Rebalancing from 80/20 to 70/30, whining

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Rebalancing from 80/20 to 70/30, whining

Postby Simbilis » Mon Jan 28, 2013 2:18 pm

It's time to sell 25% of my VTSAX and TSP C Fund, and buy VBTLX and TSP G and F Funds. This feels like selling off diamonds to buy manure, or at least I think it would if I had any diamonds. For those who've done a major rebalance like this, how did you bring yourself to do it? I can't type well while holding my nose.

Bond funds. Bleh.

Sim
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Re: Rebalancing from 80/20 to 70/30, whining

Postby VictoriaF » Mon Jan 28, 2013 2:20 pm

The G Fund is the crown jewel of TSP.

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Re: Rebalancing from 80/20 to 70/30, whining

Postby CABob » Mon Jan 28, 2013 3:24 pm

I can't help but wonder how you got to an asset allocation that was off by 10%. It makes me think that some potential rebalancing was missed somewhere along the way. Or perhaps you have made a significant change to your target allocations. Can you work slowly toward your target allocations using new contributions? Or for that matter you could make the change in smaller increments.
But, I understand your concern. I am not thrilled with bonds and their future prospects, but, I still have a very large allocation to them. It helps me sleep.
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Re: Rebalancing from 80/20 to 70/30, whining

Postby 555 » Mon Jan 28, 2013 3:38 pm

CABob wrote:"I can't help but wonder how you got to an asset allocation that was off by 10%."


Say you start with $70k stocks and $30k bonds. If bonds stay the same and stocks go from $70k to $120k (about a 71% increase) then you would have gone from 70:30 to 80:20.
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Re: Rebalancing from 80/20 to 70/30, whining

Postby Sunny Sarkar » Mon Jan 28, 2013 3:57 pm

Why sell the diamonds?
Could rebalance slowly by directing the new contributions towards manure.
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Re: Rebalancing from 80/20 to 70/30, whining

Postby BolderBoy » Mon Jan 28, 2013 3:59 pm

Simbilis wrote:It's time to sell 25% of my VTSAX and TSP C Fund, and buy VBTLX and TSP G and F Funds. This feels like selling off diamonds to buy manure, or at least I think it would if I had any diamonds. For those who've done a major rebalance like this, how did you bring yourself to do it? I can't type well while holding my nose.

Bond funds. Bleh.

Sim


Ummm, am I missing something here? You are selling your winners to buy more of your losers (losers for now, who knows going forward.) I thought this was the beauty of rebalancing - it basically keeps you FROM selling low and buying high.

Perhaps there is more to this than you've let on. Are you "rebalancing" because your stock portion has gone UP enough to put your AA out of whack for what you want it to be, or have you decided that 80/20 doesn't sit well with you for [insert reason]?
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Re: Rebalancing from 80/20 to 70/30, whining

Postby TomatoTomahto » Mon Jan 28, 2013 4:04 pm

BolderBoy wrote:
Ummm, am I missing something here? You are selling your winners to buy more of your losers (losers for now, who knows going forward.) I thought this was the beauty of rebalancing - it basically keeps you FROM selling low and buying high.

Please read this one more time. Repeat if necessary.

Hint: selling your winners is not selling low.
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Re: Rebalancing from 80/20 to 70/30, whining

Postby Grt2bOutdoors » Mon Jan 28, 2013 4:08 pm

TomatoTomahto wrote:
BolderBoy wrote:
Ummm, am I missing something here? You are selling your winners to buy more of your losers (losers for now, who knows going forward.) I thought this was the beauty of rebalancing - it basically keeps you FROM selling low and buying high.

Please read this one more time. Repeat if necessary.

Hint: selling your winners is not selling low.


BolderBoy is saying it, just in a slightly different fashion.
Rebalancing keeps you from selling low (aka you are selling HIGH).
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Re: Rebalancing from 80/20 to 70/30, whining

Postby kenyan » Mon Jan 28, 2013 4:13 pm

Grt2bOutdoors wrote:
TomatoTomahto wrote:
BolderBoy wrote:
Ummm, am I missing something here? You are selling your winners to buy more of your losers (losers for now, who knows going forward.) I thought this was the beauty of rebalancing - it basically keeps you FROM selling low and buying high.

Please read this one more time. Repeat if necessary.

Hint: selling your winners is not selling low.


BolderBoy is saying it, just in a slightly different fashion.
Rebalancing keeps you from selling low (aka you are selling HIGH).


