Am I market timing with my newly considered AA?

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MyrnaMinkoff
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Am I market timing with my newly considered AA?

Post by MyrnaMinkoff » Sat Jan 06, 2018 6:20 pm

I'm currently reassessing my AA after thinking about rebalancing and am looking for feedback on the following scenario.

- Currently in 75/25 AA (we are in late 30s).
- I have a mortgage that is approximately 17.5% of portfolio value (not included in the AA as a negative bond).
- I reassessed whether it makes sense to have the mortgage and the difference is about 0.5% in favor of paying it off.
- Our NW is above x25 of spending (including mortgage payment)

Regardless of whether we pay off mortgage, if I'm being honest with myself, my instinct is to get out of equities. I want to stay the course, so my original plan was to trim or shift AA towards bond 5% and walk away. However, considering the fact that we are close to "enough" and the market seems high, there's more than a bit of fear involved. Regardless, I'm considering the following:

Consider the mortgage a negative bond and rebalance to 60/40. Equivalently, use 17.5% of taxable to pay off mortgage and rebalance to (around) 75/25. I can finagle this with minimal taxes

So, am I just rationalizing my market timing here? Anything I'm missing? What would you do?

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Ged
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Re: Am I market timing with my newly considered AA?

Post by Ged » Sat Jan 06, 2018 6:26 pm

MyrnaMinkoff wrote:
Sat Jan 06, 2018 6:20 pm
there's more than a bit of fear involved.
Your allocation to equities should allow you to sleep well at night.

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sergeant
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Re: Am I market timing with my newly considered AA?

Post by sergeant » Sat Jan 06, 2018 6:27 pm

I think that you are reassessing your AA. Some will call it market timing but who cares. Moving from your AA to 60/40 when you realize that you've won the game is good planning in my book.
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Thesaints
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Re: Am I market timing with my newly considered AA?

Post by Thesaints » Sat Jan 06, 2018 6:57 pm

If you change your AA based on a reassessment of your personal situation, that's not market timing.
It is instead if you change your AA based on your reassessment of the market.

sambb
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Re: Am I market timing with my newly considered AA?

Post by sambb » Sat Jan 06, 2018 7:09 pm

Your risk tolerance has changed so you are rebalancing. Who cares if people say it is timing. It isn’t.

mhalley
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Re: Am I market timing with my newly considered AA?

Post by mhalley » Sat Jan 06, 2018 7:18 pm

A five percent change is a reasonable reassessment of your risk tolerance. Going to 70% bonds would be market timing.

BogleBoogie
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Re: Am I market timing with my newly considered AA?

Post by BogleBoogie » Sat Jan 06, 2018 7:35 pm

If you change to 60/40 and there is a big equity dip, will you change your AA to become more aggressive?

MotoTrojan
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Re: Am I market timing with my newly considered AA?

Post by MotoTrojan » Sat Jan 06, 2018 7:43 pm

BogleBoogie wrote:
Sat Jan 06, 2018 7:35 pm
If you change to 60/40 and there is a big equity dip, will you change your AA to become more aggressive?
The answer to this will answer the OPs question.

technovelist
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Re: Am I market timing with my newly considered AA?

Post by technovelist » Sat Jan 06, 2018 7:49 pm

It sounds as though you are very close to having won the game, so you don't need to be aggressive.

If I were in your position, I would go with the Harry Browne Permanent Portfolio, which is much less volatile than even 60/40 at the expense of a slightly lower CAGR. There have been a number of threads on that portfolio on this board, but very briefly it consists of 25% of each of the following: stocks, bonds, gold, and cash.

Oh, and to answer your original question: no, market timing is changing your portfolio because you think you know what the market is going to do. Changing your portfolio because you don't need to take the risk of a high equity proportion is just being sensible.
In theory, theory and practice are identical. In practice, they often differ.

MyrnaMinkoff
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Re: Am I market timing with my newly considered AA?

Post by MyrnaMinkoff » Sat Jan 06, 2018 8:30 pm

BogleBoogie wrote:
Sat Jan 06, 2018 7:35 pm
If you change to 60/40 and there is a big equity dip, will you change your AA to become more aggressive?
That's a great way to put it. For a 10-25% dip I'm pretty sure I'd do nothing other than rebalance.

2008 still rings fresh in my mind, though. Out of curiosity - what was the correct move in retrospect for people nearing retirement age during that period (besides keep working or contribute more)? More aggressive AA only if it didn't look like you'd make target before retiring? Pray your bonds outlast the downturn?

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Tyler Aspect
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Re: Am I market timing with my newly considered AA?

Post by Tyler Aspect » Sat Jan 06, 2018 9:44 pm

I think you can pay off your mortgage AND then move to 60% stock / 40% bond. When you are getting close to your goal it is natural to figure out your new plan approaching retirement.
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Dandy
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Re: Am I market timing with my newly considered AA?

Post by Dandy » Sun Jan 07, 2018 8:52 am

As you approach "enough" asset preservation becomes more important than growth. Also, allocation percentages tend to distort the risk which is in dollars. There is also a tendency to believe if someone cuts their equity allocation from 80% to 60% or 50% that they will not have enough growth. Finally, while in the midst of a long bull market we tend to think of our investment asset total as more secure than it really is - try deducting 50% of equity value from your investment asset total to see what exposure is there. These are my thoughts on the matter.

Now add the fact that we have had an 8 year and while the market might still have some legs given the economy is doing well and we just had a major corporate tax reduction, I would still tend to lean toward more asset preservation. Paying off the mortgage seems reasonable if you plan to live there. A less aggressive equity allocation should also be considered. It seems at your age you have plenty of time and human capital to accumulate much more wealth with a moderate vs aggressive allocation.

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