Getting from 30:70 to 70:30

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Topic Author
revhappy
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Getting from 30:70 to 70:30

Post by revhappy »

Hi All,

My plan is to get from 30:70 in equities to 70:30 in equities. The way I want to do it is, by increasing my allocation to equities by 1% each month.
So as per this plan it should take me 40 months or rather 3 years 4 months to get to my target allocation.

I will be an early retiree(age 41 currently),I plan to retire after I set my allocation right and when I am confident, I can manage it well.
Currently I am 50X expenses and I plan to hit 70X and then retire.

Based on ERN rising equities glidepath the suggestion is to have high allocation to equities throughout retirement to beat inflation

https://earlyretirementnow.com/2017/09/ ... lidepaths/

The 1% increase in allocation each month, means, during months where market shoot up a lot, I may not have to allocate anything, so I will skip allocating that month and then evaluate again the next month whether I need to allocate or not. If during some month there is a crash, I allocate a lot during that month to make up for the fall in equities. So I see this as a good way of rebalancing.

Can you guys please advise, if there are any pitfalls in my plan?
Last edited by revhappy on Mon Jun 14, 2021 9:07 am, edited 1 time in total.
KlangFool
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Re: Getting from 30:70 to 70:30

Post by KlangFool »

OP,

1) How do you plan to increase your equity allocation?

A) New contribution? Is your new contribution anywhere close to 1% of your portfolio every month?

B) Manual rebalancing?

2) What do your IPS says in term of rebalancing?

A) Annual rebalancing?

b) 5/25 band based rebalancing?

3) What is your tax burden on doing this?

4) Let me stay away from whether this is a good idea. But, I do not think your idea can be implemented at all. The AA adjustment need to be bigger and less frequent. At 1% increment, the daily volatility will beat that number easily. Then, what do you do ?

5) If this is what you plan to do, a more implementable idea would be increase your TARGETED AA allocation by 10% per year.

KlangFool
40% VWENX | 12.5% VFWAX/VTIAX | 11.5% VTSAX | 16% VBTLX | 10% VSIAX/VTMSX/VSMAX | 10% VSIGX| 40% Wellington 40% 3-funds 20% Mini-Larry
mikejuss
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Joined: Tue Jun 23, 2020 1:36 pm

Re: Getting from 30:70 to 70:30

Post by mikejuss »

May I ask: what is prompting you to change your asset allocation from 30/70 to 70/30?
KlangFool
Posts: 21614
Joined: Sat Oct 11, 2008 12:35 pm

Re: Getting from 30:70 to 70:30

Post by KlangFool »

OP,

I have a very simple idea to implement what you are looking for.

A) Set your new targeted AA to 70/30.

B) Put all your new contribution to stock.

C) Do not rebalance unless the stock exceed 70% or your portfolio.

KlangFool
40% VWENX | 12.5% VFWAX/VTIAX | 11.5% VTSAX | 16% VBTLX | 10% VSIAX/VTMSX/VSMAX | 10% VSIGX| 40% Wellington 40% 3-funds 20% Mini-Larry
Topic Author
revhappy
Posts: 129
Joined: Sat Jul 21, 2018 10:09 am
Location: Singapore

Re: Getting from 30:70 to 70:30

Post by revhappy »

Thanks! Answered Inline.
KlangFool wrote: Mon Jun 14, 2021 9:05 am OP,

1) How do you plan to increase your equity allocation?

A) New contribution? Is your new contribution anywhere close to 1% of your portfolio every month?
Both new contributions and selling from my fixed income part of portfolio. My annual new salary savings inflow is about 8% of my total networth and my fixed income portfolio is based on Indian rupees, which generate 6% per annum.

B) Manual rebalancing?

2) What do your IPS says in term of rebalancing?

A) Annual rebalancing? I dont really have an IPS, I am currently trying to make one

b) 5/25 band based rebalancing?

3) What is your tax burden on doing this? Not much

4) Let me stay away from whether this is a good idea. But, I do not think your idea can be implemented at all. The AA adjustment need to be bigger and less frequent. At 1% increment, the daily volatility will beat that number easily. Then, what do you do ? I allocate only once in a month, strictly, no matter how much the market moves. I pick one day in a month and I make the adjustment. If market rises, I need to allocate a lot less that month, or may be I dont need to allocate, so I just skip that month, or may be a few months if the market already did the adjust for me, I wouldnt sell from equities, until I hit 70% allocation. If markets crash, I allocate a lot more that month. I dont see why daily volatility will be a problem. Can you please tell me why it will be a problem?

5) If this is what you plan to do, a more implementable idea would be increase your TARGETED AA allocation by 10% per year.

