Aggressively Rebalancing Now

[Al18]

Yes, stocks are expensive right now. The SP500 PE ratio is 26.27 right now, while the historical mean is 16.04 according to https://www.multpl.com/s-p-500-pe-ratio

“Reversion to the mean is the iron rule of the financial markets.” — John C. Bogle.

 

[aja8888]

Yes, stocks are expensive right now. The SP500 PE ratio is 26.27 right now, while the historical mean is 16.04 according to https://www.multpl.com/s-p-500-pe-ratio

“Reversion to the mean is the iron rule of the financial markets.” — John C. Bogle.

Bogle is dead...it's a whole new world.

 

[Dtail]

Bogle is dead...it's a whole new world.

Kind of like the Cape10 has only been at its historical average one time in the last 14 years.

 

[Onda]

Yes, stocks are expensive right now. The SP500 PE ratio is 26.27 right now, while the historical mean is 16.04 according to https://www.multpl.com/s-p-500-pe-ratio

“Reversion to the mean is the iron rule of the financial markets.” — John C. Bogle.

On that graph of 12 month trailing PE click on graph for last 20 years. Mean looks like maybe 22 and minimum looks like 15. You are going to wait for a while for trailing PE of 16

Do not forget that we are comming from period of earnings recession. Things don't look crazy to me.

 

[Onda]

Now look at forward PE (Not trailing) and all the sudden that graph looks pretty good.

https://www.gurufocus.com/economic_indicators/6061/sp-500-pe-ratio-with-forward-estimate

 

[frayne]

I've been slowly rebalancing this month as I'm preparing to take RMDs next year.

Oh, and Bogle lives in the hearts and minds of all of us who use index funds as our core portfolio holdings. Stay the course my friends and don't let the noise bother you.

 

[MarieIG]

Used to sell and withdraw once a quarter. It’s gone screwy since 2020 as I have troubles spending since then.
I need Robbie back to post those BTD inspirations. Going to use this run up to pay off the HELOC I took out to help DD2 buy her house.

That sounds like a perfectly reasonable "rebalance" to me!

 

[RobLJ]

Getting that feeling in my gut again. The S&P just feels to frothy so I’m “Aggressively Rebalancing” and pulling all 2024 spending from equities this week. No math. No expert recommendations. No Technicals. Just gut feeling.

Not really a large enough amount to make any difference really. 62/38 to 58/42 AA

It’s worked out well a few times now.
https://www.early-retirement.org/forums/f28/dirty-market-timer-100610.html

Hope the Santa Rally continues. Might pull 2025 spending too.

Like you, in the past, I've sometimes scraped 1/3 or 1/2 of gains in sectors whose values have rocketed and seem a bit pricey, to send to cash for the next year or two withdrawals. With cash at close to 5% now, this is a lot more painless than it has been when cash was .2%.


Like you I've been a little nervous about those gains in the Nifty 7 or whatever they are called. I looked at one of my core funds, Fidelity Contrafund, and it is almost up 40% and is highly weighted, like the index, on those top 7 S&P stocks. So I sold about half of the gains, and stuck them in small/mid cap and a fairly long intermediate Treasury fund, to increase bond duration.

Otherwise, I did more work than I've done since 2015 before semi-retirement, and got rid of 9 funds scattered across 5 accounts by consolidating smaller bond and stock fund holdings. If it's not at least 3.5% of my total portfolio, it's not worth holding, and by 2025 I want to increase that criteria to 5%. My Quicken holdings, including the stocks, fit on one screen now! It's a little complicated by money scattered across 5 accounts, but it used to be 6 accounts (I'm not counting two extremely small Roth IRAs) and I can move the DW's Etrade IRA roll-over to her main Fidelity IRA account next year, to simplify even more.

Not all of my sales/additions have posted, so I'll have to look at Quicken over the weekend, look at the new allocations, and do some more clean-up on Jan 2, including targeting what to use for withdrawals in 2024. Part of the overall goal was to decrease large-cap growth and increase value and intermediate bond holdings, but I may have misunderestimated some.

 

[GravitySucks]

Turned out to be a minor mistake. Certainly would have been better off selling the one quarter at a time instead of the full years expenses.

C’est la vie

 

[MarieIG]

Turned out to be a minor mistake. Certainly would have been better off selling the one quarter at a time instead of the full years expenses.

C’est la vie

Nobody has a crystal ball, and many (who sold out completely at market bottom) have done a lot lot worse.

 

[audreyh1]

Set up an investment plan and stick to it. Attempting to time and then second guessing yourself, you will drive yourself crazy.

 

[RobLJ]

Turned out to be a minor mistake. Certainly would have been better off selling the one quarter at a time instead of the full years expenses.