I think he was agreeing with BolderBoy and trying to emphasize the point.
Retirement investing is a marathon.
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Re: Rebalancing from 80/20 to 70/30, whining

Postby TomatoTomahto » Mon Jan 28, 2013 4:19 pm

I guess it was too subtle for me. I was once an engineer and you know how literal we are. Apologies for misunderstanding. : :oops:
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Re: Rebalancing from 80/20 to 70/30, whining

Postby Peter Foley » Mon Jan 28, 2013 4:20 pm

If I were selling now to reduce my equities by 10% from 80 to 70 I would be smiling big time :D . You've probably had a high percentage of your assets in the market over the past few years and have done very well. I hope you are doing this in response to a written investment policy statement (IPS). One of the functions of such a plan is to keep one from ignoring their risk tolerance.
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Re: Rebalancing from 80/20 to 70/30, whining

Postby dbr » Mon Jan 28, 2013 5:54 pm

Simbilis wrote:. This feels like selling off diamonds to buy manure, or at least I think it would if I had any diamonds. For those who've done a major rebalance like this, how did you bring yourself to do it?

Bond funds. Bleh.

Sim


To start with I don't think diamonds and manure.

But, a question. If you think bonds are bleh, then why on earth are you investing in any bonds? Seriously.
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Re: Rebalancing from 80/20 to 70/30, whining

Postby Svensk Anga » Mon Jan 28, 2013 7:29 pm

I am in the process of moving from 90/10 (for the accumulation phase) toward 70/30 as retirement gets closer. I have 5% to go. I did it mostly by redirecting new contributions over the last four years. I too am not thrilled with the prospects for bonds from this point. I've been buying the stable value fund in my 401k and I-bonds in taxable. It helps that the stable value fund has a better yield than total bond market. In retrospect, I would have done better to get the capital gains that came with the decline in interest rates over the last couple years.
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Re: Rebalancing from 80/20 to 70/30, whining

Postby Simbilis » Mon Jan 28, 2013 7:40 pm

BolderBoy et al: Selling high and buying low - that works for me! I love that perspective.

CABob: I'm not exactly rebalancing, it's more just balancing. Up until recently, I had no IPS and no clear idea of my risk tolerance or asset allocation. By happenstance I was making some reasonable choices like saving regularly, minimizing tax exposure, and buying broadly based low-cost unmanaged index funds. I was also making unreasonable ones like not consolidating my many 401k accounts, not taking full advantage of Roth accounts, and buying only equity indexes and distant (e.g. 2040) target date funds. What little bond allocation I have came from the target date funds. Last year, I finally decided to do a better job. I browsed through Personal Finance for Dummies, which wasn't a bad place to start. Google led me here and a few other places, and the advice here seemed to me to be the best-reasoned and least speculative.

Now I've consolidated my accounts and mostly gotten out of the target date funds. The last step is to get into a simple asset allocation that suits me - 30/30/30/10, the 10 being Vanguard's REIT index fund.

dbr: I'm not exactly sure why I dislike bonds, but I do. Probably a thoughtless no-guts-no-glory bias. However, they're a core part of the asset allocations recommended by many Bogleheads. Since I don't yet have a well-informed mental model of what I'm doing, it seems prudent to follow the example of people who do appear to have that.

Thanks all!

Sim
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Re: Rebalancing from 80/20 to 70/30, whining

Postby retiredjg » Mon Jan 28, 2013 7:48 pm

Simbilis wrote:It's time to sell 25% of my VTSAX and TSP C Fund, and buy VBTLX and TSP G and F Funds.

Huh? If you sell 25% of your 80% and add it to your 20%, I don't think you will end up with 70/30. I know that's not your question, but getting the math right might affect how you see things. :wink:

Yes, this is whining. You need a good old fashioned market crash to make you feel better.

I wouldn't sell anything unless you have realized you are not comfortable with the risk level of 80/20. If so, that needs to be fixed now. If not, I'd just direct more money to the G fund or to a bond fund for a little while.
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Re: Rebalancing from 80/20 to 70/30, whining

Postby retiredjg » Mon Jan 28, 2013 7:52 pm

Simbilis wrote:dbr: I'm not exactly sure why I dislike bonds, but I do. Probably a thoughtless no-guts-no-glory bias

Maybe this thread will help.

viewtopic.php?p=538014
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Re: Rebalancing from 80/20 to 70/30, whining

Postby MoonOrb » Mon Jan 28, 2013 8:00 pm

I'm doing the exact same thing this week!

I just keep telling myself that in thirty years I'll think this is a great decision, and I also tell myself that I can't predict the future, so who cares what I think of the future of the bond market.

Plus, it feels good to sell high.
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Re: Rebalancing from 80/20 to 70/30, whining

Postby Simbilis » Mon Jan 28, 2013 8:06 pm

VTSAX and TSP C aren't 80% of my portfolio, it's just that exchanging 25% of those two holdings for bonds will balance things out. The math is as right as Google Spreadsheet can make it :happy

I've been through two market crashes already. However, 8-9% > 4-5%, so it follows ineluctably that stocks are better than bonds. That's logic! :oops:

I'm not especially uncomfortable with 80/20 nor comfortable with 70/30. I just can't "feel" the difference. So, I'm trying to be guided by people who've thought about it longer and are apparently better informed, until I feel qualified to have an opinion.

