How do Bogleheads Take Advantage of Dips When Fully Invested?

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ef11
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How do Bogleheads Take Advantage of Dips When Fully Invested?

Post by ef11 »

Hello all,

I am a Boglehead and have been for the past 6 years which has worked out great for me. I know the general answer to my question is, check AA at fixed intervals, if it is unbalanced, rebalance it.

BUT

It can be frustrating when the market has a huge pullback yet you do not get to take advantage of it because your Roth and Taxable accounts are fully invested and you only get paid once a month on the 20th (meaning 401K contribution only goes in once per month on that date). Anytime I see the market pullback 500+ points I would love to put more money in, not trying to time the market but I am 29 and buying to hold so it is frustrating to completely miss out and then on the next 401K contribution the market is right back up. See chart below for last three 401K contributions.

Like I said, I know the simple answer, but just curious if anyone does anything creative on days where the market has severe declines.

Thanks

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Re: How do Bogleheads Take Advantage of Dips When Fully Invested?

Post by livesoft »

My asset allocation is around 60% equities and 40% fixed income. I simply sell fixed income and buy equities. If I need to go the other way, I sell equities and buy fixed income. It is pretty simple to do that. Does that help?
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Re: How do Bogleheads Take Advantage of Dips When Fully Invested?

Post by Grt2bOutdoors »

Fully invested- sell bonds, buy equities. Rinse and repeat. Still fully invested.
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Re: How do Bogleheads Take Advantage of Dips When Fully Invested?

Post by Marketman »

You basically have a choice: A. Pick an AA and rebalance as needed. B. Pick an AA and keep some extra cash lying around for crashes. I vote for choice A because you stay fully invested at all times. It is just too hard to profit by keeping cash out of the market. I don't think anyone has any idea of good or bad time to get into the market. When the market dips, HINDSIGHT tells you it is a good time to buy, but there is no way to know IN ADVANCE when it will dip. Also, if you keep extra cash the market my go up 30% then correct back 10%. In this case you would be up 20% if you just stayed in from the beginning. The dip in this case does not look as good. Like you hear around here, "It's all about time in the market not timing the market."
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Re: How do Bogleheads Take Advantage of Dips When Fully Invested?

Post by blaugranamd »

Marketman wrote: Tue Apr 03, 2018 6:39 pm Also, if you keep extra cash the market my go up 30% then correct back 10%. In this case you would be up 20% if you just stayed in from the beginning. The dip in this case does not look as good. Like you hear around here, "It's all about time in the market not timing the market."
This. I do not try to buy dips because there's no promise that just because something drops 500 points that it wont drop another 500 after you dump money in. For long term investing, there's so little real difference gained with these short, transient drops.
Last edited by blaugranamd on Tue Apr 03, 2018 6:50 pm, edited 1 time in total.
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Re: How do Bogleheads Take Advantage of Dips When Fully Invested?

Post by PFInterest »

Rebalance when I hit a band. Hasn't happened yet.
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Re: How do Bogleheads Take Advantage of Dips When Fully Invested?

Post by cfs »

Good conversation! My two centimos. I am 100 percent invested, meaning that ALL my investable money is already IN the market. However, there is a BIG difference between "Fully Invested" (or 100 percent invested) and "100 percent in equities." Good luck with your investments, y gracias por leer ~cfs~

p.s. As I have said ad nauseam, You just don't want to be out of this market for ONE day !!!!
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Re: How do Bogleheads Take Advantage of Dips When Fully Invested?

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Re: How do Bogleheads Take Advantage of Dips When Fully Invested?

Post by wolf359 »

We are saving for other things in addition to investing. Specifically, I have money flowing to a high yield savings account to fund vacations, a new car, and other luxury items. This enables me to sustain a high savings rate -- my wife is not complaining that we can't do any of the "fun" stuff, because we are. However, when the market is down significantly, we may redirect that cash flow to the stock market. If the economy is in the toilet, we might want to cut back. If times are really bad, the disposable income fund may be added to the emergency fund.

All last year, the market was only going up. I was starting to feel worse and worse buying at higher and higher levels. Now that there's a dip, I haven't made any adjustments, and the automated investments are going on as normal. The main difference is that I feel much better letting it buy now. Things haven't dropped enough to make any changes yet.
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Re: How do Bogleheads Take Advantage of Dips When Fully Invested?

Post by stuper1 »

Here's an idea for the OP. When the 20th of the month rolls around on 4/20, let your 401k contribution for that month just sit in cash. If a dip happens between 4/20 and 5/20, then buy the dip. If not, just automatically use your 4/20 money to buy on 5/20. Repeat that procedure every month.

I'm about 99.99% sure that it won't make any discernible difference to your account in 20 years, but you may feel better about it, which may help you stick with your asset allocation. The only problem with this plan is that it is not automatic. If you forget to invest the previous month's money by the time the next contribution rolls around, then you are starting to have a problem of excess cash lying around not doing anything for you. For that reason, I wouldn't do that plan myself. But if you are the type of person who always checks their 401k at least once a month, it should work fine for you. That's not me.
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Re: How do Bogleheads Take Advantage of Dips When Fully Invested?

