The need to tinker

[DawgMan]

So after more reading and discussions with the "experts" I have convinced myself that I should ratchet my AA down to 60/40 as I am getting closer to RE (inside of 3 yrs). However, my compromise between my rational side and my "need for speed" keen market timing spidey sense is to perhaps move my allocations around to some degree within the major food groups. In other words, maybe swing my stock allocation a little heavier to international since domestic stocks look frothy, or, add some junk bonds in the mix as opposed to going say 100% short/mid term bonds. For those who tinker, how are you juicing your returns in your allocations based on today's tarot cards?

 

[pb4uski]

My tinkering is not based on tarot card readings of current markets.... I think the chance of success in doing that is the same as being successful at market timing in the long run... that is, close to nil.

I just have a more granular AA, with specific allocations to emerging market equities and to international, emerging market and high-yield bonds (about 10% in total) to add a little "juice" to my portfolio. It adds some entertainment but if I were to pass on then those could be folded back into international equity and domestic investment-grade bonds (leaving domestic and international equities, bonds and cash) for simplicity.

My current AA is outlined below.

I say current, because I make occasional changes to it... I was 60/40/0 before retiring... initially in retirement I went to 60/34/6 and later when I was more comfortable with our cash flow to 60/35/5 and I might reduce cash and increase fixed income later now that I started my pension or once I start SS.

	Base AA	US/Int'l		Target
Domestic Equities	60.0%	65.0%		39.0%
Int'l Equities		35.0%	85.0%	17.9%
Emerging Markets Equities			15.0%	3.2%
Domestic IG Bonds	35.0%	80.0%	80.0%	22.4%
Domestic HY Bonds			20.0%	5.6%
Int'l Bonds		20.0%	85.0%	6.0%
Emerging Market Bonds			15.0%	1.1%
Cash	5.0%			5.0%
				100.0%

 

[atmsmshr]

I am in similar situation -about 3 years out retirement.

Have kept my utility stock provided in 401k match (Tough to beat NextEra returns and looking forward to NUA)

Last December pulled about 60% of S&P 500 and placed it in exUSA. The S&P and a splash of Russell 2000 has been a great ride for 30 years, but it felt right to make a change on relative valuations. Only time I have make a big swing like that and lady luck was with me.

 

[OldShooter]

In 45+ years of moderately successful investing, one thing I never seem to learn completely is this: The more I play with my food, the less food I have.

Take AA. The historical data show that anything between 40/60 and 60/40 produces about the same results. Yet there is the temptation to anguish when the AA drifts off point by 5%.

Small and value stocks? The academic analysis of history is clear: small and value have produced better returns for a long, long, time. Growth has not. But over even ten years of noisy data this cannot be counted on. But we sweat over +/- 5% of portfolio tilt as if we will be able to see an effect over the next 5 years.

Domestic vs international, the historical data show that 30-40% of equities in international stocks has produced minimum volatility. Yet many investors are emotionally locked into a heavy home country bias.

Oh, and all this is from history. Making predictions is difficult, especially about the future. Yet we persist.

When we get lucky, we attribute it to genius and charge on. When we are not lucky, our brain buries the evidence.

With respect, I would say that @pb4uski has a fine hobby and has the right "tarot" and "entertainment" view of it. IMO, assuming he/she is in passive investments, it is likely to be fairly harmless, too.

 

[Fedup]

I've been adding a bit of Europe for international. But technically I'm under the percentage for internationals. Not 30% yet, so I think it's ok to nudge toward that goal a little bit. I like to tinker and I'm in a lot of cash, but still have decent return. I also have managed fund. All the Nos, Nos from investment point of view.

 

[atmsmshr]

Forgot to add that I treat my cash balance pension like my bond fund - everything else in stocks.

 

[DawgMan]

I've been adding a bit of Europe for international. But technically I'm under the percentage for internationals. Not 30% yet, so I think it's ok to nudge toward that goal a little bit. I like to tinker and I'm in a lot of cash, but still have decent return. I also have managed fund. All the Nos, Nos from investment point of view.

I am going to up my international as well as I have been underweighted there. I am sitting on way too much cash and my bond position has stayed in mid term ETFs/MFs. I am thinking about juicing my bond returns by taking about 1/3 and spending it equally between high yield Corp bonds, preferred stocks, and international bonds... all in ETFs. Thoughts?

 

[OldShooter]

... Thoughts?

Actually, if we were smart we would put our equity money into VTWSX, our 1-2 year bucket into a short-term govvie fund, and our longer term balance into individual bonds and TIPS, then check on things once a year.

Have I done that? Of course not.

 

[Cobra9777]

I tinker a bit. My equity is primarily VTI and VXUS. But I have some high-dividend and small/mid cap ETFs that I shift money between from time to time. Same with emerging and developed. The FI side is mainly AGG but I have some IG corporate, high-yield, and international that I shift around from time to time, usually just based on opportunistic rebalancing or maybe how I read the tea leaves. As pb4uski said, it's mainly for entertainment. I doubt it makes much difference in the grand scheme of things. At some point I'll simplify and leave it alone.

 

[Fedup]

I am going to up my international as well as I have been underweighted there. I am sitting on way too much cash and my bond position has stayed in mid term ETFs/MFs. I am thinking about juicing my bond returns by taking about 1/3 and spending it equally between high yield Corp bonds, preferred stocks, and international bonds... all in ETFs. Thoughts?

I was thinking of HYG, it was mentioned on CNBC, but further reasearch shows that this has a 70% correlation to the stock market, which is the opposite of what bonds should do. So I hold off. Maybe the smart people of ER can shed some light here.

