Bear market AA thoughts

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momsense
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Bear market AA thoughts

Post by momsense »

Hello all,

First time post, do be kind if I missed any rules.

15 Yrs to Retirement with Asset Class/ Mix of
Target Retirement funds from 2025 to 2050 : 40% spread evenly across 4
Term bonds: 20
Inflation protected: 15%
Index funds : 25%

If you were to rebalance to invest more into markets, is the above AA well balanced not to touch? I want to invest in this so called bear phase, is rebalancing IPS/Bonds to 25% and Index to 35% a good idea?

TIA!
homebuyer6426
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Re: Bear market AA thoughts

Post by homebuyer6426 »

What jumps out at me is that you're holding 4 different target retirement funds. Is there a reason for that?
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exodusNH
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Re: Bear market AA thoughts

Post by exodusNH »

momsense wrote: Fri May 20, 2022 2:06 pm Hello all,

First time post, do be kind if I missed any rules.

15 Yrs to Retirement with Asset Class/ Mix of
Target Retirement funds from 2025 to 2050 : 40% spread evenly across 4
Term bonds: 20
Inflation protected: 15%
Index funds : 25%

If you were to rebalance to invest more into markets, is the above AA well balanced not to touch? I want to invest in this so called bear phase, is rebalancing IPS/Bonds to 25% and Index to 35% a good idea?

TIA!
Four different target date funds is unusual. Since you already have separate bond funds, why not just hold the equities directly and adjust your bond holdings to compensate?
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arcticpineapplecorp.
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Re: Bear market AA thoughts

Post by arcticpineapplecorp. »

i wouldn't have 4 different target date funds. not sure how the 4 are allocated. Is it:
2025, 2030, 2040, 2050?
or
2025, 2035, 2045 and 2050?

or something else?

2025 has 56% stocks
2030 has 64% stocks
2035 has 72% stocks
2040 has 80% stocks
2045 has 87.1% stocks
2050 has 90% stocks

what amount of stocks/bonds are you holding between whatever 4 of these you're holding?

wouldn't it be simpler to just hold that amount in stock and bond funds?

or if you want to hold a percentage now that does reduce overtime, hold 1 target date fund that accomplishes that goal?

what is "index funds 25%"? I'm not sure how many funds you have overall but it seems like you can whittle this down to 1 or 2 funds if you insist upon an inflation adjusted bond fund along with the more traditional stocks and bond funds that are found in a target date retirement fund.

Also, a target date retirement fund does hold TIPS starting 5 years from the target retirement date.
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delamer
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Re: Bear market AA thoughts

Post by delamer »

What are Term bonds?

I’m confused by your question:
If you were to rebalance to invest more into markets, is the above AA well balanced not to touch?
You should have a target asset allocation — US stocks, international stocks, bonds, and possibly other categories like small cap stocks. This allocation should be based on your need and ability to take risks.

If due to the current market changes, your allocation for a category is off by 5 percentage points or more (like your target for US stocks is 50% and now your allocation is 40%), then you should rebalance.

You should not buy more stocks than indicated by your target asset allocation just because stocks are relatively cheap.
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Topic Author
momsense
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Re: Bear market AA thoughts

Post by momsense »

Thank you all for your responses.

Given the predominant responses is to understand this the mix of retirement funds vs others, am providing the mix below. The rationale was that investment across each of the retirement funds with different equities and bonds by different fund manager may provide a better diversity and long term value.

The mix from the below might be more 60/40 but want to move slightly higher on stocks.

Asset Class Fund Name Current Mix
Asset Allocation/Balanced Trgt Ret 2025 20.00%
Asset Allocation/Balanced Trgt Ret 2030 10.00%
Asset Allocation/Balanced Trgt Ret 2045 5.00%
Asset Allocation/Balanced Trgt Ret 2050 5.00%
Fixed Income Institutional Total Bond 15.00%
Fixed Income Inflation Protected Secs 20.00%
Stock 500 Index 15.00%
Stock - Value Index 10.00%

The basic question to my post is how can the allocation take advantage of a falling equity market, sorry if its not clear.
Morik
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Re: Bear market AA thoughts

Post by Morik »

I know there are some on here who, e.g., deliberately hold cash/dry powder/whatever (so their AA usually holds cash/whatever the dry powder is) and then they swap it into equities during a downturn.

But in general the AA you choose should not be something you modify in response to market conditions.

So when you say "Bear Market AA thoughts" -- my thought is 'the same AA you use in any other type of market'.

As far as I can tell, no one can reliably forecast ahead of time that we are going into a bear market. Similarly no one can reliably forecast ahead of time that the bear market is ending.
If this could be reliably forecast, then sure it would make sense to change your AA to not lose as much in the bear market, and then change it again as the bear market is ending so that you reap the gains as the market moves upwards again.
But that isn't the case. By the time you know we are in a bear market it is too late to change your AA to lower your losses. And if you do it anyway (change your AA once you know we are in a bear market), you will likely miss the gains at the end of the bear market because you won't know until afterwards that we were exiting the bear market.