KlangFool
Topic Author
revhappy
Posts: 129
Joined: Sat Jul 21, 2018 10:09 am
Location: Singapore

Re: Getting from 30:70 to 70:30

Post by revhappy »

mikejuss wrote: Mon Jun 14, 2021 9:11 am May I ask: what is prompting you to change your asset allocation from 30/70 to 70/30?
I have been all over the place trying to time the markets, I have made bulk adjustments and gone all the way up to 50:50 to all the way down to 10:90, but I have never exceeded 50% equities. I have been very conservative and adhoc. Now I have made peace with have 30:70 as the base and my starting point and now want to get to the ideal allocation of 70:30 because I finally realize markets cannot be timed, central bankers print money and they will do everything in their power to stave of a market crash, including financial repression and making fixed income holders lose purchasing power to inflation. So over long periods, equities or another assets like real estate are better than fixed income.
mikejuss
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Re: Getting from 30:70 to 70:30

Post by mikejuss »

revhappy wrote: Mon Jun 14, 2021 9:25 am
mikejuss wrote: Mon Jun 14, 2021 9:11 am May I ask: what is prompting you to change your asset allocation from 30/70 to 70/30?
I have been all over the place trying to time the markets, I have made bulk adjustments and gone all the way up to 50:50 to all the way down to 10:90, but I have never exceeded 50% equities. I have been very conservative and adhoc. Now I have made peace with have 30:70 as the base and my starting point and now want to get to the ideal allocation of 70:30 because I finally realize markets cannot be timed, central bankers print money and they will do everything in their power to stave of a market crash, including financial repression and making fixed income holders lose purchasing power to inflation. So over long periods, equities or another assets like real estate are better than fixed income.
That seems like quite an intellectual trip you've taken. In my opinion, given your past hesitation about investing in equities, the classic 60/40 split might be more suited to you. Are you sure you'll stick to 70/30 even if there's a market crash? Of course, only you can answer that. Just some food for thought. :beer
Topic Author
revhappy
Posts: 129
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Location: Singapore

Re: Getting from 30:70 to 70:30

Post by revhappy »

mikejuss wrote: Mon Jun 14, 2021 9:28 am
revhappy wrote: Mon Jun 14, 2021 9:25 am
mikejuss wrote: Mon Jun 14, 2021 9:11 am May I ask: what is prompting you to change your asset allocation from 30/70 to 70/30?
I have been all over the place trying to time the markets, I have made bulk adjustments and gone all the way up to 50:50 to all the way down to 10:90, but I have never exceeded 50% equities. I have been very conservative and adhoc. Now I have made peace with have 30:70 as the base and my starting point and now want to get to the ideal allocation of 70:30 because I finally realize markets cannot be timed, central bankers print money and they will do everything in their power to stave of a market crash, including financial repression and making fixed income holders lose purchasing power to inflation. So over long periods, equities or another assets like real estate are better than fixed income.
That seems like quite an intellectual trip you've taken. In my opinion, given your past hesitation about investing in equities, 50/50 might be more suited to you. Are you sure you'll stick to 70/30 even if there's a market crash? Of course, only you can answer that. Just some food for thought. :beer
Thanks, I agree with you. I want to set this plan and see how do until I hit 50:50 1st and then have like a checkpoint and evaluate again if I am on the right path and will continuing to 70:30 still makes sense.
namajones
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Re: Getting from 30:70 to 70:30

Post by namajones »

revhappy wrote: Mon Jun 14, 2021 9:25 am central bankers print money and they will do everything in their power to stave of a market crash, including financial repression and making fixed income holders lose purchasing power to inflation
This is still "market timing" rationalizing, IMO.

My guess is that if you ever do make it to 70/30, you won't stay there for the same reason that you didn't stay there before--plus the additional reasons of having fewer years of earning power to compensate for a bear.

Not a criticism. You're just learning your risk tolerance. I'd posit that experience has shown you that your risk tolerance is not at 70/30. It's somewhere between where you are now and 50/50.

When you reach an asset allocation where you don't really pay attention to the markets any longer on a regular basis, you'll have found your spot.
Last edited by namajones on Mon Jun 14, 2021 9:36 am, edited 1 time in total.
Topic Author
revhappy
Posts: 129
Joined: Sat Jul 21, 2018 10:09 am
Location: Singapore

Re: Getting from 30:70 to 70:30

Post by revhappy »

KlangFool wrote: Mon Jun 14, 2021 9:11 am OP,

I have a very simple idea to implement what you are looking for.

A) Set your new targeted AA to 70/30.

B) Put all your new contribution to stock.

C) Do not rebalance unless the stock exceed 70% or your portfolio.

KlangFool
Thanks! I would imagine this would reduce the slope of my glide path by ~50%, so instead of 3 years, it will take me 6 years to hit 70:30, which also sounds fine to me.
KlangFool
Posts: 21614
Joined: Sat Oct 11, 2008 12:35 pm

Re: Getting from 30:70 to 70:30

Post by KlangFool »

revhappy wrote: Mon Jun 14, 2021 9:17 am Thanks! Answered Inline.
KlangFool wrote: Mon Jun 14, 2021 9:05 am OP,

1) How do you plan to increase your equity allocation?

A) New contribution? Is your new contribution anywhere close to 1% of your portfolio every month?
Both new contributions and selling from my fixed income part of portfolio. My annual new salary savings inflow is about 8% of my total networth and my fixed income portfolio is based on Indian rupees, which generate 6% per annum.

B) Manual rebalancing?

2) What do your IPS says in term of rebalancing?

A) Annual rebalancing? I dont really have an IPS, I am currently trying to make one

b) 5/25 band based rebalancing?

3) What is your tax burden on doing this? Not much

4) Let me stay away from whether this is a good idea. But, I do not think your idea can be implemented at all. The AA adjustment need to be bigger and less frequent. At 1% increment, the daily volatility will beat that number easily. Then, what do you do ? I allocate only once in a month, strictly, no matter how much the market moves. I pick one day in a month and I make the adjustment. If market rises, I need to allocate a lot less that month, or may be I dont need to allocate, so I just skip that month, or may be a few months if the market already did the adjust for me, I wouldnt sell from equities, until I hit 70% allocation. If markets crash, I allocate a lot more that month. I dont see why daily volatility will be a problem. Can you please tell me why it will be a problem?

