Overseeing Coffeehouse Portfolio

[Rich]

When I retire in a couple of years I don't plan on accessing my 457 money for several years, as I'll have two pretty large pensions (I'll be retired from two different law-enforcement agencies with twenty years pensions from each) plus SS (I'd like to tell you I planned it this way, but it'd be a fib).

My intention is to roll my 457 money over (it'll be around $350K by then) into the "Coffeehouse" portfolio. I have a question on how to handle such a portfolio. I see that the various funds are represented by target allocations; 10% for the various recommended equity funs and 40% for the bond part. How often does one "reshuffle" the funds to insure those percentages remain as recommend; every six months, every year?

Thanks,

 

[Bob_Smith]

Bernstein recommended something like 2-3 years. He claims research has shown that the tendency for prior best performers to do worse in the future (and vice versa) seems to be strongest over about 2 to 3 years. In fact, over periods of one year or less, the reverse seems to be true - the best performers tend to persist, as do the worst. I plan to go with around 2 years unless the market takes a big hit, like 1987.

 

[charlie]

I started my coffeehouse in the spring last year and
rebalanced at the end of the year. You might consider
rebalancing individual funds when they get too far
out of whack. For example, I took some of my REIT
fund off the table before the end of the year.

Bob is right that 2-3 years has a better track record
but for some reason I feel more comfortable with
1 year ..... and more often if the situation warrants.

Cheers,

Charlie

 

[Spanky]

Rich,

Some say when the percentage falls outside a certain limits, say 5%. For example, if your allocation for large cap stocks is 20% and when it rises to 26%, you should then sell to bring its allocation back to 25%.

Spanky

 

[Bob_Smith]

This is one thing that concerns me about Vanguard's Targeted Retirement portfolios. I haven't looked at them real closely, but don't they automatically reallocate - like almost on a daily basis?

 

[unclemick]

Yep

But they do it cheaper than you or I could.

 

[Bob_Smith]

Unclemick, if I hold the individual funds within the Target Retirement fund separately in an IRA, and rebalance every year or two, wouldn't I have roughly the same costs as holding the Target fund? I'm thinking I'd lose the benefits of re-balancing by going with the Target series, and that the costs would be about the same. No?

 

[Cut-Throat]

Unclemick, if I hold the individual funds within the Target Retirement fund separately in an IRA, and rebalance every year or two, wouldn't I have roughly the same costs as holding the Target fund? I'm thinking I'd lose the benefits of re-balancing by going with the Target series, and that the costs would be about the same. No?

Bob,

I think your costs would probably be the same. But, lets say the market moves sideways overall for the next 5 years or so. By rebalancing daily you may be able to capture some gains. Not sure about this though

 

[ESRBob]

I think it takes a lot of guts to wait 2-3 years to reallocate, but I have also heard that is what the research says is best. In other words, it takes that long for things to 'mean revert'. Maybe best to make small mid-course tweaks if it gets more than a certain % out of whack, but I had heard 10-20% as opposed to 5% beyond the target allocation. 5% out of whack isn't too much of a move.

Bob Smith -- intriguing idea. If Bernstein is right, it seems you could outperform the Target 202x series by 'rolling your own', and I have also heard the fees should be the same.