My advice--find an AA that you can live with in all market conditions. Then stick to that AA. If your personal situation changes, that is when the AA should be reassessed. E.g., if you gain several million dollars unexpectedly, that is a good reason to update your AA--you suddenly have much less need to take risks. As you age and your retirement draws closer/your investing horizon shrinks, that is also a good reason to reassess your AA.
But what the market is doing is not, in my opinion, ever a good reason to adjust your AA (with one exception).
The exception: If the market activity gave you new information about how much risk you can handle.
E.g., you were 90% stocks and then the market crashes and you discover that you had more risk than you can actually stomach, and so decide that going forward you want a less risky AA.
Or you were 60% stocks and the market crashes and you realize it doesn't bother you nearly as much as you thought it would, so you decide going forward you want a risker AA.
Morik
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Re: Bear market AA thoughts

Post by Morik »

momsense wrote: Fri May 20, 2022 3:22 pm The basic question to my post is how can the allocation take advantage of a falling equity market, sorry if its not clear.
How do you know we are in a falling equity market?
it is obvious looking at the past few months that we have been in a falling equity market.
But no one, as far as I can tell, can reliably forecast whether we are still currently in a falling equity market.
If anyone can reliably forecast that equities are going to continue to fall, and can also reliably forecast when they will stop falling & start rising again, such a person could make a lot of money. But no one can do that reliably that I have seen.

The problem is that you swap into an AA that will outperform if equities continue to fall, but you have no way of knowing that equities are going to continue to fall.
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momsense
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Re: Bear market AA thoughts

Post by momsense »

Morik wrote: Fri May 20, 2022 3:31 pm My advice--find an AA that you can live with in all market conditions. Then stick to that AA.
Thank you.
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goingup
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Re: Bear market AA thoughts

Post by goingup »

Your portfolio is kind of indecipherable because of those 4 target date funds. Hard to know their composition.

A quick answer if you want to add more equity then exchange your 2030 fund for the SP500 fund. If you want more equity than that, exchange the 2025 fund instead.
delamer
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Re: Bear market AA thoughts

Post by delamer »

Sell bonds, buy stocks if you want to increase your stock allocation.

The question you should be asking yourself is -- why do I want to increase my stock allocation?
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
exodusNH
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Re: Bear market AA thoughts

Post by exodusNH »

momsense wrote: Fri May 20, 2022 3:22 pm Thank you all for your responses.

Given the predominant responses is to understand this the mix of retirement funds vs others, am providing the mix below. The rationale was that investment across each of the retirement funds with different equities and bonds by different fund manager may provide a better diversity and long term value.

The mix from the below might be more 60/40 but want to move slightly higher on stocks.

Asset Class Fund Name Current Mix
Asset Allocation/Balanced Trgt Ret 2025 20.00%
Asset Allocation/Balanced Trgt Ret 2030 10.00%
Asset Allocation/Balanced Trgt Ret 2045 5.00%
Asset Allocation/Balanced Trgt Ret 2050 5.00%
Fixed Income Institutional Total Bond 15.00%
Fixed Income Inflation Protected Secs 20.00%
Stock 500 Index 15.00%
Stock - Value Index 10.00%

The basic question to my post is how can the allocation take advantage of a falling equity market, sorry if its not clear.
The real question is *why* do you have 4 target date funds? There is no logical reason to do this in a tax-advantaged account. Even if you had a situation where you had crappy US and international options, but good target date funds, you don't need to hold 4 of them. E.g., you could probably get the exact exposure to what you have above with 30% 2025 and 10% 2050.

Are you saying each of those target date funds is held in a different account.

It would probably be really, really helpful to edit your original post and put it in the preferred format. You can see that here: viewtopic.php?t=6212&sid=e12e98af53c255 ... 144d9966c0

Target retirement funds with the same mix of stocks and bonds are roughly going to perform the same. They're basically the vanilla cupcake of each fund house's offerings.
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windaar
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Re: Bear market AA thoughts

Post by windaar »

Morik wrote: Fri May 20, 2022 3:34 pmIf anyone can reliably forecast that equities are going to continue to fall, and can also reliably forecast when they will stop falling & start rising again, such a person could make a lot of money. But no one can do that reliably that I have seen.
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secondopinion
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Re: Bear market AA thoughts

Post by secondopinion »

delamer wrote: Fri May 20, 2022 3:57 pm Sell bonds, buy stocks if you want to increase your stock allocation.

