Un-slice and un-dice

[Rich_by_the_Bay]

Bernstein allows that there may have been a small premium in rebalancing between value and growth over the last 25 years but there's lots of "ifs" and maybe even a downside, depending on how often you do it. Neither he (nor Bogle) are predicting that the same will or will not occur moving forward.

In fact, Bernstein stays that the less variation of return among the rebalanced classes, the less the benefit of rebalancing -- with the trend toward increasing correlation it is possible that rebalancing may lose its small historic advantage altogether. Free lunch? Crystal ball.

[lazyday]

Quote:

Originally Posted by Rich_in_Tampa but realize that I don't have much to play with in terms of rebalancing -- many of the low-correlation asset classes are lumped together in the umbrella index funds. If I don't plan to sell off equities other than rebalancing for at least 10-12 years, should I care about not having more slices (but keeping the same overall allocation)?

Swensen included a sample AA in his last book, which doesn't tilt to small or value, but still is sliced into different asset classes. U.S. stock, Fn developed stock, emerging markets, tips, nominal treasuries, and real estate.

I'd have a real hard time buying real estate at today's prices, but otherwise like his advice.


IMO, going under 20% non-U.S. for the whole portfolio might increase risk. I've got nothing against the U.S. stock market, but wouldn't want to put all my eggs there.

[Olav23]

You will go broke betting against America.. JP Morgan

[Rich_by_the_Bay]

Quote:

Originally Posted by lazyday IMO, going under 20% non-U.S. for the whole portfolio might increase risk. I've got nothing against the U.S. stock market, but wouldn't want to put all my eggs there.

Don't large "domestic" companies have about 30% of their sales in foreign markets these days? If you go 40% international, you may be more exposed to non-US markets than meets, the eye, no?

[calmloki]

Quote:

Originally Posted by lazyday .... I'd have a real hard time buying real estate at today's prices, but otherwise like his advice. .... I've got nothing against the U.S. stock market, but wouldn't want to put all my eggs there.

Now there's my problem. Real estate is real high - but we've got plenty of it. The stock market is so high I hesitate to buy heavily. Seems like in inflationary times that "things" that one owns are better than paper. After the recent sale of a couple of our little rental houses we are 60.3% rental property, 20% cash (making 6% in FNBO and 6.15% in PenFed), 9.2% in secured real estate loans making 7-10%, 7.5% personal home, 3% stocks and bonds, and that's it. Much as I would like to participate in the 16% earnings heyday that so many of you seem to be enjoying I'ze a big chicken. 'Specially when I can stick cash in a bank and get 6%, which may even be more than inflation. I guess there's something to be said for not betting the farm when you aren't a poker player, right?

[teejayevans]

Quote:

Originally Posted by Rich_in_Tampa Don't large "domestic" companies have about 30% of their sales in foreign markets these days? If you go 40% international, you may be more exposed to non-US markets than meets, the eye, no?

The opposite can be said, no?
TJ

[WilliamG]

The only thing to me unappealing about TSM is our recent 2000-2002 bubble experience. Hopefully there is a long time gap between large cap bubbles. Otherwise, your thoughts sound good depending on the other 50% allocation. You mentioned they are "bucketized". If you cheat a little here on pure bond allocation (e.g., Wellesley for large value exposure, and maybe even some REIT), I like your thoughts even better.

[teejayevans]

I'm little afraid to ask, but what is this bucketizing thing?
TJ

[Rich_by_the_Bay]

Quote:

Originally Posted by WilliamG The only thing to me unappealing about TSM is our recent 2000-2002 bubble experience. Hopefully there is a long time gap between large cap bubbles. Otherwise, your thoughts sound good depending on the other 50% allocation. You mentioned they are "bucketized". If you cheat a little here on pure bond allocation (e.g., Wellesley for large value exposure, and maybe even some REIT), I like your thoughts even better.

Matter of fact, Wellesly is the cornerstone of my B2 (with a dollop of TIPs) and I have a small allocation of REIT in my B3.

[Rich_by_the_Bay]

Quote:

Originally Posted by teejayevans I'm little afraid to ask, but what is this bucketizing thing?

Not going there .

It's a framework for categorizing your portfolio, popularized by Ray Lucia. I'll split this off it it starts to spin out of control (it has that tendency like annuities, paying off the mortgage, etc.).

(Bucket 3 is stocks, Bucket 2 is stuff that behaves like total bonds or blends, and Bucket 1 is cash which you self-annuitize to meet annual expenses. Typically you burn through B1, then refill it from bucket 2 for a grand total of, say 15 years. By then, your B3 replenishes B1 and B2. You do some light rebalancing between B3 and B2 from time to time. The duration of each bucket is designed to smooth their historic volatility. It possesses no magical qualities but provides a convenient way to manage your retirement portfolio with some built-in discipline.)

[lazyday]

Quote:

Originally Posted by Rich_in_Tampa Don't large "domestic" companies have about 30% of their sales in foreign markets these days? If you go 40% international, you may be more exposed to non-US markets than meets, the eye, no?

Yes, but maybe not much. U.S. stock prices and their foreign sales are probably correlated, but not perfectly. It's possible for foreign stock markets to do much better than U.S. largecaps, in spite of good foreign sales. Not sure it's a fair example, but some people talk about this from point of view of Japan's domestic stock market in the 90's.

I'm not arguing for people to increase their foreign holdings today, after the dollar has dropped. Just thinking that reducing foreign below 20% of portfolio might not improve one's risk.

[lazyday]

Quote:

Originally Posted by calmloki Now there's my problem. Real estate is real high - but we've got plenty of it. The stock market is so high I hesitate to buy heavily.

Lots of smart people are having a hard time, believing that every investment is priced high today. I believe stocks are still priced to strongly outperform bonds over the next 50 years, so stay invested in them, but wouldn't be surprised by a 30% drop starting tommorrow.

6% on cash/CDs sounds good, but if one overdoes it, there's always reinvestment risk.

Quote:

Originally Posted by calmloki I guess there's something to be said for not betting the farm when you aren't a poker player, right?

Makes sense to me.