Target retirement vs slice and dice

[cute fuzzy bunny]

Would you be able to point me to a book or article where this is discussed? I would like to read up on this. Thanks.

A good start:

http://coffeehouseinvestor.com/

Another one is to read the four pillars of investing, as synopsized here:

http://early-retirement.org/forums/index.php?topic=661.0

If thick books written by Ph D's make your eyes bleed, I found this one to be readable in a couple of hours and offers up the gist of the matter along with a good basic investing run-down. Its been years since I read it and its probably somewhat dated, but as mentioned...its an easy read in a sea of very hard to read books.
book

 

[cute fuzzy bunny]

try a little bit of everything

Sounds a bit random.

What if all the different things all cancel each other out?

 

[Rich_by_the_Bay]

Would you be able to point me to a book or article where this is discussed? I would like to read up on this. Thanks.

Dude, I know you weren't directing the question to me, but I tried to do the same less than a year ago and there was precious little out there other than descriptions. And what was there, seemed to apply to the accumulation phase when you were making periodic deposits into your portfolio, rather than drawing down.

Good luck finding something better, and please share it here if you succeed. My conclusions at the end of the day were as summarized in my post above.

 

[wabmester]

What if all the different things all cancel each other out?

If one of the horses sustains a lead, and I think I understand the "physics" of the performance advantage, I may rebalance my horses.

Worst case, I get a lot of diversification, which should keep me from having to go back to work. And in the end, that's all that matters, right?

 

[cute fuzzy bunny]

Indeed.

 

[lswswein]

Would you be able to point me to a book or article where this is discussed? I would like to read up on this. Thanks.

http://www.efficientfrontier.com/ef/404/grail.htm

 

[donheff]

What I got out of this is that I shouldn't expect much if anything to come from the re-balancing aspect of slice and dice over a target fund. In both cases the value is in maintaining your asset allocation. So DIY with a 10 (or more) piece slice and dice if you have a strong enough opinion and want to be precise about it. Or select a target fund that fits your general AA preference and supplement with a fund or two to fine tune to taste.

I think I will do the later.

 

[lswswein]

What I got out of this is that I shouldn't expect much if anything to come from the re-balancing aspect of slice and dice over a target fund. In both cases the value is in maintaining your asset allocation. So DIY with a 10 (or more) piece slice and dice if you have a strong enough opinion and want to be precise about it. Or select a target fund that fits your general AA preference and supplement with a fund or two to fine tune to taste.

Perfect!

 

[sgeeeee]

Aww, doc, not again. You're an evidence-based sort-of-guy. Didn't we prove beyond a doubt that the rebalancing bonus is a math-error based myth?

If you have two asset classes with different expected returns (like stocks and bonds), rebalancing is always a losing proposition return-wise. It's obvious, isn't it? Letting the class with the higher expected return "run" will produce higher returns in the long run.

Math often loses to emotion when it comes to investing. h-o-c-u-s was the master at this.

 

[Moemg]

Until it stops running.

I imagine that folks who kept rebalancing their stocks into bonds through the late 90's were a lot happier by 2002 than the people who didnt.

I was one of those people and was laughed at for getting out of some tech funds and into bonds .Look who's laughing now!

 

[audreyh1]

What I got out of this is that I shouldn't expect much if anything to come from the re-balancing aspect of slice and dice over a target fund. In both cases the value is in maintaining your asset allocation. So DIY with a 10 (or more) piece slice and dice if you have a strong enough opinion and want to be precise about it. Or select a target fund that fits your general AA preference and supplement with a fund or two to fine tune to taste.

I think I will do the later.

Wise choice.

The problem with slice and dice is that it requires you to take action. Not very often (no more than once a year), and the calculations can be easily streamlined. But you have to actually do something. Taking action produces anxiety - it just does, no matter how "logical" or "streamlined" your investment approach is. It's very difficult not to start second guessing yourself. It's much better to just be able to leave things alone. Have the fund manager do all the work for you. Set it and forget it.

Audrey

 

[Spanky]

I have been thinking of moving most of our pre-tax portfolio into target retirement funds. I am essentially lazy and find financial analysis about as interesting as sports stats - which is very low for me. But I like the ideas behind slice and dice. Does the institutional re-balancing going on with target funds capture the "sell high" buy low" aspects of slice and dice to the extent that it is a wash? Or are you able to improve your probability of good returns with a DIY approach?

Try GMO Global Balanced Asset Allocation III GMWAX.

 

[perinova]

I liked the Target Retirement approach until last year when they readjusted the balance between stocks and bonds. The 2035 became more aggressive and I had to sell and buy 2025 instead. Fortunately I was using it in a Tax deferred account where I could do that without a tax event occuring.

Now I also had a 2035 in a taxable account and I had to keep it. Fortunately I already had switched to buying total-stock, total-intl and total-bond with my target allocation. The balancing is now a little bit messier due to this.

In short the target funds are good unless they change the allocation mid-way. I will now stick with individual index funds.

However I have been thinking that keeping both in the same portfolio may allow to sell and buy essentially the same funds without the one year limitation. I am not sure if this is allowed or not.

 

[cute fuzzy bunny]

I was pissed about that change too. I had to sell in a taxable account and take the gains hit. That was a really bad decision.

I wont buy another vanguard fund until its been around a couple of years and they've made up their minds about what its going to hold and how its going to operate. The marketing guys got onto them about people wanting higher stock numbers and more international and emerging market. Wait until we're in year 3 of the next bear market and all those folks are whining about the more aggressive stance.