C’est la vie

No-one rings a bell at the top. I don't mind scraping some gains each quarter or half year.
The last two days may make you feel better. But you never know. I just sell and don't look back. You could argue waiting until the same day every year is a better method, but I doubt it. You're going to have to sell sometime, unless you have enough bonds and dividends to fund your needs (which I've never had). SS is coming Jan 2025, though! After that, bonds and dividends might fund it (and almost certainly with capital gains).

 

[Onda]

Rebalancing based on "gut feeling about S&P 500 valuation" from 62/38 to 58/42 AA is market timing.

Don't be surprised that it usually fails.

 

[TheWizard]

My various accounts are all quite heavy in stock funds and I no longer rebalance.
My only routine withdrawal is my RMD and I take that as twelve equal monthly payments. So not much timing going on for me...

 

[Montecfo]

One can "rebalance" in a sense by taking all your spending funds from equity, for example, in high growth periods. This can be done without overthinking things too much.

Rebalancing is not an exact science, more a rule of thumb.

 

[Out of Steam]

I did the annual detailed look at retirement assets for my wife and I today, and our combined stock exposure has crept up to almost 48%. My wife and I agree that we should rebalance that to under 45%. Since my stock allocation is already below 45%, the rebalancing will be all in my wife's accounts.

The good news is that we had a significant increase in assets despite drawing 3.8% of our savings to live on. As it is my last full year before drawing Social Security, we're targeting a 4.5% draw this year.

 

[Seandez]

I did the annual detailed look at retirement assets for my wife and I today, and our combined stock exposure has crept up to almost 48%. My wife and I agree that we should rebalance that to under 45%. Since my stock allocation is already below 45%, the rebalancing will be all in my wife's accounts.

The good news is that we had a significant increase in assets despite drawing 3.8% of our savings to live on. As it is my last full year before drawing Social Security, we're targeting a 4.5% draw this year.

That's a solid approach to managing your retirement assets, and it's great to hear that your overall assets have grown even with the withdrawals. Now, focusing on rebalancing your wife's portfolio to get your combined stock exposure down to under 45% is a smart move to align with your risk tolerance and investment goals.

Since you're already below the 45% threshold for stock allocation, adjusting your wife's portfolio is the way to go. Rebalancing is essentially about selling some of her stock investments and using the proceeds to buy more of her non-stock investments. This will reduce the percentage of your overall assets in stocks and bring it in line with your target.

With the asset increase you've mentioned, it's clear you're managing your investments well, especially considering you're drawing down 3.8% and planning to increase that to 4.5%. The fact that your assets grew while drawing down suggests your investments are performing robustly.

As you're heading into the year before you start Social Security, adjusting your drawdown rate to 4.5% is an important decision. It seems you're accounting for the upcoming change in income once Social Security kicks in, which is prudent planning.

When you adjust your wife's portfolio, keep an eye on tax implications, especially if you're selling investments in taxable accounts. And, as you're likely aware, maintaining a balance that you're comfortable with, while considering the impact of withdrawals and market changes, is key to sustaining your assets over the long term.

It's impressive how you're staying on top of your finances and planning ahead. It definitely sounds like you're on a solid path with your retirement strategy.

 

[Out of Steam]

When you adjust your wife's portfolio, keep an eye on tax implications, especially if you're selling investments in taxable accounts. And, as you're likely aware, maintaining a balance that you're comfortable with, while considering the impact of withdrawals and market changes, is key to sustaining your assets over the long term.

It's impressive how you're staying on top of your finances and planning ahead. It definitely sounds like you're on a solid path with your retirement strategy.

Thanks! After close to four years of practice, and a couple of mistakes last year, I'm feeling better about managing retirement funds. The bigger mistake of the two was setting up monthly draws from two small accounts that were depleted without me noticing, leaving us short of income. Multiple small pots of money are a messy characteristic of TIAA, which is my wife's primary retirement account.

Except for a small Roth account and emergency funds, all our funds are in tax-deferred retirement accounts. I've started to build up the emergency funds in taxable accounts over the past six months.

 

[Bigdawg]

Except for a small Roth account and emergency funds, all our funds are in tax-deferred retirement accounts. I've started to build up the emergency funds in taxable accounts over the past six months.

Maybe some opportunity for ROTH conversions before the dreaded RMD's happen at 72. Good luck to you.

 

[Out of Steam]

Maybe some opportunity for ROTH conversions before the dreaded RMD's happen at 72. Good luck to you.

I was doing Roth conversions when we had space in the 12% Federal tax bracket, which we don't currently.

Right now, I'm thinking about maintaining a 4% withdrawal rate after taking Social Security and converting what we don't need for immediate income to Roth accounts. Though a look at the RMD table suggests that 5% might be a better number to use for that purpose.

The downside is that, because of tax deductions for medical spending, pretax retirement funds used for long-term care may not be fully taxed. I don't have a full handle on this right now.