5) If this is what you plan to do, a more implementable idea would be increase your TARGETED AA allocation by 10% per year.

KlangFool
revhappy,

<<my fixed income portfolio is based on Indian rupees, which generate 6% per annum.>>

1) Unless you are Indian, I would be concerned about Indian currency collapses.

<< I dont really have an IPS, I am currently trying to make one>>

2) If you do not have an IPS on how to maintain your AA, you do not have an AA. You need to have a plan to maintain your AA before you have an AA.

<< I dont see why daily volatility will be a problem. Can you please tell me why it will be a problem?>>

3) Let's say that you only adjust your AA once a month, the stock market movement would be big enough to force you to rebalance every month. This is no good.

<< I dont need to allocate, so I just skip that month, or may be a few months if the market already did the adjust for me, I wouldnt sell from equities, until I hit 70% allocation.>>

4) You do not have an IPS. So, you are doing anything as you like. A rebalancing plan would be like I do nothing if the allocation difference is less than 5%.
In summary, you want your targeted AA adjustment to be infrequent. Make it once every year. Then, you may rebalance every month. You do not want your rebalancing period and AA adjustment period to be the same.

KlangFool
40% VWENX | 12.5% VFWAX/VTIAX | 11.5% VTSAX | 16% VBTLX | 10% VSIAX/VTMSX/VSMAX | 10% VSIGX| 40% Wellington 40% 3-funds 20% Mini-Larry
mikejuss
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Joined: Tue Jun 23, 2020 1:36 pm

Re: Getting from 30:70 to 70:30

Post by mikejuss »

revhappy wrote: Mon Jun 14, 2021 9:32 am
mikejuss wrote: Mon Jun 14, 2021 9:28 am
revhappy wrote: Mon Jun 14, 2021 9:25 am
mikejuss wrote: Mon Jun 14, 2021 9:11 am May I ask: what is prompting you to change your asset allocation from 30/70 to 70/30?
I have been all over the place trying to time the markets, I have made bulk adjustments and gone all the way up to 50:50 to all the way down to 10:90, but I have never exceeded 50% equities. I have been very conservative and adhoc. Now I have made peace with have 30:70 as the base and my starting point and now want to get to the ideal allocation of 70:30 because I finally realize markets cannot be timed, central bankers print money and they will do everything in their power to stave of a market crash, including financial repression and making fixed income holders lose purchasing power to inflation. So over long periods, equities or another assets like real estate are better than fixed income.
That seems like quite an intellectual trip you've taken. In my opinion, given your past hesitation about investing in equities, 50/50 might be more suited to you. Are you sure you'll stick to 70/30 even if there's a market crash? Of course, only you can answer that. Just some food for thought. :beer
Thanks, I agree with you. I want to set this plan and see how do until I hit 50:50 1st and then have like a checkpoint and evaluate again if I am on the right path and will continuing to 70:30 still makes sense.
Good plan. Be sure to do a gut check: will I keep this allocation if my equities portion declines by 30%-50% and stays down for years? If so, you're in a good spot.
Topic Author
revhappy
Posts: 129
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Location: Singapore

Re: Getting from 30:70 to 70:30

Post by revhappy »

namajones wrote: Mon Jun 14, 2021 9:34 am
revhappy wrote: Mon Jun 14, 2021 9:25 am central bankers print money and they will do everything in their power to stave of a market crash, including financial repression and making fixed income holders lose purchasing power to inflation
This is still "market timing" rationalizing, IMO.

My guess is that if you ever do make it to 70/30, you won't stay there for the same reason that you didn't stay there before--plus the additional reasons of having fewer years of earning power to compensate for a bear.

Not a criticism. You're just learning your risk tolerance. I'd posit that experience has shown you that your risk tolerance is not at 70/30. It's somewhere between where you are now and 50/50.
Thanks. I appreciate it. I agree that is quite possible. I would 1st get to 50:50 and then evaluate again. Maybe I will use this thread to update my journey and ask suggestions from you guys :)
Topic Author
revhappy
Posts: 129
Joined: Sat Jul 21, 2018 10:09 am
Location: Singapore

Re: Getting from 30:70 to 70:30

Post by revhappy »

KlangFool wrote: Mon Jun 14, 2021 9:37 am
revhappy,

<<my fixed income portfolio is based on Indian rupees, which generate 6% per annum.>>

1) Unless you are Indian, I would be concerned about Indian currency collapses.

<< I dont really have an IPS, I am currently trying to make one>>

2) If you do not have an IPS on how to maintain your AA, you do not have an AA. You need to have a plan to maintain your AA before you have an AA.

<< I dont see why daily volatility will be a problem. Can you please tell me why it will be a problem?>>

3) Let's say that you only adjust your AA once a month, the stock market movement would be big enough to force you to rebalance every month. This is no good.

<< I dont need to allocate, so I just skip that month, or may be a few months if the market already did the adjust for me, I wouldnt sell from equities, until I hit 70% allocation.>>

4) You do not have an IPS. So, you are doing anything as you like. A rebalancing plan would be like I do nothing if the allocation difference is less than 5%.
In summary, you want your targeted AA adjustment to be infrequent. Make it once every year. Then, you may rebalance every month. You do not want your rebalancing period and AA adjustment period to be the same.