Post by Olemiss540 »

I zoom out a little farther on the chart I am looking at.

If 1 or 2% is a "buying opportunity", what do you call a 40% dip? I stay invested and continue to invest every single penny I have that is not currently allocated for a purpose.

Pick an appropriate AA and stay the course. The 5% drops will be forgotten over a 20 year timeframe.

This forum is going to get really exciting come the next 2008.
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Re: How do Bogleheads Take Advantage of Dips When Fully Invested?

Post by tinscale »

livesoft wrote: Tue Apr 03, 2018 6:29 pm My asset allocation is around 60% equities and 40% fixed income. I simply sell fixed income and buy equities. If I need to go the other way, I sell equities and buy fixed income. It is pretty simple to do that. Does that help?
This^^^ except you can't do it if your fixed income allocation happens to be the TSP G Fund.
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Re: How do Bogleheads Take Advantage of Dips When Fully Invested?

Post by wootwoot »

Bogleheads don't take advantage of dips, that would be market timing. How do you know if a dip is going higher or lower?
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Re: How do Bogleheads Take Advantage of Dips When Fully Invested?

Post by grabiner »

tinscale wrote: Tue Apr 03, 2018 7:45 pm
livesoft wrote: Tue Apr 03, 2018 6:29 pm My asset allocation is around 60% equities and 40% fixed income. I simply sell fixed income and buy equities. If I need to go the other way, I sell equities and buy fixed income. It is pretty simple to do that. Does that help?
This^^^ except you can't do it if your fixed income allocation happens to be the TSP G Fund.
The TSP allows two changes of allocation per month, and additional moves into the G fund only.

The problem does exist with some investments, though. If your fixed income is in CDs, you will have a penalty for selling non-maturing CDs to buy more stock. Some variants of TIAA Traditional Annuity allow withdrawals only over a ten-year period, which somewhat restricts rebalancing. (In either case, you can still contribute new money to stock funds, usually including the interest on your CDs.)
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Re: How do Bogleheads Take Advantage of Dips When Fully Invested?

Post by Toons »

70/30 here equity bond.
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Re: How do Bogleheads Take Advantage of Dips When Fully Invested?

Post by tinscale »

tinscale wrote: Tue Apr 03, 2018 7:45 pm
livesoft wrote: Tue Apr 03, 2018 6:29 pm My asset allocation is around 60% equities and 40% fixed income. I simply sell fixed income and buy equities. If I need to go the other way, I sell equities and buy fixed income. It is pretty simple to do that. Does that help?
This^^^ except you can't do it if your fixed income allocation happens to be the TSP G Fund.
I meant you can't do the trade in real time.
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Re: How do Bogleheads Take Advantage of Dips When Fully Invested?

Post by Zedon »

I think some people are still waiting for a dip.
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Re: How do Bogleheads Take Advantage of Dips When Fully Invested?

Post by BeBH65 »

Monthly contributions go into the asset that is low(est).

If that doesn't rebalance my AA then I sell my "high" assets and buy additional "low"
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Re: How do Bogleheads Take Advantage of Dips When Fully Invested?

Post by triceratop »

tinscale wrote: Tue Apr 03, 2018 8:48 pm
tinscale wrote: Tue Apr 03, 2018 7:45 pm
livesoft wrote: Tue Apr 03, 2018 6:29 pm My asset allocation is around 60% equities and 40% fixed income. I simply sell fixed income and buy equities. If I need to go the other way, I sell equities and buy fixed income. It is pretty simple to do that. Does that help?
This^^^ except you can't do it if your fixed income allocation happens to be the TSP G Fund.
I meant you can't do the trade in real time.
You also don't benefit in that the G fund doesn't go up in value when yields decline (assuming for the sake of this hypothetical that treasury yields have something to do with equity declines, which isn't always true).
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Re: How do Bogleheads Take Advantage of Dips When Fully Invested?

Post by JoMoney »

You get one of these. Take full advantage of dips, and still be fully invested.
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Re: How do Bogleheads Take Advantage of Dips When Fully Invested?

Post by goblue100 »

blaugranamd wrote: Tue Apr 03, 2018 6:47 pm
This. I do not try to buy dips because there's no promise that just because something drops 500 points that it wont drop another 500 after you dump money in. For long term investing, there's so little real difference gained with these short, transient drops.
I'm mostly in this camp. Life is short, don't sweat every little change in the indexes. If it makes you feel better, set aside 1% of your portfolio in cash and use it when you think the dip occurs. Once it's deployed, save another 1% for the next dip.
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Re: How do Bogleheads Take Advantage of Dips When Fully Invested?

Post by indexonlyplease »

JoMoney wrote: Wed Apr 04, 2018 3:59 am You get one of these. Take full advantage of dips, and still be fully invested.
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That's funny
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Re: How do Bogleheads Take Advantage of Dips When Fully Invested?

