As I get closer to launching into RE, my wondering brain continues to search for the best mouse traps. My initial plan is to go with a total return investment approach with an annual re-balance of my AA, a flexible 4% SWR, funding my next years expenses in cash at the end of each yr. In my case, I will start with a roughly 60/40 AA with my investments funding 100% of my RE expenses. So here is my latest brain storm...
We all know markets go up and markets go down over time specifically over a short run (12 months). While say your equity portion may return 10% by the end of the year, it most likely zig zagged it's way there depending upon how volatile the market was. On it's way to a 10% return in any given yr it could have lost 3% or been up 20%. Since our goal (at least mine) is to use my assets to generate desired annual income and at the same time protect (hopefully grow) my asset value over time (as opposed to running it down to zero before the dirt nap), is there any value in setting up certain "rules" which trigger a more active re-balance or in more practical terms, an early fill up of my next year's cash bucket? Examples of "rules" might be when my equity portion hits X% return during the year I scrape off Y% and dump it into next years budget bucket. Maybe you use total AA return benchmarks or the CAPE. Depending upon your "rules", this exercise may effectively re-balance you multiple times a year, but it allows you to take money off the table when the gains are above and beyond the set benchmark. You would still do your annual re-balance regardless of any of your rules being triggered or not. OTOH, if the rules are triggered multiple times in a year and you completely fill up next yrs cash budget before the end of the yr then you basically hold off dumping any more cash into next year's cash bucket (you already accomplished your end of year strategy) and just wait and re-balance your AA at the end of the yr.
Just spit balling here, but curious if anyone is doing this or has thought about this?
We all know markets go up and markets go down over time specifically over a short run (12 months). While say your equity portion may return 10% by the end of the year, it most likely zig zagged it's way there depending upon how volatile the market was. On it's way to a 10% return in any given yr it could have lost 3% or been up 20%. Since our goal (at least mine) is to use my assets to generate desired annual income and at the same time protect (hopefully grow) my asset value over time (as opposed to running it down to zero before the dirt nap), is there any value in setting up certain "rules" which trigger a more active re-balance or in more practical terms, an early fill up of my next year's cash bucket? Examples of "rules" might be when my equity portion hits X% return during the year I scrape off Y% and dump it into next years budget bucket. Maybe you use total AA return benchmarks or the CAPE. Depending upon your "rules", this exercise may effectively re-balance you multiple times a year, but it allows you to take money off the table when the gains are above and beyond the set benchmark. You would still do your annual re-balance regardless of any of your rules being triggered or not. OTOH, if the rules are triggered multiple times in a year and you completely fill up next yrs cash budget before the end of the yr then you basically hold off dumping any more cash into next year's cash bucket (you already accomplished your end of year strategy) and just wait and re-balance your AA at the end of the yr.
Just spit balling here, but curious if anyone is doing this or has thought about this?