KlangFool
Thanks! Yes, I am an Indian working in Singapore and plan is to retire in India(Is the Klang in your handle linked to the town in Malaysia by any chance? :) ).

I would like to get to 1st 50:50 allocation and then evaluate if it is okay for me and then get to 70:30 allocation if I feel it is appropriate or maybe 60:40. But at this point I am sure 30:70 is too low but at the same time I dont want to increase it suddenly by a lot. So I am considering a glide path to get to my target allocation and after I get to my target allocation, every year I will just maintain that allocation by yearly once adjustment.
retiringwhen
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Re: Getting from 30:70 to 70:30

Post by retiringwhen »

I tried a slow adjustment to my AA downward as I started to de-risk for retirement. I found the slow drip approach unbearable and also prone to fiddling and too much work.

I eventually ripped the cord and make the jump to my target AA in a couple 5 to 10% rebalancing exercises in a month and got it over with. I am much happier now.

I think as others suggest, get to 50:50 and stick there for a year or so to see if you can handle the volatility, then re-assess after that for higher or lower AA as appropriate. As long at the AA temps you market time, it is likely to be wrong.

If no AA keeps you from market timing, you should hire someone to take over and keep your hands off your own money. It could be much cheaper than messing it up yourself.

Alternatively, just start reading all the Jack Bogle, Rick Ferri, Bogleheads and Bill Bernstein books until you get the itch to market time washed out of your brain.

Finally, consider taking up a frustrating and precision-oriented sport like golf, archery or long-distance rifle shooting to work out your need to fiddle :beer
mikejuss
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Re: Getting from 30:70 to 70:30

Post by mikejuss »

retiringwhen wrote: Mon Jun 14, 2021 9:56 am I tried a slow adjustment to my AA downward as I started to de-risk for retirement. I found the slow drip approach unbearable and also prone to fiddling and too much work.

I eventually ripped the cord and make the jump to my target AA in a couple 5 to 10% rebalancing exercises in a month and got it over with. I am much happier now.

I think as others suggest, get to 50:50 and stick there for a year or so to see if you can handle the volatility, then re-assess after that for higher or lower AA as appropriate. As long at the AA temps you market time, it is likely to be wrong.

If no AA keeps you from market timing, you should hire someone to take over and keep your hands off your own money. It could be much cheaper than messing it up yourself.

Alternatively, just start reading all the Jack Bogle, Rick Ferri, Bogleheads and Bill Bernstein books until you get the itch to market time washed out of your brain.

Finally, consider taking up a frustrating and precision-oriented sport like golf, archery or long-distance rifle shooting to work out your need to fiddle :beer
I'm curious: did you de-risk your portfolio by selling stocks to buy bonds (which is a taxable event) or by making a big bond purchase with cash on hand?
Topic Author
revhappy
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Location: Singapore

Re: Getting from 30:70 to 70:30

Post by revhappy »

retiringwhen wrote: Mon Jun 14, 2021 9:56 am I tried a slow adjustment to my AA downward as I started to de-risk for retirement. I found the slow drip approach unbearable and also prone to fiddling and too much work.

I eventually ripped the cord and make the jump to my target AA in a couple 5 to 10% rebalancing exercises in a month and got it over with. I am much happier now.

I think as others suggest, get to 50:50 and stick there for a year or so to see if you can handle the volatility, then re-assess after that for higher or lower AA as appropriate. As long at the AA temps you market time, it is likely to be wrong.

If no AA keeps you from market timing, you should hire someone to take over and keep your hands off your own money. It could be much cheaper than messing it up yourself.

Alternatively, just start reading all the Jack Bogle, Rick Ferri, Bogleheads and Bill Bernstein books until you get the itch to market time washed out of your brain.

Finally, consider taking up a frustrating and precision-oriented sport like golf, archery or long-distance rifle shooting to work out your need to fiddle :beer
Thanks, really appreciate the advice! I think it makes sense to swiftly de-risk, when you have already decided to de-risk, the worst case, you lose out gains, if markets continue to rise, thats not as bad as swiftly increasing your risk and then markets crash.
retiringwhen
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Re: Getting from 30:70 to 70:30

Post by retiringwhen »

mikejuss wrote: Mon Jun 14, 2021 9:59 am I'm curious: did you de-risk your portfolio by selling stocks to buy bonds (which is a taxable event) or by making a big bond purchase with cash on hand?
I donated some shares in taxable to charity (helped cleanup some decades long cost-basis messes from DRIPS and company stock awards too!), but mostly rebalanced in IRA/401K accounts so no tax consequences.

If you have a big tax bill due to a huge gain in taxable accounts, there are likely good reasons to time those changes to be most tax-efficient.
mikejuss
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Joined: Tue Jun 23, 2020 1:36 pm

Re: Getting from 30:70 to 70:30

Post by mikejuss »

retiringwhen wrote: Mon Jun 14, 2021 10:09 am
mikejuss wrote: Mon Jun 14, 2021 9:59 am I'm curious: did you de-risk your portfolio by selling stocks to buy bonds (which is a taxable event) or by making a big bond purchase with cash on hand?
I donated some shares in taxable to charity (helped cleanup some decades long cost-basis messes from DRIPS and company stock awards too!), but mostly rebalanced in IRA/401K accounts so no tax consequences.