Post by indexonlyplease »

At 29 you are most likely in 100% stocks (I was) or verry little money in fixed income. So you are unable to rebalance money into your equities on the dip. So, I would think dont worry about it because you are dollar cost averaging. I think most of us never did this because we did not have the money or most of the money was already in equities.

So, just keep investing and don't worry for now. When you get older and start having more fixed income, then you may have the oppurtunity.
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Re: How do Bogleheads Take Advantage of Dips When Fully Invested?

Post by renue74 »

We are 65/35 stock/bond AA. With a 5% band before rebalancing. Even with the extreme changes lately, we haven't hit our rebalance number yet.

If we do, we'll do what others indicate....sell bond funds, buy stock funds, etc.

Any new money that we put in, continues to go into our preselected funds (total bond fund for 403b and SIMPLE IRAs) and Total Stock fund for Roth IRAs. No market timing...just regularly invest.
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Re: How do Bogleheads Take Advantage of Dips When Fully Invested?

Post by rhinopylon »

I've been on the lookout for being outside one of my bands for the last 4 years and I've never seen my target allocations deviate by more than a percent or two. I don't know how people take advantage of these dips or calculate their band deviation. It could be because I'm still in major accumulation phase so my total balance is somehow matching my target allocation percentages?

One thing I did last year to "take advantage of dips" was to place my extra money at the end of the month into my home loan. Typically I would put that money into my taxable account and put it in the market. But since the market was so high and still growing, I felt more comfortable taking the extra cash and putting it into my loan. I still continued with my regular 401k/roth/hsa investments of course.

I'm happy I did that and my home loan is lower!
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Re: How do Bogleheads Take Advantage of Dips When Fully Invested?

Post by MtnBiker »

Maybe not a BH thing, but for entertainment purposes I have market timed between Roth and traditional IRAs (without changing overall AA).
livesoft wrote: Tue Jun 15, 2010 8:56 pm With both a traditional IRA/401(k) and a Roth IRA/401(k) one could partition riskier equities and safer bonds between them based on some market timing model while still maintaining the same amount of equities.

For example, when the market is riding high, the Roth is switched to be heavily weighted in bond funds while the traditional holds the equity fund. When the market has tanked, the Roth is switched to be heavily weighted in equity funds while the traditional is switched to mostly bonds.

Switching would have no immediate tax consequences in these IRAs. It seems like such market timing would not hurt one in the long run since you would not be changing your asset allocation at all. You would only be changing asset location in two tax-advantaged accounts.

One would just need some kind of signal to help with the switching such as a 200-day moving average, PE 10, or number of posts on Bogleheads about "should I switch now?".
posting.php?mode=quote&f=10&p=760632

The significant Roth conversion that I made in late January was my market timing signal. (With my luck a midterm-election-year market correction was certain to follow.)

So how is this working out? Between Jan 29 and today the percentage of assets in Roth is essentially unchanged. Having recently gone back to 100% equity in the Roth, whenever the S&P recovers to new highs the fraction of my portfolio in Roth could gain a couple of percentage points.
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Re: How do Bogleheads Take Advantage of Dips When Fully Invested?

Post by livesoft »

^It's nice when something works out. :)
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Re: How do Bogleheads Take Advantage of Dips When Fully Invested?

Post by Marketman »

rhinopylon wrote: Wed Apr 04, 2018 10:16 am One thing I did last year to "take advantage of dips" was to place my extra money at the end of the month into my home loan. Typically I would put that money into my taxable account and put it in the market. But since the market was so high and still growing, I felt more comfortable taking the extra cash and putting it into my loan. I still continued with my regular 401k/roth/hsa investments of course.

I'm happy I did that and my home loan is lower!
I like this! Take advantage of the PEAKS and invest in home loan instead! If you have a loan and extra money to invest you have a choice.
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Re: How do Bogleheads Take Advantage of Dips When Fully Invested?

Post by KlangFool »

OP,

Invest in a balanced fund like Wellington Fund or Life Strategy fund. There is always new money coming in and it rebalanced daily.

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Re: How do Bogleheads Take Advantage of Dips When Fully Invested?

Post by H-Town »

ef11 wrote: Tue Apr 03, 2018 6:27 pm Hello all,

I am a Boglehead and have been for the past 6 years which has worked out great for me. I know the general answer to my question is, check AA at fixed intervals, if it is unbalanced, rebalance it.

BUT

It can be frustrating when the market has a huge pullback yet you do not get to take advantage of it because your Roth and Taxable accounts are fully invested and you only get paid once a month on the 20th (meaning 401K contribution only goes in once per month on that date). Anytime I see the market pullback 500+ points I would love to put more money in, not trying to time the market but I am 29 and buying to hold so it is frustrating to completely miss out and then on the next 401K contribution the market is right back up. See chart below for last three 401K contributions.

Like I said, I know the simple answer, but just curious if anyone does anything creative on days where the market has severe declines.

Thanks
How do you manage your monthly cash flow? Is there any discretionary expense that you can cut back? Maintaining a budget & cash flow planning helps me squeeze out a good chunk of cash to buy on dips.
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Re: How do Bogleheads Take Advantage of Dips When Fully Invested?

