Adjusting IPS and Rebalance Approach to Sleep better

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Topic Author
sonowwhat?
Posts: 43
Joined: Sat Jan 02, 2010 10:39 am

Adjusting IPS and Rebalance Approach to Sleep better

Post by sonowwhat? »

Hello to the Boglehead Brain-Trust Universe:

I currently as of today have the following:

6 % cash
31% equities (29% FSKAX Fidelity® Total Market Index Fund , 2% FSPSX Fidelity® International Index Fund)
63% bonds (25% VBTLX Vanguard Total Bond Market Index Fund Admi, 38% VFIDX Vanguard Intermediate-Term Investment)

I have lost about 14% of my net worth from its high in January. My IPS says 35% stock with the remainder of 5% in cash and 60% in bonds. I am not at my re-balance date which is not until mid May. Problem I got is I thought I understood my risk tolerance after 2008 but I don't think I could have imagined the current scenario. I'm 57 and retired. I want to throw out to the bogleheads a modification to my IPS and get your opinion. My goal is not to stray to far but enough to help me sleep better. So here is the proposed idea:

Start selling the bond funds come Monday enough to re-balance and buy stocks to get back to 35% but I will not re-balance until my re-balance date mid May. Instead I will just hold these re-balance funds in cash. Given that corporate bonds are also at risk if the markets continue to slide I would have more and more of a cash position which might help me sleep better. So come Monday assuming no changes I would sell the VFIDX in the amount of 4% (35% - 31%) of of my overall portfolio value and hold it in cash. If stocks drop another 20% (meaning my stock balance would go down another 6% I would again sell more bonds (ie. 6% of overall portfolio value) and hold in cash until my re-balance date. I realize this is not boglehead purity but its not like I'm selling stock and I am still committed to re-balance on my future dates to my targets. Its just will give me a slight hedge against a doomsday scenario. Am I off my rocker to approach it this way? If so, talk me off the ledge.......

Thanks,

Sleepless in Atlanta!
Topic Author
sonowwhat?
Posts: 43
Joined: Sat Jan 02, 2010 10:39 am

Re: Adjusting IPS and Rebalance Approach to Sleep better

Post by sonowwhat? »

Hello to the Boglehead Brain-Trust Universe:

I currently as of today have the following:

6 % cash
31% equities (29% FSKAX Fidelity® Total Market Index Fund , 2% FSPSX Fidelity® International Index Fund)
63% bonds (25% VBTLX Vanguard Total Bond Market Index Fund Admi, 38% VFIDX Vanguard Intermediate-Term Investment)

I have lost about 14% of my net worth from its high in January. My IPS says 35% stock with the remainder of 5% in cash and 60% in bonds. I am not at my re-balance date which is not until mid May. Problem I got is I thought I understood my risk tolerance after 2008 but I don't think I could have imagined the current scenario. I'm 57 and retired. I want to throw out to the bogleheads a modification to my IPS and get your opinion. My goal is not to stray to far but enough to help me sleep better. So here is the proposed idea:

Start selling the bond funds come Monday enough to re-balance and buy stocks to get back to 35% but I will not re-balance until my re-balance date mid May. Instead I will just hold these re-balance funds in cash. Given that corporate bonds are also at risk if the markets continue to slide I would have more and more of a cash position which might help me sleep better. So come Monday assuming no changes I would sell the VFIDX in the amount of 4% (35% - 31%) of of my overall portfolio value and hold it in cash. If stocks drop another 20% (meaning my stock balance would go down another 6% I would again sell more bonds (ie. 6% of overall portfolio value) and hold in cash until my re-balance date. I realize this is not boglehead purity but its not like I'm selling stock and I am still committed to re-balance on my future dates to my targets. Its just will give me a slight hedge against a doomsday scenario. Am I off my rocker to approach it this way? If so, talk me off the ledge.......

Thanks,

Sleepless in Atlanta!
vest74
Posts: 132
Joined: Tue Apr 07, 2015 12:05 pm

Re: Adjusting IPS and Rebalance Approach to Sleep better

Post by vest74 »

What does IPS stand for? Sorry I should know. :oops:
User avatar
retired@50
Posts: 6293
Joined: Tue Oct 01, 2019 2:36 pm
Location: Living in the U.S.A.

Re: Adjusting IPS and Rebalance Approach to Sleep better

Post by retired@50 »

vest74 wrote: Fri Mar 20, 2020 5:37 pm What does IPS stand for? Sorry I should know. :oops:
Investment Policy Statement.

https://www.bogleheads.org/wiki/Investm ... _statement


To OP,
It sounds like the moves you're contemplating aren't that large of a percentage of your net worth, so it may not matter. I'd just wait until the re-balance threshold is either met, or it's your re-balance date.

Regards,
This is one person's opinion. Nothing more.
User avatar
WoodSpinner
Posts: 2152
Joined: Mon Feb 27, 2017 1:15 pm

Re: Adjusting IPS and Rebalance Approach to Sleep better

Post by WoodSpinner »

OP,

How is your overall cash-flow position? Will you need to sell something for expenses any time soon?

Your idea is interesting but personally I would pass and follow your IPS.

In another post we did some analysis on the effect of rebalancing in the long term and it’s really not that big.

You can do some of your own analysis using PortfolioVisualizer (see links in post) as well.

Emotionally I wanted to do something to respond to the Bear Market but decided to wait a bit longer and make sure that my bands had been significantly crossed. I really didn’t like the frequency that my rebalancing bands were being triggered. Other benefit is that I may need a bit of ballast from my bonds just in case life throws me another curve. For instance my daughter and her hubby were just laid-off and may need some help.

It’s a learning experience for all of us!

WoodSpinner
Topic Author
sonowwhat?
Posts: 43
Joined: Sat Jan 02, 2010 10:39 am

Re: Adjusting IPS and Rebalance Approach to Sleep better

Post by sonowwhat? »

I mean I have 6% in cash but and I'm retired so my investment income is all my cash flow. I mean this is essentially a hedge against dooms day. As an exaggeration lets say stocks go down as far as April 2009 levels which would be an 80% drop from its January high. This would mean dropping an additional 70% from todays levels. In my case that would drive my stock percentage down to only 9%. Using my proposed approach, I would have liquidated to cash 26% of my net worth from bonds as the market dropped to allow for cash to reinvest in stocks on my re-balance date. What I'm accomplishing is taking away some of the default risk from corporate bonds by constantly liquidating enough to re-balance when the time is ready. Any more thoughts. I realize this is a bit hard to describe/follow.
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