If you have a big tax bill due to a huge gain in taxable accounts, there are likely good reasons to time those changes to be most tax-efficient.
This is not really related to the OP's question, but I've been thinking lately about what I'll do during the next stock-market dip. In terms of rebalancing your 401(k) and IRA, what criteria did you use before pulling the trigger? The danger, of course, is in throwing good money after bad, and rebalancing right before another dip.
namajones
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Re: Getting from 30:70 to 70:30

Post by namajones »

mikejuss wrote: Mon Jun 14, 2021 10:13 am In terms of rebalancing your 401(k) and IRA, what criteria did you use before pulling the trigger? The danger, of course, is in throwing good money after bad, and rebalancing right before another dip.
You have to buy on the way down. There's no such thing as buying at the bottom or selling at the high. Be happy with somewhere in-between, both down and up. The upper amount you invest is the upper amount you'd be willing to see fluctuate wildly over the course of the rest of your life.
mikejuss
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Re: Getting from 30:70 to 70:30

Post by mikejuss »

namajones wrote: Mon Jun 14, 2021 10:28 am
mikejuss wrote: Mon Jun 14, 2021 10:13 am In terms of rebalancing your 401(k) and IRA, what criteria did you use before pulling the trigger? The danger, of course, is in throwing good money after bad, and rebalancing right before another dip.
You have to buy on the way down. There's no such thing as buying at the bottom or selling at the high. Be happy with somewhere in-between, both down and up. The upper amount you invest is the upper amount you'd be willing to see fluctuate wildly over the course of the rest of your life.
Oh--I agree. There's no way to perfectly time the buy. I was just curious if there were any guidelines people follow when rebalancing during a stock-market dip.
retiringwhen
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Re: Getting from 30:70 to 70:30

Post by retiringwhen »

mikejuss wrote: Mon Jun 14, 2021 10:13 am
retiringwhen wrote: Mon Jun 14, 2021 10:09 am
mikejuss wrote: Mon Jun 14, 2021 9:59 am I'm curious: did you de-risk your portfolio by selling stocks to buy bonds (which is a taxable event) or by making a big bond purchase with cash on hand?
I donated some shares in taxable to charity (helped cleanup some decades long cost-basis messes from DRIPS and company stock awards too!), but mostly rebalanced in IRA/401K accounts so no tax consequences.

If you have a big tax bill due to a huge gain in taxable accounts, there are likely good reasons to time those changes to be most tax-efficient.
This is not really related to the OP's question, but I've been thinking lately about what I'll do during the next stock-market dip. In terms of rebalancing your 401(k) and IRA, what criteria did you use before pulling the trigger? The danger, of course, is in throwing good money after bad, and rebalancing right before another dip.
Look at a disciplined banding process that tells you exactly when to rebalance and stick to it. I did it last year during the downturn and it worked. It also worked in 2018. In 2011 and 2008-9 I wasn't doing it yet, I was more seat of my pants then, but still converted some to stocks, early, but even that 2008 rebalance paid off handsomely in the long run. Regardless, the rebalancing process with an algorithm is a very good tool to discipline yourself to not act when you you shouldn't and act when you should. The best way to stop market timing is to buy a Target Date or balanced fund like the Vanguard Lifestrategy Funds as they hide it all from you.

BH member siamond has a developed along with several others an adaptive banding rebalance process that works well and works well with AA ranges that are both very large and very small. Here is a start: viewtopic.php?t=186203
mikejuss
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Re: Getting from 30:70 to 70:30

Post by mikejuss »

retiringwhen wrote: Mon Jun 14, 2021 10:38 am
mikejuss wrote: Mon Jun 14, 2021 10:13 am
retiringwhen wrote: Mon Jun 14, 2021 10:09 am
mikejuss wrote: Mon Jun 14, 2021 9:59 am I'm curious: did you de-risk your portfolio by selling stocks to buy bonds (which is a taxable event) or by making a big bond purchase with cash on hand?
I donated some shares in taxable to charity (helped cleanup some decades long cost-basis messes from DRIPS and company stock awards too!), but mostly rebalanced in IRA/401K accounts so no tax consequences.

If you have a big tax bill due to a huge gain in taxable accounts, there are likely good reasons to time those changes to be most tax-efficient.
This is not really related to the OP's question, but I've been thinking lately about what I'll do during the next stock-market dip. In terms of rebalancing your 401(k) and IRA, what criteria did you use before pulling the trigger? The danger, of course, is in throwing good money after bad, and rebalancing right before another dip.
Look at a disciplined banding process that tells you exactly when to rebalance and stick to it. I did it last year during the downturn and it worked. It also worked in 2018. In 2011 and 2008-9 I wasn't doing it yet, I was more seat of my pants then, but still converted some to stocks, early, but even that 2008 rebalance paid off handsomely in the long run. Regardless, the rebalancing process with an algorithm is a very good tool to discipline yourself to not act when you you shouldn't and act when you should. The best way to stop market timing is to buy a Target Date or balanced fund like the Vanguard Lifestrategy Funds as they hide it all from you.