Post by Freefun »

I will rebalance according to my time band. I don't understand the concept of doing anything based on dips since I never know when a dip will start or end. I'm not that smart.
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Re: How do Bogleheads Take Advantage of Dips When Fully Invested?

Post by ef11 »

livesoft wrote: Tue Apr 03, 2018 6:29 pm My asset allocation is around 60% equities and 40% fixed income. I simply sell fixed income and buy equities. If I need to go the other way, I sell equities and buy fixed income. It is pretty simple to do that. Does that help?
Thanks for the reply Livesoft. Yes I understand this basic principle but curious if you would do this during any large drop in the market or only if it hits your rebalance band. As my contributions help to even my allocation back up, I have never really hit my rebalance band of 20% (maybe that is too large, I read a detailed PDF about Opportunistic Rebalancing that stated 20% bands with a 10% rebalance point is optimal). The only place I have is my REIT as it's all in my Roth and I don't make regular contributions, just once per year so it naturally declines in % (any guidelines as to how to keep this from happening? I would hold in both Roth and 401K but fee is around 0.60% ER more so not worth it).

If the market dropped 1500 points in one day, would you shift a few % of your 401K/Roth to the market and sell bonds even if it didn't hit your rebalance band? I guess I'm asking if you would do this rebalance tactically if the market dropped a lot?
Marketman wrote: Tue Apr 03, 2018 6:39 pm You basically have a choice: A. Pick an AA and rebalance as needed. B. Pick an AA and keep some extra cash lying around for crashes. I vote for choice A because you stay fully invested at all times. It is just too hard to profit by keeping cash out of the market. I don't think anyone has any idea of good or bad time to get into the market. When the market dips, HINDSIGHT tells you it is a good time to buy, but there is no way to know IN ADVANCE when it will dip. Also, if you keep extra cash the market my go up 30% then correct back 10%. In this case you would be up 20% if you just stayed in from the beginning. The dip in this case does not look as good. Like you hear around here, "It's all about time in the market not timing the market."
Absolutely 100% agree with everything you say here. I like to stay fully invested and have to push my friends to do the same. My intention is to stay fully invested.
stuper1 wrote: Tue Apr 03, 2018 7:38 pm Here's an idea for the OP. When the 20th of the month rolls around on 4/20, let your 401k contribution for that month just sit in cash. If a dip happens between 4/20 and 5/20, then buy the dip. If not, just automatically use your 4/20 money to buy on 5/20. Repeat that procedure every month.

I'm about 99.99% sure that it won't make any discernible difference to your account in 20 years, but you may feel better about it, which may help you stick with your asset allocation. The only problem with this plan is that it is not automatic. If you forget to invest the previous month's money by the time the next contribution rolls around, then you are starting to have a problem of excess cash lying around not doing anything for you. For that reason, I wouldn't do that plan myself. But if you are the type of person who always checks their 401k at least once a month, it should work fine for you. That's not me.
This is a really innovative idea...I like it, but agree it might not be worth the hassle. I also don't know if my Fidelity 401K is "agile" enough to do this. If the market closed down big and before close I went in and moved my cash % to 0 and put it into the S&P 500 fund, would it actually move the cash into the S&P 500 at the closing price? I guess it should but not sure if that would actually play our in reality.
Olemiss540 wrote: Tue Apr 03, 2018 7:43 pm I zoom out a little farther on the chart I am looking at.

If 1 or 2% is a "buying opportunity", what do you call a 40% dip? I stay invested and continue to invest every single penny I have that is not currently allocated for a purpose.

Pick an appropriate AA and stay the course. The 5% drops will be forgotten over a 20 year timeframe.

This forum is going to get really exciting come the next 2008.
Well from Jan 26 - Feb 8 it was an 11% move which I think is significant. That being said, it would obviously be hard to call the bottom so I would have bought in earlier than the full 11% downward move was realized.
indexonlyplease wrote: Wed Apr 04, 2018 8:06 am At 29 you are most likely in 100% stocks (I was) or verry little money in fixed income. So you are unable to rebalance money into your equities on the dip. So, I would think dont worry about it because you are dollar cost averaging. I think most of us never did this because we did not have the money or most of the money was already in equities.

So, just keep investing and don't worry for now. When you get older and start having more fixed income, then you may have the oppurtunity.
Thanks for the reply, my AA is in my sig, I have 10% bonds and 10% REIT so I actually do have some money I can rebalance that isn't in the general market (although REIT is fairly correlated I guess).
renue74 wrote: Wed Apr 04, 2018 8:11 am We are 65/35 stock/bond AA. With a 5% band before rebalancing. Even with the extreme changes lately, we haven't hit our rebalance number yet.

If we do, we'll do what others indicate....sell bond funds, buy stock funds, etc.

