Questioning my current allocation

[gayl]

Years ago I used to make well over 300 trades a year. This forum helped me with a reality check and I went in the completely opposite direction. Now I barely trade. Maybe a dz last year. And no options .... never thought that would happen LOL. DBP covers day to day expenses & 5k charity. SSA more than covers 4 trips per year (2 domestic, 2 international). Primarily cruises but land based would be about the same cost

Schwab = 88% SCHB / 4% Bond / 4% individual stocks / 4% cash. USAA = 25k emergency savings account, not adding to it. Now I'm wondering if there's too much in SCHB. I'm not even sure what I'll do with that Schwab $$s once RMD hits other than pay taxes.

I'm thinking 75% SCHB would be plenty aggressive so I did stop reinvesting dividends. Point out why its wrong

[RunningBum]

Given that you seem to have everything covered with pension + SS, you can be as aggressive as you want to be. I wouldn't blink at 88% or 75%. I guess it mostly depends on what you see that money being used for. LTC if it happens? Heirs? More travel? No plan?

[gayl]

Heirs. I plan on aging in place like every previous generation. If that's not possible I've got 1m+ in property equity that should cover it

[RunningBum]

I'd stay pretty aggressive with it then, since they likely have a longer time span for it. 75% SCHB + 4% individual stocks is reasonable, but I wouldn't go any lower.

[OldShooter]

I think the equity allocation is fine with your view that you don't need the money short term and you are investing for your heirs. The only thing I would change is the 100% home country bias. Here's some Vanguard reading.:Vanguard "Global equity investing:The benefits of diversification and sizing your allocation" https://www.vanguard.com/pdf/ISGGEB.pdf
Vanguard on International: https://investor.vanguard.com/invest...onal-investing


Isn't it nice to have just one fund? Relaxing even. We hold VTWAX and have the whole world on a cap-weighted basis, now about 55% US bias IIRC. But the US waxes and wanes. I have no crystal ball but there are many reasons why the dollar may lose some of its value in the future. If/as that happens, international investing is going to look like a genius move.

[Koolau]

Quote:

Originally Posted by RunningBum Given that you seem to have everything covered with pension + SS, you can be as aggressive as you want to be. I wouldn't blink at 88% or 75%. I guess it mostly depends on what you see that money being used for. LTC if it happens? Heirs? More travel? No plan?

Absolutely right, but my first thought was that if your expenses/needs are covered, you no longer need to be aggressive in order to meet needs. You don't need to risk the larger ups and downs but rather you can set and forget.

Being aggressive for the sake of heirs is, of course, fine, but in essence you're kinda "betting" with the heirs money. I guess I'm just showing my bias toward conservative - smoothed results. As usual, it all depends upon what your comfort level is.

No matter your AA, I think it's great that you're no longer trading so often. Seems you have everything under control.

[Alive and Kicking]

Long time listener, first time caller.

Based on the wording of your post, I assume you prefer a fixed asset allocation. Allow me to ask why.

An alternative investment strategy is what some call Tactical Asset Allocation which, for the occasional investor, is an acceptable way of referring to asset class momentum. That is my primary investing strategy. I use a number of models which I update on a weekly basis and make shifts in ETF holdings based on the models' allocations. You could modify allocations as little as once a month but that entails "day of month" bias.

There is an abundance of research on asset class momentum which leads to the conclusion that it provides the same or slightly better returns than a 60/40 portfolio but with much lower drawdowns.

If you have an interest in learning more about asset class momentum strategies, I suggest you look at Allocate Smartly. I am one of their subscribers and use some of their models in addition to my own. Also, read Mebane Faber's publications.

I have attached a long-term performance chart for one of the models I use. Please note that it uses a logarithmic scale for the vertical axis. Had I used a linear scale, the equity curve would look like a hockey stick (any other Canadians here?).

[OldShooter]

Quote:

Originally Posted by Alive and Kicking ... An alternative investment strategy ...

@gayl, from your trading days you're probably well aware that the investment world has an ample supply of trading schemes. I'll just make a few quick points.

1) There is an almost unlimited number of schemes that look good when backtested. Really, any reasonably intelligent junior high student could come up with a few over a weekend. All one has to do is to follow Will Rogers' advice: " Don't gamble; take all your savings and buy some good stock and hold it till it goes up, then sell it. If it don't go up, don't buy it."