BH member siamond has a developed along with several others an adaptive banding rebalance process that works well and works well with AA ranges that are both very large and very small. Here is a start: viewtopic.php?t=186203
Thanks! This appears to be the kind of thing I'm looking for (if a bit over my head). I will study this thread.
Fallible
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Re: Getting from 30:70 to 70:30

Post by Fallible »

namajones wrote: Mon Jun 14, 2021 9:34 am
revhappy wrote: Mon Jun 14, 2021 9:25 am central bankers print money and they will do everything in their power to stave of a market crash, including financial repression and making fixed income holders lose purchasing power to inflation
This is still "market timing" rationalizing, IMO.

My guess is that if you ever do make it to 70/30, you won't stay there for the same reason that you didn't stay there before--plus the additional reasons of having fewer years of earning power to compensate for a bear.

Not a criticism. You're just learning your risk tolerance. I'd posit that experience has shown you that your risk tolerance is not at 70/30. It's somewhere between where you are now and 50/50.

When you reach an asset allocation where you don't really pay attention to the markets any longer on a regular basis, you'll have found your spot.
I tend to agree with this. The OP is on a search for his risk tolerance, apparently after a bad experience in market timing. And yet what he is doing now seems another form of market timing in the sense that he is investing, in an unnecessarily laborious way, based on what the market does.

OP, I think you would benefit from learning more about risk in general and in personal, emotional risk tolerance. Two great books on this are by WSJ columnist Jason Zweig, Your Money & Your Brain, and Peter Bernstein's classic, Against the Gods: The Remarkable Story of Risk. After that, I would suggest looking over the Bogleheads' principles to see what you might be missing, and then continue writing that IPS. :happy

1 Develop a workable plan
2 Invest early and often
3 Never bear too much or too little risk
4 Diversify
5 Never try to time the market
6 Use index funds when possible
7 Keep costs low
8 Minimize taxes
9 Invest with simplicity
10 Stay the course

https://www.bogleheads.org/wiki/Boglehe ... philosophy
"Yes, investing is simple. But it is not easy, for it requires discipline, patience, steadfastness, and that most uncommon of all gifts, common sense." ~Jack Bogle
Topic Author
revhappy
Posts: 129
Joined: Sat Jul 21, 2018 10:09 am
Location: Singapore

Re: Getting from 30:70 to 70:30

Post by revhappy »

Fallible wrote: Mon Jun 14, 2021 11:18 am I tend to agree with this. The OP is on a search for his risk tolerance, apparently after a bad experience in market timing. And yet what he is doing now seems another form of market timing in the sense that he is investing, in an unnecessarily laborious way, based on what the market does.

OP, I think you would benefit from learning more about risk in general and in personal, emotional risk tolerance. Two great books on this are by WSJ columnist Jason Zweig, Your Money & Your Brain, and Peter Bernstein's classic, Against the Gods: The Remarkable Story of Risk. After that, I would suggest looking over the Bogleheads' principles to see what you might be missing, and then continue writing that IPS. :happy

1 Develop a workable plan
2 Invest early and often
3 Never bear too much or too little risk
4 Diversify
5 Never try to time the market
6 Use index funds when possible
7 Keep costs low
8 Minimize taxes
9 Invest with simplicity
10 Stay the course

https://www.bogleheads.org/wiki/Boglehe ... philosophy
Thanks! But from what I understand, risk tolerance needs to built. Looking at ERN's simulation, the failure rates of SWR become very high when allocation to equities is low and failure rates become very low with high equity allocation especially for long periods of retirement.

https://earlyretirementnow.com/2017/09/ ... lidepaths/

Also, from what I understand from financial advisors, some of them advocate bucket strategy, 1st 10 to 15 years of expenses in bonds and remaining in equities. The idea is that in the long term equities are the best bet against inflation. So, isnt this more about educating ourselves and getting used to volatility instead of accepting lower risk tolerance? The more knowledge, higher the risk tolerance?
esteen
Posts: 342
Joined: Thu May 23, 2019 12:31 am

Re: Getting from 30:70 to 70:30

Post by esteen »

revhappy wrote: Mon Jun 14, 2021 11:37 am Thanks! But from what I understand, risk tolerance needs to built. Looking at ERN's simulation, the failure rates of SWR become very high when allocation to equities is low and failure rates become very low with high equity allocation especially for long periods of retirement.

https://earlyretirementnow.com/2017/09/ ... lidepaths/

Also, from what I understand from financial advisors, some of them advocate bucket strategy, 1st 10 to 15 years of expenses in bonds and remaining in equities. The idea is that in the long term equities are the best bet against inflation. So, isnt this more about educating ourselves and getting used to volatility instead of accepting lower risk tolerance? The more knowledge, higher the risk tolerance?
I disagree - the more knowledge, the better you understand your current risk tolerance, whatever that may be.

More investment knowledge won't allow you to just remove emotion or behavioral heuristics and behave like a robot. There are really intelligent people who know a lot about the markets that fall for behavioral missteps all the time (case in point: over half of active fund managers). You need to learn about the markets, but you also need to learn about yourself in context with investing. There is nothing wrong with a 30/70 strategy or a 70/30 strategy except if it is wrong for you.

Speaking of...
revhappy wrote: Mon Jun 14, 2021 8:55 am Currently I am 50X expenses and I plan to hit 70X and then retire.
Why are you intent on taking on additional risk in your portfolio if you are already at 50x expenses? What is going from 50 to 70x going to do for you - it is that you have a desire to leave a large inheritance to other people?