Any new money that we put in, continues to go into our preselected funds (total bond fund for 403b and SIMPLE IRAs) and Total Stock fund for Roth IRAs. No market timing...just regularly invest.
Your band is 5%, mine is currently at 20%...I've always wondered if mine was high (see my response to LiveSoft on why I do this). Very hard to hit the 20% ever, I have just rebalanced in early January once I make my new Roth contribution and rollover my Mega Backdoor Roth.
rhinopylon wrote: Wed Apr 04, 2018 10:16 am I've been on the lookout for being outside one of my bands for the last 4 years and I've never seen my target allocations deviate by more than a percent or two. I don't know how people take advantage of these dips or calculate their band deviation. It could be because I'm still in major accumulation phase so my total balance is somehow matching my target allocation percentages?
Yes, I'm in the exact same boat as you. At smaller total dollar figures the regular contributions help rebalance things each month and % changes don't move as much as they would with larger dollar figures.
MtnBiker wrote: Wed Apr 04, 2018 12:46 pm Maybe not a BH thing, but for entertainment purposes I have market timed between Roth and traditional IRAs (without changing overall AA).
livesoft wrote: Tue Jun 15, 2010 8:56 pm With both a traditional IRA/401(k) and a Roth IRA/401(k) one could partition riskier equities and safer bonds between them based on some market timing model while still maintaining the same amount of equities.

For example, when the market is riding high, the Roth is switched to be heavily weighted in bond funds while the traditional holds the equity fund. When the market has tanked, the Roth is switched to be heavily weighted in equity funds while the traditional is switched to mostly bonds.

Switching would have no immediate tax consequences in these IRAs. It seems like such market timing would not hurt one in the long run since you would not be changing your asset allocation at all. You would only be changing asset location in two tax-advantaged accounts.

One would just need some kind of signal to help with the switching such as a 200-day moving average, PE 10, or number of posts on Bogleheads about "should I switch now?".
posting.php?mode=quote&f=10&p=760632

The significant Roth conversion that I made in late January was my market timing signal. (With my luck a midterm-election-year market correction was certain to follow.)

So how is this working out? Between Jan 29 and today the percentage of assets in Roth is essentially unchanged. Having recently gone back to 100% equity in the Roth, whenever the S&P recovers to new highs the fraction of my portfolio in Roth could gain a couple of percentage points.
This is very interesting, but I think is more involved than I am looking to get. Thanks for sharing though!
thangngo wrote: Wed Apr 04, 2018 5:09 pm How do you manage your monthly cash flow? Is there any discretionary expense that you can cut back? Maintaining a budget & cash flow planning helps me squeeze out a good chunk of cash to buy on dips.
Very good question. My monthly inflows and outflow are broken down below:
- Monthly Gross Income = $9,477 (does not include bonus, 2017 bonus received in March at $7,400 post-tax)
- Monthly income that hits my checking account (post tax and post retirement account contributions and medical insurance) = $4,100
- Monthly total bills (rent, credit card, etc) = $2,000
- Monthly free cash flow in checking account = $2,100 (I wish I could move more of this to After-Tax 401K, but I'm at the max 40% contribution)
- Monthly Traditional 401K contribution with employer match = $1,845
- Monthly After-Tax 401K contribution for Mega Backdoor Roth = $1,845

In summary, my total monthly savings is $5,790 on a Gross Income of $9,477 which is a 61% savings rate. And the $2,100 in free cash flow in my checking account could be utilized to buy on the dips, but that amount seems so insignificant. I like to only move cash into my investment accounts every 6 months so it is at least $10-$15,000 which could make an impact.

Thanks for all of the replies!
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wootwoot
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Re: How do Bogleheads Take Advantage of Dips When Fully Invested?

Post by wootwoot »

Real simple answer, we stay the course and don't try to time the market.
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greg24
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Re: How do Bogleheads Take Advantage of Dips When Fully Invested?

Post by greg24 »

I am constantly buying, with various accounts. Buy buy buy. These buys hit the dips. And the highs. But they work out in the long run.

60/40 static aa.
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Re: How do Bogleheads Take Advantage of Dips When Fully Invested?

Post by whodidntante »

When stocks and bonds are down, we post in the "U.S. stocks in freefall" thread.
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stemikger
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Re: How do Bogleheads Take Advantage of Dips When Fully Invested?

Post by stemikger »

Grt2bOutdoors wrote: Tue Apr 03, 2018 6:29 pm Fully invested- sell bonds, buy equities. Rinse and repeat. Still fully invested.
+1

Yep, me too. It enables you to have a life and sleep at night!
Choose Simplicity ~ Stay the Course!! ~ Press on Regardless!!!
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Re: How do Bogleheads Take Advantage of Dips When Fully Invested?

Post by White Coat Investor »

ef11 wrote: Tue Apr 03, 2018 6:27 pm Hello all,

I am a Boglehead and have been for the past 6 years which has worked out great for me. I know the general answer to my question is, check AA at fixed intervals, if it is unbalanced, rebalance it.

