Accumulating Bonds During Record Stocks

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CFR
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Joined: Sun Jan 22, 2017 1:35 pm

Accumulating Bonds During Record Stocks

Post by CFR » Mon Jul 17, 2017 11:06 am

Typically, I add funds to my 401K (max), Roth (max), and taxable (leftovers) at the beginning of the year. The rest of the year, contributions come in monthly drips and drabs. Usually from various small income streams and of course when I have extra money. I am in my early/mid fifties, expecting to retire in about 15 years so I believe I have a reasonable AA of about 68%-32%.

Almost always, these amounts must go into a taxable account, and lately I have had a tenancy to purchase only the bond side, VTEB in particular. My reasoning has been that with with record stock prices, I want to be in a position to move funds into stocks during a downturn. I am thinking this is marking timing in a way, but I am within my current acceptable AA. Anybody else doing similar and is it a reasonable method? That is, essentially moving my AA to my lower acceptable range with new money, planning on moving to the higher AA ratio during a downturn. A reasonable plan?



Thanks for your comments

CFR

RRAAYY3
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Re: Accumulating Bonds During Record Stocks

Post by RRAAYY3 » Mon Jul 17, 2017 11:19 am

it's market timing ... and its exactly what I'm doing (only in high yield savings, no bonds - I'm 32)

I do not feel comfortable dumping more money into total US at these valuations, so I'm setting money aside to either add total int'l admiral to my taxable, or hopefully theres a US buying opportunity

is robo/"passive" investing removing the likelihood of volatility / correction ?

mhalley
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Re: Accumulating Bonds During Record Stocks

Post by mhalley » Mon Jul 17, 2017 2:05 pm

It might not be market timing, perhaps adding to bonds later in the year is offsetting the gains of your large stock purchases plus unrealized capital gains. Not knowing the total portfolio value and how much money these dribs and drabs affects it makes it hard to tell if you are market timing or not. Plus, if you have a very large net worth, the dribs and drabs will have little affect on your aa. So it might make you feel better, but it may not be affecting your overall portfolio much. Most people have a rebalancing band of 5% or so, so it is not unreasonable overall.

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ray.james
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Re: Accumulating Bonds During Record Stocks

Post by ray.james » Mon Jul 17, 2017 2:22 pm

While I think you all could be right about market, if everyone is waiting for downturn, it is not going to happen. Even if it happens due to external shock, it will be small and short lived.

Bubbles like 2008/2001 are built on massive speculation but not fear.
When in doubt, http://www.bogleheads.org/forum/viewtopic.php?f=1&t=79939

CFR
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Re: Accumulating Bonds During Record Stocks

Post by CFR » Mon Jul 17, 2017 3:20 pm

ray.james wrote:While I think you all could be right about market, if everyone is waiting for downturn, it is not going to happen. Even if it happens due to external shock, it will be small and short lived.

Bubbles like 2008/2001 are built on massive speculation but not fear.
I think I would rather categorize this question in terms of strategy. Since I refuse not to be invested with any extra funds, "invest we must" as Mr Bogle has been quoted saying. The question then is, is it reasonable to move to the lower part of your AA bands (i.e. 65% / 35%) on purpose during long bull markets, and in return, move back to your higher AA (i.e. 70% / 30%) during long bear markets. Generally this would be done mostly with new money, but sometimes as a re-balance.

It has occurred to me this is a fools errand but at the moment since we are in a bull market, I have moved towards the lower stock allocation without selling. If the market drops some amount, say 15%, I may re-balance to get back to 65/35 but there after, new money would go into stock presumably to maintain 65/35. I certainly could be over thinking this as I have yet to move outside my current AA bands. In my line of work, optimization can be a curse. I certainly don't feel any fear about the market. It will go down some day. I am just trying to figure out how to take advantage of those situations while adhering to the main idea of boglehead investing. possibly putting this strategy in a investment plan and sticking to it.

asset_chaos
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Re: Accumulating Bonds During Record Stocks

Post by asset_chaos » Mon Jul 17, 2017 4:35 pm

I don't know about the waiting to pounce in a bear market part of it, but for the past few years all of my new investment, all stock dividends, and almost all stock rebalancing sales have gone to bonds. This is because stock markets have been going well, much higher returns than bonds, and it's all I can do to even maintain my preferred bond allocation. I'm a little closer to retirement than you and on my own personal glide path to have more bonds as I hurtle towards retirement, which has made it even harder the last few years to maintain the bond allocation.

Of course stocks are variable. At any moment they can potentially plunge as they did in 2008. When that happens again, I'll rebalance, as I did in 2009, to my allocation target at the time. But I'm not accumulating bonds in anticipation of such an event; I just want lower risk as I wind down my work capital. The actions may amount to the same thing, but the perspective may be somewhat different.
Regards, | | Guy

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