Edit: Thank you for the link. That's what I was looking for, but didn't know it.
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Re: Rebalancing from 80/20 to 70/30, whining

Postby gnosis » Mon Jan 28, 2013 9:05 pm

Do you have any debts that you could pay down this year instead of buying into bonds? If you pay down a 5% interest debt, that's like buying a guaranteed 5% bond. In the super-low yield world we're in these days, it's a great time to pay down your debts instead of buying into bonds.
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Re: Rebalancing from 80/20 to 70/30, whining

Postby Simbilis » Mon Jan 28, 2013 9:17 pm

All my debt is at 2.75% or less, and my only bond holdings are in tax advantaged accounts. We're paying off our remaining mortgage balance over 5 years, but for peace of mind, not for the best marginal return.
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Re: Rebalancing from 80/20 to 70/30, whining

Postby goodoboy » Tue Jan 29, 2013 1:41 am

Simbilis wrote:It's time to sell 25% of my VTSAX and TSP C Fund, and buy VBTLX and TSP G and F Funds. This feels like selling off diamonds to buy manure, or at least I think it would if I had any diamonds. For those who've done a major rebalance like this, how did you bring yourself to do it? I can't type well while holding my nose.

Bond funds. Bleh.

Sim


Well, I think you have to refer back to your overall investment plan. When I turn 40, I will go from 80/20 to 70/30 as well. I think you just have to think long term.

Is there any reason for the hesitation? Is it because you feel the market is will continue higher. Also, keep in mind you are selling at 5 year highs and buying bonds on lows. Just my two cents
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Re: Rebalancing from 80/20 to 70/30, whining

Postby retiredjg » Tue Jan 29, 2013 10:09 am

Simbilis wrote:So, I'm trying to be guided by people who've thought about it longer and are apparently better informed, until I feel qualified to have an opinion.

I looked back at an old thread and I'd agree that 80/20 is too aggressive for your age. I think this change is appropriate. :happy
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Re: Rebalancing from 80/20 to 70/30, whining

Postby scone » Tue Jan 29, 2013 10:17 am

How many years would it take you to crawl out of the hole if markets crashed by 50%? What would happen to your financial plan if markets crashed, and stayed down for many years, like Japan?
"Sometimes you eat the bear and sometimes the bear eats you." -- Preacher Roe
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Re: Rebalancing from 80/20 to 70/30, whining

Postby Simbilis » Tue Jan 29, 2013 11:16 am

retiredjg: Agreed. Thanks again for the thread link.

scone: If the US has a Japan-style slump and stagnation, I'll be too terrified to retire or spend any of my portfolio - my family will need it. I'll probably work until they have to scrape me out of my chair.
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Re: Rebalancing from 80/20 to 70/30, whining

Postby 555 » Tue Jan 29, 2013 11:25 am

Personally, I will stay at 80:20 until I have enough to retire. Some people around here are too conservative.
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Re: Rebalancing from 80/20 to 70/30, whining

Postby goodoboy » Tue Jan 29, 2013 12:03 pm

Simbilis wrote:retiredjg: Agreed. Thanks again for the thread link.

scone: If the US has a Japan-style slump and stagnation, I'll be too terrified to retire or spend any of my portfolio - my family will need it. I'll probably work until they have to scrape me out of my chair.


What is your age again? I don't see it in the thread. Thanks
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Re: Rebalancing from 80/20 to 70/30, whining

Postby Simbilis » Tue Jan 29, 2013 12:08 pm

Our vital stats are here.
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Re: Rebalancing from 80/20 to 70/30, whining

Postby goodoboy » Tue Jan 29, 2013 12:20 pm

Simbilis wrote:Our vital stats are here.


Well, I don't know about AA of 70/30, I think it depends on when you want to retire. And looks like you wanna work til 70, then 70/30 should be fair enough split between 60/40 and 80/20. Everyone is different. Its a tuff question I struggle with as well. I am 34 and just AA to 80/20 and letting it ride.
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Re: Rebalancing from 80/20 to 70/30, whining

Postby BolderBoy » Tue Jan 29, 2013 1:22 pm

TomatoTomahto wrote:I guess it was too subtle for me. I was once an engineer and you know how literal we are. Apologies for misunderstanding. : :oops:


I'll have to admit that I worded it a little strangely. Glad most folks understood what I was getting at and my apologies to the engineers on the list.

It was such an "Ah hah!" moment for me, when I realized what rebalancing does, that I love to proselytize about it.
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