BUT

It can be frustrating when the market has a huge pullback yet you do not get to take advantage of it because your Roth and Taxable accounts are fully invested and you only get paid once a month on the 20th (meaning 401K contribution only goes in once per month on that date). Anytime I see the market pullback 500+ points I would love to put more money in, not trying to time the market but I am 29 and buying to hold so it is frustrating to completely miss out and then on the next 401K contribution the market is right back up. See chart below for last three 401K contributions.

Like I said, I know the simple answer, but just curious if anyone does anything creative on days where the market has severe declines.

Thanks

Image
I take advantage by buying every month. So when the market dips one month, I bought low.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course
livesoft
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Re: How do Bogleheads Take Advantage of Dips When Fully Invested?

Post by livesoft »

ef11 wrote: Wed Apr 04, 2018 10:31 pm
livesoft wrote: Tue Apr 03, 2018 6:29 pm My asset allocation is around 60% equities and 40% fixed income. I simply sell fixed income and buy equities. If I need to go the other way, I sell equities and buy fixed income. It is pretty simple to do that. Does that help?
Thanks for the reply Livesoft. Yes I understand this basic principle but curious if you would do this during any large drop in the market or only if it hits your rebalance band. As my contributions help to even my allocation back up, I have never really hit my rebalance band of 20% (maybe that is too large, I read a detailed PDF about Opportunistic Rebalancing that stated 20% bands with a 10% rebalance point is optimal). The only place I have is my REIT as it's all in my Roth and I don't make regular contributions, just once per year so it naturally declines in % (any guidelines as to how to keep this from happening? I would hold in both Roth and 401K but fee is around 0.60% ER more so not worth it).

If the market dropped 1500 points in one day, would you shift a few % of your 401K/Roth to the market and sell bonds even if it didn't hit your rebalance band? I guess I'm asking if you would do this rebalance tactically if the market dropped a lot?
A major tenet of my IPS is that I MUST buy equities on a so-called RBD (a well-defined Really Bad Day), so Definitely Yes, I would shift a few % of my bonds into equities. There have been a few RBDs so far in 2018 and every single time I have rebalanced into equities. I have also sold equities to rebalance a few days after each RBD when equities went back up. What did you do on Monday this week?

Also in order to know whether my rebalancing actions are legitimate, I compare the performance of my portfolio to benchmarks created by Vanguard that use a simple 3-fund (or 4-fund) portfolio and that the Vanguard managers rebalance as needed. Namely, I compare to the LifeStrategy and Target Retirement funds with tickers: VSMGX, VTWNX, and VTTVX. You can look up the asset allocation of these funds. If one cannot outperform these funds [after taxes] then one should just give up and use these funds instead.
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indexonlyplease
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Re: How do Bogleheads Take Advantage of Dips When Fully Invested?

Post by indexonlyplease »

livesoft wrote: Thu Apr 05, 2018 4:55 am
ef11 wrote: Wed Apr 04, 2018 10:31 pm
livesoft wrote: Tue Apr 03, 2018 6:29 pm My asset allocation is around 60% equities and 40% fixed income. I simply sell fixed income and buy equities. If I need to go the other way, I sell equities and buy fixed income. It is pretty simple to do that. Does that help?
Thanks for the reply Livesoft. Yes I understand this basic principle but curious if you would do this during any large drop in the market or only if it hits your rebalance band. As my contributions help to even my allocation back up, I have never really hit my rebalance band of 20% (maybe that is too large, I read a detailed PDF about Opportunistic Rebalancing that stated 20% bands with a 10% rebalance point is optimal). The only place I have is my REIT as it's all in my Roth and I don't make regular contributions, just once per year so it naturally declines in % (any guidelines as to how to keep this from happening? I would hold in both Roth and 401K but fee is around 0.60% ER more so not worth it).

If the market dropped 1500 points in one day, would you shift a few % of your 401K/Roth to the market and sell bonds even if it didn't hit your rebalance band? I guess I'm asking if you would do this rebalance tactically if the market dropped a lot?
A major tenet of my IPS is that I MUST buy equities on a so-called RBD (a well-defined Really Bad Day), so Definitely Yes, I would shift a few % of my bonds into equities. There have been a few RBDs so far in 2018 and every single time I have rebalanced into equities. I have also sold equities to rebalance a few days after each RBD when equities went back up. What did you do on Monday this week?

Also in order to know whether my rebalancing actions are legitimate, I compare the performance of my portfolio to benchmarks created by Vanguard that use a simple 3-fund (or 4-fund) portfolio and that the Vanguard managers rebalance as needed. Namely, I compare to the LifeStrategy and Target Retirement funds with tickers: VSMGX, VTWNX, and VTTVX. You can look up the asset allocation of these funds. If one cannot outperform these funds [after taxes] then one should just give up and use these funds instead.
It makes good sense what livesoft states here. I have been only rebalancing every January for my AA. I don't pay as much attention to dips unless they are really bad and gets my attention. I would also like to do the same and move money from fix to equities but then I would have to move equities to fix when they go back up. So, someone must be watching the market at all times. Maybe, I can set alerts on my phone?? Any advise for the phone smart people??

