitably. A "loss" like that would have the effect of moving the profit from the higher tax rentals to lower tax stocks.

Reality would probably be quite different - We/me sold about all our stock holdings late in 2012 because I was sure there would be a huge sale on stocks early in 2013. Our cash sat in the Vanguard settlement account through 2013's 30% rise and earned us .... nothing. Sell low/buy high? Really want to do what worked for us with real estate - just hold for a long long time.
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Old 01-10-2015, 09:13 AM   #22
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Originally Posted by NW-Bound View Post
Yes, balanced funds lag pure stock right now, but from 1980 to 2003 then again to 2009, they all met up at the same point. A few years from now, will we be surprised to see that happening again? . . .

Anyway, as a self-professed market timer, I look at the market volatility as a challenge to make some extra money. . . .
But again, as a market timer, I try to use "Tactical Allocation" and do not keep my AA constant anyway.
Well, if we start with the asumption that we can know in advance whether stocks or bonds will do best in the coming period, it removes any need to discuss the merits of balanced funds, 100% stocks, or 100% bonds. Picking any of these and sticking with it would be foolish: it would be much better to just load up on what is going to do best, sell when it has reached the top, and buy the next winning category. But--about that starting assumption . . .
If we >don't< assume we can effectively "tactically allocate", then over longer time periods (20+ years) in general having a heavier dose of stocks leads to higher overall average annual returns. Bonds are useful for reducing volatility. I'm always cognizant of the need to distinguish between "volatility" and "risk", because to me they are very different. Long-term failure of my portfolio to keep up with inflation is a bigger "risk" (to me) than annual ups and downs in account balances, so I have a lot of stocks and very few bonds. But, over time, having 20% or so in bonds has reduced volatility a lot with fairly small impact on total returns. A major characteristic of the chart (both the "overall time period" black line and the colored decade lines) is the "horizontility" near the 100% stock ("S") end of the line: Adding 20-30% bonds didn't drag down total returns much, but did significantly reduce volatility. This generally applied whether stocks led (50's, 60's, 80's, 90s) or lagged (2000's) bonds for the decade (exception: the 1970s, when neither did well).
Correction to my previous typo: a 20% allocation to bonds reduced annual returns over this time period by about 1% on average (from 11% to 10%), not 4%.
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Old 01-10-2015, 05:11 PM   #23
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Why not just VTSAX?

You can use the Vanguard web app at:

https://personal.vanguard.com/us/ins...uth-about-risk

and change the allocation in three different modes. Look for 3 smallish icons at top right of the chart.
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Old 01-11-2015, 09:05 AM   #24
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Originally Posted by calmloki View Post
In a perfect world: sell it all, buy a similar fund low, and use the tax writeoff against capital gains on a property sale. As it is the rentals are mostly depreciated out, which means the tax man thinks anything we get for them is pure taxable profit. That makes selling them without an offsetting loss unattractive when they are renting quite profitably. A "loss" like that would have the effect of moving the profit from the higher tax rentals to lower tax stocks.

Reality would probably be quite different - We/me sold about all our stock holdings late in 2012 because I was sure there would be a huge sale on stocks early in 2013. Our cash sat in the Vanguard settlement account through 2013's 30% rise and earned us .... nothing. Sell low/buy high? Really want to do what worked for us with real estate - just hold for a long long time.
That's an interesting idea about using the loss but it presupposes that you are planning on selling property anyway, right? If you did not want to sell anything, then holding 1 nondiversified fund would mean you are willing to stomach the ups and downs that comes with it. Theoretically you can increase your return by holding another noncorrelated asset that has the same long-term expected return as VTSAX but you have to weigh that benefit against holding international stocks.

I am a real estate and a stock investor and I treat the 2 independently. I hardly use any ideas in common because they are really both different, and require different ways of thinking.
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Old 01-11-2015, 10:22 AM   #25
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That's an interesting idea about using the loss but it presupposes that you are planning on selling property anyway, right? If you did not want to sell anything, then holding 1 nondiversified fund would mean you are willing to stomach the ups and downs that comes with it. Theoretically you can increase your return by holding another noncorrelated asset that has the same long-term expected return as VTSAX but you have to weigh that benefit against holding international stocks.

I am a real estate and a stock investor and I treat the 2 independently. I hardly use any ideas in common because they are really both different, and require different ways of thinking.
Our original plan involved selling everything right around real estate crash time. then we thought selling a place/year. then as prices continued to fall we thought screw it - let's just have someone run them. At present we are open to selling, but needn't do so and doing so would have big tax consequences. I'm trying to move our income and assets into "safe without attention" mode.

A long conversation last night finds her unwilling to change what has worked for us in the past - constant attention, as evidenced by her wanting to check fund prices daily. I feel checking constantly without acting is just wasted stress and stomach acid. She feels I'm acting cavalier by being willing to buy shares any old time rather than when they are "a good deal". I look at a 10 year chart and feel the important thing is to have bought, she looks at daily returns and sees buying at 2% less or more, thus making 2% greater or less return overall.

We talked about VEU, correlation, and buying cheap - she pointed out VEU is actually down 12.5% in seven years. Exactly why did I think buying VEU NOW was a good idea? Was losing money the goal? Errr... uhm....

Regarding correlation - I remember an awful lot of people singing the blues around here regarding the funds they thought weren't correlated but that were falling anyway last big crash. The phrase "the US catches a cold and the world sneezes" sticks in my head. I really am wondering if our rentals aren't an adequately uncorrelated asset - or maybe I should just drink my cocoa and pull up my lap rug - her Costco style picks outweigh her Alibabas...
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Old 01-13-2015, 05:19 PM   #26
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So after some conversations at home we decided she would pick the purchase point so she could buy on sale. Also realized that dividends are not something we want - we want to be better able to choose our annual income. We went with a non-dividend paying somewhat volatile stock that is comprised of a bunch of dissimilar companies. BRKB. Plopped a bit under a 1/2 year living budget into it this morning (she picked a buy price) and we will wait for another time to invest more. Still unclear what the remaining PenFed CDs that mature on the 25th will go into.
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