If the additional wealth is more of a safety net for your own lifetime, then I think that's another good indicator that your willingness to take risk is low, and your AA should reflect that (i.e. not be 70/30). But if the additional wealth is specifically meant for future generations, then you can think about it in a separate bucket, and possibly allocate that one more heavily to equities.

Regardless you are in a great spot financially - you just have to continue that work on getting in a good mental spot about the $. Sometimes that's the hardest part.
Fallible
Posts: 7827
Joined: Fri Nov 27, 2009 4:44 pm

Re: Getting from 30:70 to 70:30

Post by Fallible »

revhappy wrote: Mon Jun 14, 2021 11:37 am
Fallible wrote: Mon Jun 14, 2021 11:18 am I tend to agree with this. The OP is on a search for his risk tolerance, apparently after a bad experience in market timing. And yet what he is doing now seems another form of market timing in the sense that he is investing, in an unnecessarily laborious way, based on what the market does.

OP, I think you would benefit from learning more about risk in general and in personal, emotional risk tolerance. Two great books on this are by WSJ columnist Jason Zweig, Your Money & Your Brain, and Peter Bernstein's classic, Against the Gods: The Remarkable Story of Risk. After that, I would suggest looking over the Bogleheads' principles to see what you might be missing, and then continue writing that IPS. :happy

1 Develop a workable plan
2 Invest early and often
3 Never bear too much or too little risk
4 Diversify
5 Never try to time the market
6 Use index funds when possible
7 Keep costs low
8 Minimize taxes
9 Invest with simplicity
10 Stay the course

https://www.bogleheads.org/wiki/Boglehe ... philosophy
Thanks! But from what I understand, risk tolerance needs to built. Looking at ERN's simulation, the failure rates of SWR become very high when allocation to equities is low and failure rates become very low with high equity allocation especially for long periods of retirement.

https://earlyretirementnow.com/2017/09/ ... lidepaths/

Also, from what I understand from financial advisors, some of them advocate bucket strategy, 1st 10 to 15 years of expenses in bonds and remaining in equities. The idea is that in the long term equities are the best bet against inflation. So, isnt this more about educating ourselves and getting used to volatility instead of accepting lower risk tolerance? The more knowledge, higher the risk tolerance?
Yes, more knowledge and investing experience can lead to higher risk tolerance - but it can also lead to moderate or low risk tolerance, or even outright risk aversion. It depends on the individual investor, on how well investors know themselves. Risk tolerance is mainly about the emotional side of investing. Determining it depends a lot on how you react emotionally to what you’re learning and experiencing and how well you understand that emotion so that you can have a reasonably good idea of how it might play out when the market tumbles. Risk tolerance can also change quickly and often throughout a lifetime, so if you do find an allocation you’re comfortable with now, it may change later.

Also, I think it's possible to like a certain market strategy intellectually, but one that may be more risky than you really can or want to handle emotionally. In a way, the strategy you've described in your first post here seems an attempt to achieve some control over market volatility or downturns, which is impossible. The real control you and all of us strive for is control over our emotions when the market does get volatile or crash. When we find that control, we've likely found our risk tolerance.
"Yes, investing is simple. But it is not easy, for it requires discipline, patience, steadfastness, and that most uncommon of all gifts, common sense." ~Jack Bogle
pkcrafter
Posts: 14974
Joined: Sun Mar 04, 2007 12:19 pm
Location: CA
Contact:

Re: Getting from 30:70 to 70:30

Post by pkcrafter »

revhappy, I have to agree with fallible and esteen on your approach to an asset allocation in retirement. From what you've written it appears the issue with you is partly behavioral. Even now your withdrawal rate is less than the safe rate, and it will be even safer when you finally retire. You don't need 70% equity to maintain the SWR, 40% is probably adequate.

Risk aversion isn't something that goes away with time or increased understanding, it's inherent in your genes. Having said that, ramping up on the learning/understanding curve will help. The idea of taking 3 years and four months is psychological, and really doesn't make sense because what you fear may happen in 3-1/2 years.

Here is some additional information on safe withdrawal rate

https://www.bogleheads.org/wiki/Safe_withdrawal_rates


Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.
Topic Author
revhappy
Posts: 129
Joined: Sat Jul 21, 2018 10:09 am
Location: Singapore

Re: Getting from 30:70 to 70:30

Post by revhappy »

Thanks everybody, for all your help. Really appreciate it, it just gave me a whole new perspective to think in terms of risk tolerance as well. I was focussing mostly on failure rates, while ignoring risk tolerance and understand this forum has the most experienced people who have seen it all and it coming from you guys means I need to take this seriously. I will read the books suggested here to get better understanding of risk tolerance.
User avatar
calmaniac
Posts: 443
Joined: Fri Jan 30, 2015 3:32 pm

Re: Getting from 30:70 to 70:30

Post by calmaniac »

revhappy,

First of all, wonderful to see that Boglehead concepts are making it to South Asia!

I found the process of writing up an Investor Policy Statement a great learning experience. Putting ideas on paper forces one to commit and more fully understand the various strategies available.
63 yo,1y til go part-time. AA 70/30: 30% S&P, 16% value, 14% intl, 10% EM, 30% short/int govt bonds. My mil pension + DW's now ≈60% of expenses. Taking SS @age 70--> pension+SS ≈100% of expenses.
Topic Author
revhappy
Posts: 129
Joined: Sat Jul 21, 2018 10:09 am
Location: Singapore

Re: Getting from 30:70 to 70:30

Post by revhappy »

Fallible wrote: Mon Jun 14, 2021 12:57 pm
revhappy wrote: Mon Jun 14, 2021 11:37 am
Fallible wrote: Mon Jun 14, 2021 11:18 am I tend to agree with this. The OP is on a search for his risk tolerance, apparently after a bad experience in market timing. And yet what he is doing now seems another form of market timing in the sense that he is investing, in an unnecessarily laborious way, based on what the market does.