I also have thought and stated the Target or Lifestrategy makes sense to most. Even more now because as livesoft says if you can't outperform just use the Target or Lifestyle funds. I use the 3 fund with my fixed in a stable value fund.

Not sure why I wrote this but makes me think even more of my investment strategy.
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Re: How do Bogleheads Take Advantage of Dips When Fully Invested?

Post by Xyz214 »

ef11 wrote: Tue Apr 03, 2018 6:27 pm Hello all,

I am a Boglehead and have been for the past 6 years which has worked out great for me. I know the general answer to my question is, check AA at fixed intervals, if it is unbalanced, rebalance it.

BUT

It can be frustrating when the market has a huge pullback yet you do not get to take advantage of it because your Roth and Taxable accounts are fully invested and you only get paid once a month on the 20th (meaning 401K contribution only goes in once per month on that date). Anytime I see the market pullback 500+ points I would love to put more money in, not trying to time the market but I am 29 and buying to hold so it is frustrating to completely miss out and then on the next 401K contribution the market is right back up. See chart below for last three 401K contributions.

Like I said, I know the simple answer, but just curious if anyone does anything creative on days where the market has severe declines.

Thanks

Image
You're not missing out. Since you are fully invested, this means you already bought the shares with yesterday's price.
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ef11
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Re: How do Bogleheads Take Advantage of Dips When Fully Invested?

Post by ef11 »

livesoft wrote: Thu Apr 05, 2018 4:55 am
ef11 wrote: Wed Apr 04, 2018 10:31 pm
livesoft wrote: Tue Apr 03, 2018 6:29 pm My asset allocation is around 60% equities and 40% fixed income. I simply sell fixed income and buy equities. If I need to go the other way, I sell equities and buy fixed income. It is pretty simple to do that. Does that help?
Thanks for the reply Livesoft. Yes I understand this basic principle but curious if you would do this during any large drop in the market or only if it hits your rebalance band. As my contributions help to even my allocation back up, I have never really hit my rebalance band of 20% (maybe that is too large, I read a detailed PDF about Opportunistic Rebalancing that stated 20% bands with a 10% rebalance point is optimal). The only place I have is my REIT as it's all in my Roth and I don't make regular contributions, just once per year so it naturally declines in % (any guidelines as to how to keep this from happening? I would hold in both Roth and 401K but fee is around 0.60% ER more so not worth it).

If the market dropped 1500 points in one day, would you shift a few % of your 401K/Roth to the market and sell bonds even if it didn't hit your rebalance band? I guess I'm asking if you would do this rebalance tactically if the market dropped a lot?
A major tenet of my IPS is that I MUST buy equities on a so-called RBD (a well-defined Really Bad Day), so Definitely Yes, I would shift a few % of my bonds into equities. There have been a few RBDs so far in 2018 and every single time I have rebalanced into equities. I have also sold equities to rebalance a few days after each RBD when equities went back up. What did you do on Monday this week?

Also in order to know whether my rebalancing actions are legitimate, I compare the performance of my portfolio to benchmarks created by Vanguard that use a simple 3-fund (or 4-fund) portfolio and that the Vanguard managers rebalance as needed. Namely, I compare to the LifeStrategy and Target Retirement funds with tickers: VSMGX, VTWNX, and VTTVX. You can look up the asset allocation of these funds. If one cannot outperform these funds [after taxes] then one should just give up and use these funds instead.
Hey Livesoft, really appreciate the details here and this makes sense. Can you provide your definition for a RBD and state what dates in 2018 met this criteria for you? You mentioned you sold the equities to rebalance a few days later when equities went back up, do you have this rebalance point defined as well (in terms of a percentage I would guess)? And finally, how would you react if there were three bad days in a row but none by themselves met the definition of a RBD, but together they were certainly a RBD, would you shift % from bonds to equities then as well?

On Monday of this week I was at The Masters practice round so unfortunately I was not allowed to have my phone ha!

I am very interested in what you are discussing here for sure, but I am not as good a candidate as you are due to my only 10% bond allocation compared to your 40%. I could only justify moving 1-2% of my bond allocation on a RBD whereas you could probably do 3-5% of a much larger dollar amount. The other downfall I see, is what if we sustained 5 or 10 RBDs before a recovery ever occurred, if you shift 3% on each RBD to equities you are quickly moving 15-30% of your total 40% allocation into equities which would make your AA much more aggressive than you've originally designed. Now I can certainly see the argument that the best time to shift your allocation to 90% equities is after 10 RBDs in a row, so as long as you are comfortable with that it makes sense to me.

Thanks again, I really like your strategy here and also you benchmarking technique.
indexonlyplease wrote: Thu Apr 05, 2018 6:23 am It makes good sense what livesoft states here. I have been only rebalancing every January for my AA. I don't pay as much attention to dips unless they are really bad and gets my attention. I would also like to do the same and move money from fix to equities but then I would have to move equities to fix when they go back up. So, someone must be watching the market at all times. Maybe, I can set alerts on my phone?? Any advise for the phone smart people??