 

[RockyMtn]

Question for the group....

1. Do you NPV the value of a current pension and include in your cash allocation?
2. Do consider a Stable Value fund cash or bonds?

Thanks

 

[Fedup]

1. No for me
2. It's cash because the value doesn't vary with interest rate.

 

[OldShooter]

... At some point I'll simplify and leave it alone.

This made me smile. One of the famous books dealing with alcoholism is titled "I'll quit tomorrow."

I'm planning to quit tomorrow, too.

We humans are very vulnerable to random reinforcement (Random Reinforcement: Why Most Traders Fail) It's what keeps the casinos and lotteries in business and what keeps us tinkering. It's a hard addiction to break.

 

[LOL!]

In other words, maybe swing my stock allocation a little heavier to international since domestic stocks look frothy, ...

With international funds UP about 15% year-to-date and domestic funds up only 8% and US small-cap value up less than 1%, I don't understand your statement that I quoted.

Are you living in Europe so that your international:domestic is backwards from mine?

Otherwise buying ex-US here seems to be chasing to where the puck was this year.

 

[Dd852]

In 45+ years of moderately successful investing, one thing I never seem to learn completely is this: The more I play with my food, the less food I have.

Take AA. The historical data show that anything between 40/60 and 60/40 produces about the same results. Yet there is the temptation to anguish when the AA drifts off point by 5%.

Small and value stocks? The academic analysis of history is clear: small and value have produced better returns for a long, long, time. Growth has not. But over even ten years of noisy data this cannot be counted on. But we sweat over +/- 5% of portfolio tilt as if we will be able to see an effect over the next 5 years.

Domestic vs international, the historical data show that 30-40% of equities in international stocks has produced minimum volatility. Yet many investors are emotionally locked into a heavy home country bias.

Oh, and all this is from history. Making predictions is difficult, especially about the future. Yet we persist.

When we get lucky, we attribute it to genius and charge on. When we are not lucky, our brain buries the evidence.

With respect, I would say that @pb4uski has a fine hobby and has the right "tarot" and "entertainment" view of it. IMO, assuming he/she is in passive investments, it is likely to be fairly harmless, too.

A wise post. Which I will try to remember the next time I'm feeling the urge to move stuff around.

 

[OldShooter]

With international funds UP about 15% year-to-date and domestic funds up only 8% and US small-cap value up less than 1%, I don't understand your statement that I quoted.

Are you living in Europe so that your international:domestic is backwards from mine?

Otherwise buying ex-US here seems to be chasing to where the puck was this year.

Don't forget that international stock returns are affected by the dollar exchange rate with local currency.

For example, 4Q16 was notable for the rise of the dollar. UK markets rose by about 8% IIRC but in dollar terms were flat. Other currencies/markets had similar results. In 1Q17 the dollar weakened, which made even flat overseas markets look like they went up even if they didn't.

Personally, I looked at 4Q16 and smiled because I believed that the rise of the dollar was temporary and all those overseas market increases were just sitting there like money in the bank. Now they are starting to come back to me.

Longer term, I like international because I believe the trajectory of the dollar is inevitably downward. Our congresscritters can's say "no" to anyone, including overseas investors wanting to loan them money. It is only our status as the world's reserve currency that saves us from being Greece or Portugal. And there are many who want to knock us off that pedestal. The resulting uncontrollable inflation will not be fun, but at least my international stuff will benefit.

 

[Fedup]

The Euro is up. I last checked it was around 1.10 something to the dollar vs a few months ago it was like 1.06 something to the dollar. But I'm not negative about USA.

 

[Fedup]

This made me smile. One of the famous books dealing with alcoholism is titled "I'll quit tomorrow."

I'm planning to quit tomorrow, too.

We humans are very vulnerable to random reinforcement (Random Reinforcement: Why Most Traders Fail) It's what keeps the casinos and lotteries in business and what keeps us tinkering. It's a hard addiction to break.

It's definitely an addiction.

 

[OldShooter]

The Euro is up. I last checked it was around 1.10 something to the dollar vs a few months ago it was like 1.06 something to the dollar. But I'm not negative about USA.

Yup. My point exactly. Our Euro-denominated investments are up by almost 4% just because the dollar weakened. And the overseas businesses of the S&P 500, something like 40% of their revenue, are also looking better.

Re negative about the USA it's hard to know what is negative. A strong dollar hurts US manufacturers' competitiveness but makes shopping at Walmart cheaper. Inflation, weakening the dollar, makes our debts less expensive to pay. There is a sort of chest-thumping temptation when boasting about a strong dollar but on balance I would rather have a better balance of payments/current account balance and have more "re-shoring" bringing jobs back to the US. Better IMO for people to be employed at 80% of historical wages, even if Walmart is more expensive, than to be unemployed at 0% of historical wages. But I am not an expert on international economics.

 

[Fedup]

No I'm with you about more jobs here. I don't even shop at Walmart, not even at Nordstrom because the stuff there seems cheap, it used to be much more well made when I was growing up. Every year, I was looking forward to the yearly sale. Not anymore.
When I mean not so negative about USA, I was just referring to the stock market. I don't think it will go up as much as Euro. But I was wrong before listening to CNBC, had 30% or more in international fund and they were duds for a long time.

 

[sengsational]

The approach I take is to set aside a smallish fraction to "play with". So the only tinkering the majority has is rebalancing to a stable target. That smallish fraction is for entertainment purposes, and I didn't even start that until after I retired, and did so "for something to do". So I'm not quite as much of a gambler as some folks, methinks.