OP, I think you would benefit from learning more about risk in general and in personal, emotional risk tolerance. Two great books on this are by WSJ columnist Jason Zweig, Your Money & Your Brain, and Peter Bernstein's classic, Against the Gods: The Remarkable Story of Risk. After that, I would suggest looking over the Bogleheads' principles to see what you might be missing, and then continue writing that IPS. :happy

1 Develop a workable plan
2 Invest early and often
3 Never bear too much or too little risk
4 Diversify
5 Never try to time the market
6 Use index funds when possible
7 Keep costs low
8 Minimize taxes
9 Invest with simplicity
10 Stay the course

https://www.bogleheads.org/wiki/Boglehe ... philosophy
Thanks! But from what I understand, risk tolerance needs to built. Looking at ERN's simulation, the failure rates of SWR become very high when allocation to equities is low and failure rates become very low with high equity allocation especially for long periods of retirement.

https://earlyretirementnow.com/2017/09/ ... lidepaths/

Also, from what I understand from financial advisors, some of them advocate bucket strategy, 1st 10 to 15 years of expenses in bonds and remaining in equities. The idea is that in the long term equities are the best bet against inflation. So, isnt this more about educating ourselves and getting used to volatility instead of accepting lower risk tolerance? The more knowledge, higher the risk tolerance?
Yes, more knowledge and investing experience can lead to higher risk tolerance - but it can also lead to moderate or low risk tolerance, or even outright risk aversion. It depends on the individual investor, on how well investors know themselves. Risk tolerance is mainly about the emotional side of investing. Determining it depends a lot on how you react emotionally to what you’re learning and experiencing and how well you understand that emotion so that you can have a reasonably good idea of how it might play out when the market tumbles. Risk tolerance can also change quickly and often throughout a lifetime, so if you do find an allocation you’re comfortable with now, it may change later.

Also, I think it's possible to like a certain market strategy intellectually, but one that may be more risky than you really can or want to handle emotionally. In a way, the strategy you've described in your first post here seems an attempt to achieve some control over market volatility or downturns, which is impossible. The real control you and all of us strive for is control over our emotions when the market does get volatile or crash. When we find that control, we've likely found our risk tolerance.
Hi Fallible,

After spending some more time on this I found my low risk tolerance was mainly due to my own lack of systematic investing plan and I was try to make changes on the fly based on what the market was doing and my own sentiment. Also I had no benchmark of how much loss is too much loss. Percentages dont really make sense here.

I have found that having a sufficient amount cash/fixed income buffer that you determine as your safe ballast that will be enough for you no matter what. Having this buffer and then mentally relying on it that anything in excess of that is your risk money and you can afford to lose it. This is something you need to mentally prepare yourself and you need to come up with that number and that number needs to be finite. It cannot keep increasing with your networth. That doesnt make sense. When you do risk tolerance based on allocation ratio, then it doesnt take into account that increasing networth should increase your risk tolerance.

So, the way I look at it. I am right now saving a lot of money from my income which is great and this is a good problem to have. If I dont do anything with the new flows coming, I am just going to be in lots and lots of cash and wont know where to deploy it. So now I am implementing a rising equity allocation glidepath and one of the very very key measures, I am monitoring is my fixed income absolute level.

I have a dual goal
1) To increase my equity allocation ratio, by trying to deploy my fixed income corpus as efficiently as possible. I am 30% equity allocation ratio and my plan is to follow a rising equity glide path to reach 60% in 3 years. If markets keep going up and I am just deploying only my new flows into equities entirely, my fixed income component doesnt go down much. This is a happy scenario, so markets going up makes me happy. My allocation ratio in equities is going up and my I not losing my fixed income corpus. What more can you ask for?

2) Secondary goal is to not end up with more fixed income than what I already have, in absolute terms. I would hate it to add any more fixed income than what I already have. So any new inflows has to go to equities, no matter how overvalued they seem like. Also if markets fall in any particular month, that is the time when I will be happy to deploy my fixed income corpus to buy equities for cheap while maintaining my allocation ratio glide path. This is the principle of value averaging strategy. This makes me happy too, because this was the part of the plan. To buy equities when there is a sale and to increase my allocation ratio. But I will keep a watch on my fixed income corpus and see if I am depleting it too much in absolute terms. If there is a really bad crash and markets just keep going lower and lower, then I will stop at the point where I cannot tolerate any more fixed income depletion.

For me that lower bound of fixed income corpus is 400k USD. I cannot go below this no matter what. Right now, I have almost 600k USD in fixed income/bonds funds and 300k in Equities.

Also I have tweaked the slope of my glide path from what I had defined in my original post. I realized increasing by 1% every month when you are at 30% allocation is very different from increasing by 1% when you are at 50% allocation. So I start with 1% increase and then I taper off to 0.7% and then to 0.5% this way, the rate of depletion of my bond portfolio will remain steady.
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