Does anyone use a total AA allocation of more

[midareff]

than 100% to simplify asset tracking and avoid using decimal AA percentages? Perhaps 105% in a S&D portfolio however, when assets are counted up by the $$ the equities/FI allocation comes out as intended. Anyone?

[bertilak]

Could you give a concrete example? I'm not sure I understand your question.

It sounds like you are slicing to fractional percentages -- like, for example, "6.3% small cap." If that's the case I wonder why since that ".3" seems pretty arbitrary as a target allocation and as an actual (current) allocation it is not likely to hold for more than a few days.

My spreadsheet rounds everything to an integer so even if an actual allocation computed to 6.3% the spreadsheet would show it as 6%. I assign target allocations in multiples of 5%.

[midareff]

Avoiding allocations such as 5.7% is at the core. Lets suppose for this exmple you have a portfolio of $525K ... divided am,ong asset classes. Having a total allocation of 105% might be lots neater than asset classes allocated at 10.5%, 17.75% or such to get to a total of 100% for AA purposes..

[bertilak]

Avoiding allocations such as 5.7% is at the core. Lets suppose for this exmple you have a portfolio of $525K ... divided am,ong asset classes. Having a total allocation of 105% might be lots neater than asset classes allocated at 10.5%, 17.75% or such to get to a total of 100% for AA purposes..

But why would you allocate (target) something to 10.5%? Are you allocations so precise that 10% vs 10.5% makes a difference in your planning? Would you rebalance if the actual went down from 10.5% to 10%?

Still trying to understand. I guess I'm missing something. Maybe someone will jump in with a real answer for you!

[Aptenodytes]

Multiplying by 5.7 percent isn't any harder than 5.0 percent, unless you are trying to do the math in your head which would be irresponsible.

Maybe what you are asking is if it is ok to have target allocations for individual assets that are rounded to the nearest full percentage, even if the sum of those percentages came to more or less than 100. The answer in almost all circumstances is yes. The exception would be for very small allocations.

However, the preferred approach is to assign targets to each asset that sum to 100 and then use bands around those targets to trigger rebalancing decisions. You can round those trigger points if you are allergic to decimals. With the bands framing your rebalancing decisions, you don't need to touch the original targets which will continue to sum to 100.

[telemark]

There's nothing magic about 100, and 120 probably divides evenly in more ways, but no, I don't do that; never occurred to me. Besides, the graph on the Fidelity web site uses percent

[Default User BR]

No, because I use whole percentages within subclasses. That can work out to fractionals in some cases if you multiply it out, of course.


Brian

[midareff]

Avoiding allocations such as 5.7% is at the core. Lets suppose for this exmple you have a portfolio of $525K ... divided am,ong asset classes. Having a total allocation of 105% might be lots neater than asset classes allocated at 10.5%, 17.75% or such to get to a total of 100% for AA purposes..

But why would you allocate (target) something to 10.5%? Are you allocations so precise that 10% vs 10.5% makes a difference in your planning? Would you rebalance if the actual went down from 10.5% to 10%?

Still trying to understand. I guess I'm missing something. Maybe someone will jump in with a real answer for you!

My IP states that a variation in AA by + 10% or more (cash balance in fund) first rebalances to any asset class which is -5% or more and then is harvested to an account that provides a monthly stipend.

Are you allocations so precise that 10% vs 10.5% makes a difference in your planning? Answer is no but eventually the %'s have to add to something. Let's take a situation where 45% of assets are in taxable and pay distributions to bank cash. In years like this funds will still be at or over allocation. Funds in tax advantaged which reinvest will continue to grow.. makes no sense to harvest them and pay tax before RMD. They go up but stay in proper proportion as far as equities and FI.. just the whole pie gets larger. ./. larger than 100%

[midareff]

Thanks for the input guys... I'm just trying to understand how others handle certain situations. My tax advantaged has grown a good bit faster this year than taxable due to distributions being used for expenses vs. reinvestment. What was 10%, 14%, 20% would now be decimalized, which seems more complex than just adjusting everything to a larger percentage than 100. When multiplied out by total portfolio everything balances neatly and is properly within its balance bands.

[Aptenodytes]

I still have no idea what you are doing but it sounds like you are satisfied.

[midareff]

I still have no idea what you are doing but it sounds like you are satisfied.

I guess in the end it's a matter of tomatoooo or tomaaaato.

At end of year I calculate next years portfolio number based on CPI and withdrawal rate from the prior year and plug it into a box in the spreadsheet. The spreadsheet applies the individual assets AA % and establishes the AA dollar amount, compares it to the actual dollar amount and computes % variation based on actuals and how far into balance bands each asset is. I guess I'm doing a poor job of explaining what I'm doing. At the end of the day the overall AA % (Equities/FI/bank cash) has not changed, what has changed is the computed individual asset variation. ..... although whether you compute it by VG's method, L Swedroe's method, or other method, is a thread by itself.

Look at it this way.... lets suppose through capital gains and dividend distribution reinvestment your FI and Equity allocations within tax advantaged have grown, but still are balanced to your overall portfolio Equity/FI allocations. If you adjust those individual asset allocations upwards your total will be larger than 100% .. How do you handle that? By decimalizing and reducing all AA %'s or just as simply allowing the total to exceed 100%????

[Aptenodytes]

If things are in balance and the AA hadn't changed why is any adjustment needed?

