Increase stocks as part of a change in strategy

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Always passive
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Increase stocks as part of a change in strategy

Post by Always passive » Sun Jun 18, 2017 9:52 am

As part of a change in strategy, a portion of the family portfolio is being earmarked as long term/legacy, and for that portion, the allocation of stocks is being increased from 30 to 50%. The portfolio follows a slightly modified version of Taylor's 3 fund portfolio (VTI and VXUS in about equal weights, plus BND and VCIT, in about equal weights with a bit of HYG.)
Given the state of the markets, which the family considers to be overvalued, specially in the US, what strategy would this forum use to increase the equity portion? A lump sum change or slowly in the course of a few months. I would appreciate your input, if possible giving the reasons.

By the way:
VTI = Total US stock market.
VXUS = Stock market outside the US (developed + emerging.)
BND = Total US bond market.
VCIT = intermediate US corporate bonds.
HYG = high yield bonds.

Thank you.

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TD2626
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Re: Increase stocks as part of a change in strategy

Post by TD2626 » Sun Jun 18, 2017 10:07 am

Vanguard Total World could simplify things for those who have total US and total international in roughly equal weights. It invests according to global market cap weightings (which can change) and is currently somewhat close to half and half. One doesn't then have to make any bets on relative directions of US vs international markets - this option just owns it all.

Both lump sums or short term (a few months) averaging in to the change are both thought to be acceptable - those who average in over years can miss out on a lot of returns, though. I would just use lump sum for simplicity. Short term market movements are just noise and no one can predict what might happen. The markets are in this view equally likely to go up or down. Averaging in is OK for peace of mind though in some cases.

Be sure that you're comfortable with the changes being made, though. Although the ideas seem to be reasonable at face value, it's hard to give any detailed information on whether that move is right without more details posted.

aristotelian
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Re: Increase stocks as part of a change in strategy

Post by aristotelian » Sun Jun 18, 2017 10:19 am

There is no such thing as "portions" of portfolios. Any stocks across your whole portfolio are your long-term assets. Any bonds are your short to intermediate term assets.

I would go with the lump sum, but I do not believe that stocks are overvalued. By definition, they are valued at the fair market price, which includes expectations of the future. If you think you would regret buying stocks at the current price as a long term investment only to experience a short-term loss, then you should probably stay at your current allocation rather than engage in timing the market.

dbr
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Re: Increase stocks as part of a change in strategy

Post by dbr » Sun Jun 18, 2017 10:39 am

Always passive wrote:As part of a change in strategy, a portion of the family portfolio is being earmarked as long term/legacy, and for that portion, the allocation of stocks is being increased from 30 to 50%. The portfolio follows a slightly modified version of Taylor's 3 fund portfolio (VTI and VXUS in about equal weights, plus BND and VCIT, in about equal weights with a bit of HYG.)
Given the state of the markets, which the family considers to be overvalued, specially in the US, what strategy would this forum use to increase the equity portion? A lump sum change or slowly in the course of a few months. I would appreciate your input, if possible giving the reasons.
A long term/legacy portfolio and you are debating over a couple of months of investing? That makes no sense. The reason it makes no sense is that prospectively it doesn't make any difference. If the concern is that the market is overvalued, then to avoid that you would have to wait until the market is not overvalued. It is highly unlikely that change will occur in a few months. If you are afraid the market is going to crash shortly after you invest, avoiding the chances that will happen in the next few months only to expose yourself to decades and decades of the same risk after you invest makes no sense. It is possible that people are afraid of that asset allocation. The solution is to invest in a more conservative allocation. A second solution is that the fears may be irrational and people need a better understanding of risk and return in portfolios. Lastly, of course, 30% to 50% stocks is not a very big change and both portfolios are conservative relative to what most people would choose for a very long term investment where growth is an incentive.

livesoft
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Re: Increase stocks as part of a change in strategy

Post by livesoft » Sun Jun 18, 2017 11:00 am

I suggest that you write out possible scenarios / futures including what you will do if such a future occurs. For instance,

1. Switch now in lump-sum and
a. Market drops 10%, then I will ...
b. Market stays about the same, then I will ...
c. Market goes up 10%, then I will ..
d. Market drops 20%, then I will ...

2. Switch a little bit (from 30% to 35% now) and plan to switch another 5% next (month, quarter, on an RBD, on a gain of 5%, on a roll of a die, ....)
a. ...
b. ....
...

That might bring some clarity to what choice you like best.
This signature message sponsored by sscritic: Learn to fish.

Always passive
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Re: Increase stocks as part of a change in strategy

Post by Always passive » Sun Jun 18, 2017 11:53 am

dbr wrote:
Always passive wrote:As part of a change in strategy, a portion of the family portfolio is being earmarked as long term/legacy, and for that portion, the allocation of stocks is being increased from 30 to 50%. The portfolio follows a slightly modified version of Taylor's 3 fund portfolio (VTI and VXUS in about equal weights, plus BND and VCIT, in about equal weights with a bit of HYG.)
Given the state of the markets, which the family considers to be overvalued, specially in the US, what strategy would this forum use to increase the equity portion? A lump sum change or slowly in the course of a few months. I would appreciate your input, if possible giving the reasons.


