Sure you do. You just have to shift allocations in each bucket to meet the overall target AA. It's only a minor problem in this situation because my Roth is so small, but it should grow quickly as I prioritize contributions to it over my taxable throughout the years.skierincolorado wrote: ↑Mon Feb 20, 2023 11:28 amThey are separate because you have no ability to maintain your AA if the market goes down. Comeinvest and I discussed this above and agreed that accounts that cannot be leveraged must be treated separately. If you were planning to leverage the taxable if the market went down in order to maintain your AA, then you could treat them as one bucket.Chocolatebar wrote: ↑Mon Feb 20, 2023 11:16 amI disagree with this point. As long as I consider the AA of my entire portfolio (which I have), there shouldn't be a problem. Is simply splitting funds into separate buckets where they are held better bad? Why? They are different types of accounts (buckets) which are designed to hold funds differently.skierincolorado wrote: ↑Mon Feb 20, 2023 10:51 am If you don't take equity leverage in the taxable account, you're bucketing, and the cost of bucketing far outweighs the cost of the tax drag. You're forcing yourself into an incredibly inefficent AA. Just look at the difference between these two accounts which is very similar to what you're doing. They both start with 1.4x leverage. But the second one rebalances between the buckets, treating it as one bucket with a low level of leverage, rather than 2 separate buckets (1 with no leverage - taxable, and 1 with high leverage - IRA).
Also - the taxable does have leverage. On the bond side, which is more tax efficient. I also think it's important to stress that the IRA will be ~10% of my entire portfolio this year...
I don't understand this perspective. My overall AA is exactly the same, so it will behave the same regardless of how many accounts it's spread across. It'll actually perform better during a good year because I won't have any tax consequences.skierincolorado wrote: ↑Mon Feb 20, 2023 11:28 amBecause the cost of adopting very high leverage in one account and no leverage in the other account far outweighs the cost of any tax drag which would only occur if markets did very well. You're making your best case scenario better but making your worst case scenario worse. Usually the goal is to do the opposite. Your worst case scenario is worse because if markets do poorly you will experience extreme volatility decay and you will have received no benefit for doing so - in fact you will have missed out on additional TLH that you could use to offset future gains.Chocolatebar wrote: ↑Mon Feb 20, 2023 11:16 amWhy can't this situation just happen in my IRA then? I won't have any tax drag problems to worry about there.skierincolorado wrote: ↑Mon Feb 20, 2023 10:51 am It's really simple if you think about it. If you have a significant tax drag problem, it's because stock and bond markets did very well - in which case UPRO+TYD will destroy NTSX and you will be glad to have this "problem". If markets are more choppy and go up slowly, you won't have any tax drag, and you'll still beat NTSX.
120/60 is 120/60. If most of the stocks are in tax-advantaged and most of the bonds are in taxable - that's a good thing!
So what? Why should I care about how many accounts my portfolio is spread across? As long as each "bucket" contains what it was best designed for - there shouldn't be any problems.skierincolorado wrote: ↑Mon Feb 20, 2023 11:28 amYes but they are separate buckets.Chocolatebar wrote: ↑Mon Feb 20, 2023 11:16 amI mean, 6.5k/year isn't pocket change. Most years I'd be DCAing into it at the end of every month with my extra money. In the event a big crash happened - I could be more aggressive with the remaining limit for the year and throughout the following year until recovery.skierincolorado wrote: ↑Mon Feb 20, 2023 10:51 am As comeinvest and I discussed above, this is simply impossible to do. Several people in this thread including myself ran into this exact problem this year. When markets dropped we were unable to maintain our target AA for the whole portfolio because significant sub-accounts could not be leveraged. I was lucky in that I could leverage my 401k even though initially I planned not to (due to an aversion to LETFs). Others were not so lucky, and were not able to maintain their AA, and were not able to fully partake in the market rebound.
I'm looking at my entire portfolio across accounts. Total leverage would barely exceed 1.1x.skierincolorado wrote: ↑Mon Feb 20, 2023 10:51 am I agree more leverage is probably worth it but there is a limit past which the volatility decay becomes too extreme. The lifecycle investing authors recommended a cap of 2x. I think a bit higher than that is ok but maybe not all the way to 3x. Since the accounts aren't fungible because you aren't planning to leverage the taxable account, the accounts should be treated as separate buckets. I wouldn't leverage my whole net worth 3x, so I probably wouldn't leverage single account 3x either if is non-fungible with my other accounts. 3x is way beyond the Kelly criterion.
Since 1900, 3x leverage has the same total return as 1x leverage, but with some fun 97% drawdowns mixed in.
DCA only "makes this risk worse" if you assume one outcome (stocks go up). Any other outcome makes DCA the better play. The worst outcome for lump summing is FAR worse than the worst outcome for DCA.skierincolorado wrote: ↑Mon Feb 20, 2023 11:28 amSome form of DCA might make sense but the bigger risk is that markets do well before you accumulate wealth. DCAing makes this risk worse. I'd lump some most of it and maybe hold a little in reserve. Which effectively just means the account has lower leverage. The money is there, it's just not physically in the account. Which is functionally the same as what I proposed which was leveraging it 2-2.5x instead of 3x.skierincolorado wrote: ↑Mon Feb 20, 2023 10:51 amI do generally agree with lump summing > DCA. However, in this scenario DCA seems like a no-brainer from a risk management perspective. It practically guarantees my Roth can't be completely wiped out.skierincolorado wrote: ↑Mon Feb 20, 2023 10:51 am I wouldn't DCA. If the market goes up this year you miss out. Lifecycle investing principles tell us to invest as much as possible in the present by leveraging, and DCA would be the opposite. Worst case is the market tanks but rebounds before your 2024 contrib. I'd just tone it back with AVUV or TYD. Something to reduce the leverage a bit and hopefully with a correlation <1.
Arguing this point doesn't really matter anyway since most of the 12.5k this year needs to be DCA in some way. I can't just throw 12k in tomorrow. I think 6k is the most I'd be able to lump sum at once.