2) "Past performance does not guarantee future results" is actually true.

3) The totally anonymous owner of the web site that @Alive and Kicking is touting does not have a successful investment strategy. If he/she did, they would not be out hustling subscriptions, they would be lounging beside the pool on their megayacht drinking from a glass garnished with an orchid. "The best way to make money with an investment newsletter is to sell one." is also a truism.

4) The fact that @Alive and Kicking's first post here is hawking this newsetter indicates a reasonable probability that he is a shill.

Stick with your strategy, possibly with some of the tweeks suggested here, and you will do fine.

[OldShooter]

Quote:

Originally Posted by Alive and Kicking … An alternative investment strategy …

@gayl, from your trading days you’re probably well aware that the investment world has an ample supply of trading schemes. I’ll just make a few quick points.

1) There is an almost unlimited number of schemes that look good when backtested. Really, any reasonably intelligent junior high student could come up with a few over a weekend. All one has to do is to follow Will Rogers’ advice: “ Don’t gamble; take all your savings and buy some good stock and hold it till it goes up, then sell it. If it don’t go up, don’t buy it.“

2) “Past performance does not guarantee future results” is actually true.

3) The totally anonymous owner of the web site that @Alive and Kicking is touting does not have a successful investment strategy. If he/she did, they would not be out hustling subscriptions, they would be lounging beside the pool on their megayacht drinking from a glass garnished with an orchid. “The best way to make money with an investment newsletter is to sell one.” is also a truism.

4) The fact that @Alive and Kicking’s first post here is hawking this newsetter indicates a reasonable probability that he is a shill.

Stick with your strategy, possibly with some of the tweeks suggested here, and you will do fine.

[Alive and Kicking]

I received an email notification that there was a response to my post but I don't see it. It was a very negative response and I'm happy to reply.

There was a suggestion that since I mentioned Allocate Smartly in my first post to this forum that I must be a shill. Seriously? I also mentioned Mebane Faber. Perhaps I'm a shill for him as well. I subscribe to his podcasts so there you have it - I must be a shill for him! Good grief.

The momentum factor has been discussed in published research since the early 1990s. Tactical asset allocation strategies are far from new and have stood the test of time. I did state in my previous posts that TAA strategies are used to minimize drawdowns. In my opinion, minimizing drawdowns is of paramount importance because it increases the likelihood of an investor sticking with a strategy. I suspect many of you have heard the saying "The best investment strategy is one you can stick to."

You do not need a subscription to a service to use TAA. You can develop your own strategy. Personally, I use one of my own strategies plus a combination of several others. If called for by the strategies, I make adjustments to my ETF holdings three times each month. If you research TAA historical performance, you will find that many performance records are based on adjusting holdings on the last trading day of the month. There is a risk in trading on the same day every month which is well known. If trading one day later or one day earlier results in a significant change to the strategy performance then it could be argued that the day to trade was cherry-picked.

I have searched the forum here to read posts on asset allocations and it appears to me that many of the members stick to fixed allocations. If that works for you, great. My post was meant to generate a discussion about not using fixed allocations and considering the well-researched factor called momentum.

[Alive and Kicking]

Can someone tell me how to get rid of "Confused about dryer sheets" under my username, please? I looked at all the profile settings and didn't see any reference to it.

[prudent_one]

It will change automatically when you reach certain thresholds of number of posts.

[Koolau]

Quote:

Originally Posted by Alive and Kicking There was a suggestion that since I mentioned Allocate Smartly in my first post to this forum that I must be a shill.

Nothing personal. If the shoe doesn't fit, don't wear it (or was that If the foo doesn't ....)

Seriously, we (the FIRE forum) have had issues with folks trying to sell or advertise stuff and not only is that not allowed, it's a bad idea for members. We may have become overly sensitive to it, but at least we don't charge an admission fee here.

I have no interest in your particular approach to investing but I agree you have a right to your opinion. (I'm more of a buy and hold - the less I do, the more money I seem to make.) It's just that sometimes, folks we don't yet know seem like they may be trying to use the forum for other than its intended purpose.

Hope you stick around and share your own story. The "Hi, I AM.." forum is a good place to let us know a bit about yourself. YMMV

[Dash man]

Back to the OP, I’ve recently begun moving cash from any stock sales into SCHB and SCHA. While I’ve done well stock picking, I’m trying to simplify things as we age. I’d like to get most of our money into those two ETFs and treasury/muni ladders over the next 5-10 years. Too much capital gains to do it any faster. May end up leaving some stocks to the kids in our taxable account if the taxes are too much. Will likely have the IRAs/401k done by next year. I’ll stay somewhere between 55-70% equities.