The question you should be asking yourself is -- why do I want to increase my stock allocation?
That is the golden question. The people who actually need more stocks during a bear are those who need less stocks during a bull; I can see where a few people would benefit from that variable risk profile, but it is not common. Likewise, those that need to sell some stock during bears and buy some during bulls are likewise very uncommon. Most people do not have objectives that quite concur with either action; if the goals are not best met with it, then do not do it.
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Re: Bear market AA thoughts

Post by secondopinion »

windaar wrote: Fri May 20, 2022 4:51 pm
Morik wrote: Fri May 20, 2022 3:34 pmIf anyone can reliably forecast that equities are going to continue to fall, and can also reliably forecast when they will stop falling & start rising again, such a person could make a lot of money. But no one can do that reliably that I have seen.
These words should be carved into marble.
Now, do we want to purchase the marble now or wait for the price to drop? :P
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2b2
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Re: Bear market AA thoughts

Post by 2b2 »

I had a marble guy but he went broke trying to time the market.
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Beensabu
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Re: Bear market AA thoughts

Post by Beensabu »

momsense wrote: Fri May 20, 2022 3:22 pm The rationale was that investment across each of the retirement funds with different equities and bonds by different fund manager may provide a better diversity and long term value.

The mix from the below might be more 60/40 but want to move slightly higher on stocks.

Asset Class Fund Name Current Mix
Asset Allocation/Balanced Trgt Ret 2025 20.00%
Asset Allocation/Balanced Trgt Ret 2030 10.00%
Asset Allocation/Balanced Trgt Ret 2045 5.00%
Asset Allocation/Balanced Trgt Ret 2050 5.00%
Fixed Income Institutional Total Bond 15.00%
Fixed Income Inflation Protected Secs 20.00%
Stock 500 Index 15.00%
Stock - Value Index 10.00%

The basic question to my post is how can the allocation take advantage of a falling equity market, sorry if its not clear.
Your rationale for having multiple target date funds doesn't make sense. Most target date funds are pretty much the same: they hold component funds with US stocks, international stocks, US bonds, international bonds, TIPS, and a bit of cash. Some fund "families" have more or less international stocks or bonds than others. The only difference between different "year" funds from the same fund "family" is the percentage allocated to stocks vs. bonds.

You only need one target date fund. If you want to move slightly higher on stocks, then pick one that will put you slightly higher on stocks than where you are now with those four combined.

Other than that, just rebalance between your funds when you hit your rebalancing bands or whatever rebalancing trigger you have set for yourself.
"The only thing that makes life possible is permanent, intolerable uncertainty; not knowing what comes next." ~Ursula LeGuin
Topic Author
momsense
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Re: Bear market AA thoughts

Post by momsense »

Beensabu wrote: Fri May 20, 2022 7:32 pm
momsense wrote: Fri May 20, 2022 3:22 pm
You only need one target date fund.
Other than that, just rebalance between your funds when you hit your rebalancing bands or whatever rebalancing trigger you have set for yourself.
Thank you.
Topic Author
momsense
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Re: Bear market AA thoughts

Post by momsense »

exodusNH wrote: Fri May 20, 2022 4:14 pm
E.g., you could probably get the exact exposure to what you have above with 30% 2025 and 10% 2050.

It would probably be really, really helpful to edit your original post and put it in the preferred format. You can see that here: viewtopic.php?t=6212&sid=e12e98af53c255 ... 144d9966c0
Thank you for the counsel and will follow this post guidelines in future.
Topic Author
momsense
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Re: Bear market AA thoughts

Post by momsense »

secondopinion wrote: Fri May 20, 2022 4:59 pm
delamer wrote: Fri May 20, 2022 3:57 pm Sell bonds, buy stocks if you want to increase your stock allocation.

The question you should be asking yourself is -- why do I want to increase my stock allocation?
That is the golden question. The people who actually need more stocks during a bear are those who need less stocks during a bull; I can see where a few people would benefit from that variable risk profile, but it is not common.
Agree broadly. I did time the market with bonds to stocks on Mar 2019 but that was a lucky move.
secondopinion
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Re: Bear market AA thoughts

Post by secondopinion »

momsense wrote: Sat May 21, 2022 11:16 am
secondopinion wrote: Fri May 20, 2022 4:59 pm
delamer wrote: Fri May 20, 2022 3:57 pm Sell bonds, buy stocks if you want to increase your stock allocation.

The question you should be asking yourself is -- why do I want to increase my stock allocation?
That is the golden question. The people who actually need more stocks during a bear are those who need less stocks during a bull; I can see where a few people would benefit from that variable risk profile, but it is not common.
Agree broadly. I did time the market with bonds to stocks on Mar 2019 but that was a lucky move.
I think you mean March 2020. But yes, my portfolio saw a lot of changes during 2020 and 2021 to take more risk when it is needed and take less when it is not (based mostly on portfolio value and exterior circumstances). Trust me, timing the market was not the rationale since my IPS is clear on what I am to do; buy risk assets (it discusses not only what to do with a bear market but with a crisis market briefly). I need to revise my IPS to be more expressly clear what to do in a crisis because obviously taking my vacation/fun slush funds to make 50%+ in a year is nice, but doing that was market timing (but not like I could have had much fun on vacation during 2020). I have no regrets for the results, but I need a better plan than throwing my fun money into the market.
Passive investing: not about making big bucks but making profits. Active investing: not about beating the market but meeting goals. Speculation: not about timing the market but taking profitable risks.
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