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Vary AA by market?
Old 07-21-2013, 03:31 PM   #1
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Vary AA by market?

First, I admit to being a almost/mostly/partially reformed mutual fund picker and market timer, but lately have decided to focus on low cost index funds but still like to vary the AA based on market. So with today's highs closer to 50/50 and early this year when markets were well off their highs more like 75/25 looking for equity upside. The logic being if any AA from 25/75 to 75/25 is ok a little market timing within bands can't be too bad. What do you think?

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Old 07-21-2013, 04:14 PM   #2
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I think you fell off the wagon. Whether this is a good or bad thing depends on your ability to successfully time the market over time (years).

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Old 07-23-2013, 08:15 PM   #3
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Looks like I didn't get much interest in the concept, but no feedback of logical flaw. I don't see it relying on timing as I'm at my low AA of 50/50 and market continues to rise its no different and if I'm at high AA of 75/25 and market goes lower I continue to buy to maintain ratio.
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Old 07-23-2013, 08:37 PM   #4
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I am also guilty of Tactical Asset Allocation.

I currently have less than 5% in bonds. My cash is at 28%, which includes I-bonds, and short-term instruments paying very little.

In the equity portion, I have shifted a bit out of consumer staples dividend-paying stocks to get more into some cyclical stocks which have been beaten bad.

Lots of time, I had the right idea, but imperfect execution. I am often too early, and my gains were nowhere as high as one would think he could get when looking back at past stock price charts. I make a bit of money, but also have some fun.

However, because my timing was never perfect, I only tweak my positions a bit at a time. Just don't want to swing for the fence, miss bad, and have to go back to work.
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Old 07-23-2013, 09:14 PM   #5
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My $0.02... attempting to change your AA based on market behavior (market timing) defeats the purpose of AA. In theory, yes, you want to buy low and sell high. In practice, it's nearly impossible.

As a Ben Graham disciple value investor, I would stick with my AA, and let the prices drive me out of it. (If stock prices go too high relative to bonds, my AA will drift higher toward stocks, and eventually out of band and I would sell a few stocks and buy bonds). I would suggest a smaller band than 25/75 to 75/25. That's quite the spread...

I agree with the other poster who said that it sounds like you're falling off the wagon.
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Old 07-24-2013, 05:18 AM   #6
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Yup, you might be going back to a past addiction! And this doesn't seem like such a good idea. But -from experience of a past addict-, it is indeed hard to ignore the temptation!

Your AA target should stay the same for many years to come. You will rebalance on a regular basis (either as a side-effect of adding or withdrawing $$; or as an annual 'clean-up' decision of sorts), and this will make you buy low and sell high without even thinking much about it. But your AA target has to stay constant. Otherwise, you lose all the benefits of the methodology...
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Old 07-24-2013, 06:29 AM   #7
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I agree with the others. Sounds like "old habits die hard".

IMO, part of the challenge/fun/beauty of AA is sticking the the allocation in good and bad times.
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Old 07-24-2013, 06:32 AM   #8
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Vary AA by market = pseudonym for market timing.

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Old 07-24-2013, 06:40 AM   #9
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Wall Street journal had a good story on market timiing last weekend. it doesn't work.
Actually, most people would have been better off investing in just Vanguard total stock, low fees etc. And, they suggested 20 to 25% Vanguard total bond.....that evened out some of the ups and I'd be a lot more bonds at my age but market timing, the majority of the time for the majority of the investors just doesn't work! they did get into a few other strategies but I won't get into them here.
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Old 07-24-2013, 08:51 PM   #10
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Thanks for more feedback, to clarify Nash I'm talking about varying between 50/50 and 75/25, not 25/75 to 75/25. With that stated I expect others replies would be unchanged. The AA I had was 75/25 and have been feeling like I should shift towards 50/50 given market is at all time highs. My premise was I'd be reducing exposure and only limiting gains by adjusting. When I played with firecalc it's clear you need equities in the 25-75% range, but 75 seems to do better my thought was benefit of reducing was only safer capital preservation at risk of inflation which isn't much of concern today.

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