[Alive and Kicking]

Thanks prudent_one and Koolau.

I definitely am not here to advertise or sell anything and I certainly am not going to get into a "my approach is better than your approach" debate.

My investing experience goes all the way back to 1988 when I was in university and had enough money from working since I was 14 plus scholarships to start dabbling. Typical of most engineers, my investing approach is a rules-based, systematic one. TAA (asset class momentum) strategies are suitable for those of us who aren't "hands-off" investors in my opinion.

My concern with fixed allocations is the size of the drawdowns which inevitably happen. From the early 80s to now, holding bonds (e.g. a 60/40 portfolio) was fairly much a no-brainer. I don't believe that is the case any longer.

A tactical asset allocation strategy is, I think, an admission that we don't have a clue which asset classes will be the best performers in the near term. What we do know is that the momentum factor works and is perhaps the strongest challenge to the efficient market hypothesis (Google "Eugene Fama momentum" if you want to read more about that).

[gayl]

Quote:

Originally Posted by Alive and Kicking ... rules-based, systematic one. TAA (asset class momentum) strategies are suitable for those of us who aren't "hands-off" investors in my opinion. My concern with fixed allocations is the size of the drawdowns which inevitably happen. ... A tactical asset allocation strategy is, I think, an admission that we don't have a clue which asset classes will be the best performers in the near term. ....

I used to use fundamental analysis in trading my core portfolio (80%) and leave technical analysis to the explore & options portion (20%). But in the long term I did not significantly beat the S&P so I bailed on all that work to where I am now. Currently 96% core (now buy & hold no more trading) / 4% explore and doubt I'd ever become more than 90% core / 10% explore.

Quote:

Originally Posted by OldShooter ... The only thing I would change is the 100% home country bias. ... Isn't it nice to have just one fund? Relaxing even. We hold VTWAX and have the whole world on a cap-weighted basis, ....

looking there

[RunningBum]

Quote:

Originally Posted by Alive and Kicking My concern with fixed allocations is the size of the drawdowns which inevitably happen.

When I read "drawdowns", I think of drawing one's portfolio down by withdrawing money in retirement. It seems you are using the term to describe loss of value due to market downturns?

[Alive and Kicking]

gayl:

I do invest in individual US stocks. At this point, I use the TAA models to dictate the percentage of my portfolio to allocate to US equities. Last year, I did a fair number of covered calls and had a great year but 2021 was a phenomenally easy year to make money in US equities. Not so this year. My stock selections beat the S&P500 but very few stocks passed my screens so far this year. Given the performance of the S&P 500 thus far in 2022, very few stocks should have passed my screens thereby keeping me mostly out of stocks.

FWIW, my current allocation to cash is 72.8%.

[Alive and Kicking]

RunningBum:

Drawing down one's portfolio as you described is a withdrawal in my world. A drawdown is a reduction in a portfolio value absent any withdrawals.

As Meb Faber says, your portfolio is either at an all-time high or in a drawdown.

I can point to TAA models on a particular site, some of which have performance charts going back to the 1970s, which demonstrate over and over that TAA reduces maximum drawdown versus a 60/40 buy and hold portfolio. For me, that is the beauty of TAA. Ask Japanese investors how using a buy and hold approach since the 90s has worked for them. Likewise for investors in many other countries who invested primarily in domestic equities. At some point, US equities are going to be the laggard. I would ask anyone not using TAA "How is your investing approach going to shield you from that poor performance when it comes?" I could go on about how high CAPE ratios for US equities are right now and what that portends. Alas, I didn't post here to convince anyone to change their investing strategy.

I'll discuss TAA with anyone that is interested but if everyone is comfortable with their current strategy, we can move on.

I have no idea why my responses are being posted twice. I click on Post Quick Reply and my post appears twice. Do I get extra points for the double post?

[Alive and Kicking]

I have the double post issue figured out.

When I click on Submit Reply I get the message "This forum requires that you wait 30 seconds between posts. Please try again in 16 seconds." If I wait and click on Submit Reply my post appears the second time. If I do nothing, it appears once. Strange but true.