A long term/legacy portfolio and you are debating over a couple of months of investing? That makes no sense. The reason it makes no sense is that prospectively it doesn't make any difference. If the concern is that the market is overvalued, then to avoid that you would have to wait until the market is not overvalued. It is highly unlikely that change will occur in a few months. If you are afraid the market is going to crash shortly after you invest, avoiding the chances that will happen in the next few months only to expose yourself to decades and decades of the same risk after you invest makes no sense. It is possible that people are afraid of that asset allocation. The solution is to invest in a more conservative allocation. A second solution is that the fears may be irrational and people need a better understanding of risk and return in portfolios. Lastly, of course, 30% to 50% stocks is not a very big change and both portfolios are conservative relative to what most people would choose for a very long term investment where growth is an incentive.
Your logic is absolutely right; but the numbers in question are substantial, in the seven figures.

Always passive
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Re: Increase stocks as part of a change in strategy

Post by Always passive » Sun Jun 18, 2017 11:56 am

dbr wrote:
Always passive wrote:As part of a change in strategy, a portion of the family portfolio is being earmarked as long term/legacy, and for that portion, the allocation of stocks is being increased from 30 to 50%. The portfolio follows a slightly modified version of Taylor's 3 fund portfolio (VTI and VXUS in about equal weights, plus BND and VCIT, in about equal weights with a bit of HYG.)
Given the state of the markets, which the family considers to be overvalued, specially in the US, what strategy would this forum use to increase the equity portion? A lump sum change or slowly in the course of a few months. I would appreciate your input, if possible giving the reasons.


A long term/legacy portfolio and you are debating over a couple of months of investing? That makes no sense. The reason it makes no sense is that prospectively it doesn't make any difference. If the concern is that the market is overvalued, then to avoid that you would have to wait until the market is not overvalued. It is highly unlikely that change will occur in a few months. If you are afraid the market is going to crash shortly after you invest, avoiding the chances that will happen in the next few months only to expose yourself to decades and decades of the same risk after you invest makes no sense. It is possible that people are afraid of that asset allocation. The solution is to invest in a more conservative allocation. A second solution is that the fears may be irrational and people need a better understanding of risk and return in portfolios. Lastly, of course, 30% to 50% stocks is not a very big change and both portfolios are conservative relative to what most people would choose for a very long term investment where growth is an incentive.
Your logic is absolutely right; but the numbers in question are substantial, and that really scares me. In 2008 I experienced the problem when I invested big right before the crush.

dbr
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Joined: Sun Mar 04, 2007 9:50 am

Re: Increase stocks as part of a change in strategy

Post by dbr » Sun Jun 18, 2017 12:10 pm

Always passive wrote:
dbr wrote:
Always passive wrote:As part of a change in strategy, a portion of the family portfolio is being earmarked as long term/legacy, and for that portion, the allocation of stocks is being increased from 30 to 50%. The portfolio follows a slightly modified version of Taylor's 3 fund portfolio (VTI and VXUS in about equal weights, plus BND and VCIT, in about equal weights with a bit of HYG.)
Given the state of the markets, which the family considers to be overvalued, specially in the US, what strategy would this forum use to increase the equity portion? A lump sum change or slowly in the course of a few months. I would appreciate your input, if possible giving the reasons.


A long term/legacy portfolio and you are debating over a couple of months of investing? That makes no sense. The reason it makes no sense is that prospectively it doesn't make any difference. If the concern is that the market is overvalued, then to avoid that you would have to wait until the market is not overvalued. It is highly unlikely that change will occur in a few months. If you are afraid the market is going to crash shortly after you invest, avoiding the chances that will happen in the next few months only to expose yourself to decades and decades of the same risk after you invest makes no sense. It is possible that people are afraid of that asset allocation. The solution is to invest in a more conservative allocation. A second solution is that the fears may be irrational and people need a better understanding of risk and return in portfolios. Lastly, of course, 30% to 50% stocks is not a very big change and both portfolios are conservative relative to what most people would choose for a very long term investment where growth is an incentive.
Your logic is absolutely right; but the numbers in question are substantial, and that really scares me. In 2008 I experienced the problem when I invested big right before the crush.
I am convinced that the answer to "that really scares me" is that the question is not about making the investment over time but about making it at all. If you are scared you should invest at 30/70 rather than 50/50.

aristotelian
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Re: Increase stocks as part of a change in strategy

Post by aristotelian » Sun Jun 18, 2017 12:13 pm

Always passive wrote: Your logic is absolutely right; but the numbers in question are substantial, and that really scares me. In 2008 I experienced the problem when I invested big right before the crush.
Then don't fix what ain't broke. Why would you take risk if you have won the game and have no need to do so?

If you are investing for future generations, let them decide when they receive their inheritance. In the meantime, you can have peace of mind that their inheritance is intact regardless of what happens with the market.

dbr
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Joined: Sun Mar 04, 2007 9:50 am

Re: Increase stocks as part of a change in strategy

Post by dbr » Sun Jun 18, 2017 12:15 pm

aristotelian wrote:
Always passive wrote: Your logic is absolutely right; but the numbers in question are substantial, and that really scares me. In 2008 I experienced the problem when I invested big right before the crush.
Then don't fix what ain't broke. Why would you take risk if you have won the game and have no need to do so?

If you are investing for future generations, let them decide when they receive their inheritance. In the meantime, you can have peace of mind that their inheritance is intact regardless of what happens with the market.
I agree. There is something to be said for an inheritance to be certain rather than risky. The heirs can decide how much risk to take. How many family histories are there that start "My father lost everything in the market and we were raised poor . . ."

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