[bertilak]

If you adjust those individual asset allocations upwards your total will be larger than 100% .. How do you handle that? By decimalizing and reducing all AA %'s or just as simply allowing the total to exceed 100%????

My confusion is, I think, that I don't see how you can ever add up individual percents and get a total greater than 100% so I don't even see a situation that needs to be "handled!"

Let me put out a scenario and you can tell me where it diverges from what you are doing ...

• Initial conditions: Target Asset Allocation is 55% equities and 45% FI. The total is 100%. This is pretty much by definition.
  The actual $ amounts are:
  
  Equities: $55K
  FI: $45K
  Total: $100K
• Some time in the future, your equities have gained but your FI is unchanged (just a simplifying assumption). The actual $ amounts are now
  
  Equities: $60K <== This changed
  FI: $45K
  Total: $105K
  
  The actual percent allocations are now:
  
  Equities: 60/105=57.14%
  FI: 45/105=42.86%
  Total: 100%
  (In my world I round things out so my spreadsheet would show 57% and 43%. That approximation is way more precise than it needs to be.)

[Christine_NM]

In my spreadsheet I use values (number of shares, NAV) that result in fractional allocations. But I format the % cells to not show any decimal places so the whole thing looks a lot cleaner. You seem to be doing some predictive things, but any calculation using the cell containing an allocation % will use the cell's (double-precision?) floating point value, not the displayed value. So you can use the cell that displays a rounded value and it will be just as precise as a cell that displays a couple of decimal places.

Hope this helps, but also hope you already know this. I too don't see the arithmetic problem. Looks like just a formatting nonissue, but I'm probably missing something about your spreadsheet.

[midareff]

If you adjust those individual asset allocations upwards your total will be larger than 100% .. How do you handle that? By decimalizing and reducing all AA %'s or just as simply allowing the total to exceed 100%????

My confusion is, I think, that I don't see how you can ever add up individual percents and get a total greater than 100% so I don't even see a situation that needs to be "handled!"

Let me put out a scenario and you can tell me where it diverges from what you are doing ...

• Initial conditions: Target Asset Allocation is 55% equities and 45% FI. The total is 100%. This is pretty much by definition.
  The actual $ amounts are:
  
  Equities: $55K
  FI: $45K
  Total: $100K
• Some time in the future, your equities have gained but your FI is unchanged (just a simplifying assumption). The actual $ amounts are now
  
  Equities: $60K <== This changed
  FI: $45K
  Total: $105K
  
  The actual percent allocations are now:
  
  Equities: 60/105=57.14%
  FI: 45/105=42.86%
  Total: 100%
  (In my world I round things out so my spreadsheet would show 57% and 43%. That approximation is way more precise than it needs to be.)

On the other hand if you are plugging in a portfolio value of $105K 45% and 60% are much simpler to deal with than 42.86% and 57.14% remembering the spreadsheets will track variation from assigned values by both absolute dollars and % variation looking at a 10% reblance band.

[midareff]

In my spreadsheet I use values (number of shares, NAV) that result in fractional allocations. But I format the % cells to not show any decimal places so the whole thing looks a lot cleaner. You seem to be doing some predictive things, but any calculation using the cell containing an allocation % will use the cell's (double-precision?) floating point value, not the displayed value. So you can use the cell that displays a rounded value and it will be just as precise as a cell that displays a couple of decimal places.

Hope this helps, but also hope you already know this. I too don't see the arithmetic problem. Looks like just a formatting nonissue, but I'm probably missing something about your spreadsheet.

Under predictive I use M* SEC% and M* 12 month prior dividends to "reasonably" forecast min/max future portfolio distributions. I track shares in thousanths, money in dollars and cents, not much rounding going on here.

[bertilak]

midareff,

Are you predicting next year's portfolio growth (say for example 5%) and then tracking progress against the hoped-for 105% final outcome?

Maybe it's much more than 5% if you are including new money being invested with each paycheck. Sounds a lot like what's called value averaging. If this is the case, maybe you could Google around for how people keep track of that.

[midareff]

midareff,

Are you predicting next year's portfolio growth (say for example 5%) and then tracking progress against the hoped-for 105% final outcome?

No, I am predicting next year's dividend distributions (from) taxable based on current M* SEC and M* last 12 month dividend distribution. It is (presently) forecast to match IRS needs and is set to electronically pay quarterly.

Maybe it's much more than 5% if you are including new money being invested with each paycheck. Sounds a lot like what's called value averaging. If this is the case, maybe you could Google around for how people keep track of that.

Retired last March 30th. A drawdown is in place rather than new money being contributed although this year portfolio totals went up nicely. If I'm going to change AA %'s as tax advantaged continues to grow (don't need to touch until RMD in 2018), it seems logical (and maybe just to me) to adjust using numbers that don't look like 47.38% .. meaning that items allocation is targeted at $473,800. The totals are the same .. the money is the same, the variations are he same .... 40% 65% 105% simple... spreadsheet calculates all variations in total $$ and in %.

[leonard]

than 100% to simplify asset tracking and avoid using decimal AA percentages? Perhaps 105% in a S&D portfolio however, when assets are counted up by the $$ the equities/FI allocation comes out as intended. Anyone?

Excel likes decimals. Keep it simple and just use 100%.

[Christine_NM]

leonard -

I was going to add "keep it simple" too, but you've done it. I found an animated avatar of a Hershey's KISS unwrapping itself and giving a big red-lipped KISS to the reader -- would have been fun, but not doable on this forum.