I also have thought and stated the Target or Lifestrategy makes sense to most. Even more now because as livesoft says if you can't outperform just use the Target or Lifestyle funds. I use the 3 fund with my fixed in a stable value fund.

Not sure why I wrote this but makes me think even more of my investment strategy.
Yes, you can set alerts on your phone. I use Fidelity and on the Fidelity app you can have it send you alerts. You can establish the alerts on the Fidelity website on your computer OR your phone, either way you can tell it to alert you on your phone and it will. With Fidelity I can put a dollar decline, a percent decline from previous close, a crossing of 20 day, 50 day, 200 day MA, or new 52 week high/low.
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Re: How do Bogleheads Take Advantage of Dips When Fully Invested?

Post by ad2007 »

OP, when you see the market drop a few %, you would like to "do something". Isn't that market timing?

Regarding rebalancing. If you think it increases your portfolio returns, wouldn't that also be market timing.

But I think we can all agree that market timing is tough for most folks.
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BeBH65
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Re: How do Bogleheads Take Advantage of Dips When Fully Invested?

Post by BeBH65 »

ef11 wrote: Wed Apr 04, 2018 10:31 pm
renue74 wrote: Wed Apr 04, 2018 8:11 am We are 65/35 stock/bond AA. With a 5% band before rebalancing. Even with the extreme changes lately, we haven't hit our rebalance number yet.

If we do, we'll do what others indicate....sell bond funds, buy stock funds, etc.

Any new money that we put in, continues to go into our preselected funds (total bond fund for 403b and SIMPLE IRAs) and Total Stock fund for Roth IRAs. No market timing...just regularly invest.
Your band is 5%, mine is currently at 20%...I've always wondered if mine was high (see my response to LiveSoft on why I do this). Very hard to hit the 20% ever, I have just rebalanced in early January once I make my new Roth contribution and rollover my Mega Backdoor Roth.
Are you refering to the same? "5/25" is an often used rebalancing rule. One would then rebalance id an asset deviates either 5% in absolute terms or 25% in relative terms. Your 20% is it absolute or relative?


Our wiki page defines rebalancing as:
Rebalancing is the action of bringing a portfolio that has deviated away from one's target asset allocation back into line. The objective is to maintain a consistent mix of asset classes (most commonly equities vs. fixed income) in order to control risk at the level desired by the investor....

A consequence of such rebalancing would result automatically that you would buy on the (relative) dips.
BeBH65. (only an investment enthusiast, not a financial adviser, perform your due diligence). | Have a look at https://www.bogleheads.org/wiki/Outline_of_Non-US_domiciles
SamuraiInvestor
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Re: How do Bogleheads Take Advantage of Dips When Fully Invested?

Post by SamuraiInvestor »

Build a plan. Stick the the plan, as tough as it might be. Rebalance annually based on age and appetite for risk.
WhiteMaxima
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Re: How do Bogleheads Take Advantage of Dips When Fully Invested?

Post by WhiteMaxima »

Whenever market has 2-3% drop, I will do a rebalance. I also like certain % of cash on the side. I like to buy when market is panic. So technically, I am market timing.
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Re: How do Bogleheads Take Advantage of Dips When Fully Invested?

Post by remomnyc »

I buy whenever my 401k contributions go in, whenever I have dividends in taxable, and whenever I hit my 5% bands. I haven't sold anything since I changed my allocation last summer for early retirement. Despite the volatility, with the rebalancing from dividends and contributions, my 5% bands have not been triggered. If there were a major crash, we have the option of taking the CDs set aside for a house down payment and buying the crash; otherwise, I am buying whenever there is cash to invest.
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Re: How do Bogleheads Take Advantage of Dips When Fully Invested?

Post by LiterallyIronic »

I invest four times per month. Two paychecks result in two 401k contributions, and we have our two Roth IRA contributions. This even things out a bit. But, in the end, it'll hardly make a difference. Even investing at just the worst possible times gives good results over a long period of time.
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Re: How do Bogleheads Take Advantage of Dips When Fully Invested?

Post by SmileyFace »

OP - If you do the math you might find you really aren't missing that much.
From your "20th" date to one of the multi-day dips how much has the market pulled back - and how much are you investing each month?
If the market dips 4% and your monthly investment is $1500 (assuming you are maxing out) then investing on the dip would have given you a $60 advantage. And that's if you are investing 100% in stocks - if you are investing 75/25 it would have only given you a $45 advantage. Is that really much to concern yourself with? After a few years this amount of money will be noise compared to how much your accounts would have compounded.
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Re: How do Bogleheads Take Advantage of Dips When Fully Invested?

Post by livesoft »

ef11 wrote: Thu Apr 05, 2018 7:32 amHey Livesoft, really appreciate the details here and this makes sense. Can you provide your definition for a RBD and state what dates in 2018 met this criteria for you?
The definition is out there at bogleheads.org. Here is one thread: viewtopic.php?t=194427 Note that every ETF can have a different absolute definition of an RBD. That means that VFINX may not have an RBD while MTUM has one. Or maybe IJS will have an RBD, but VBR will not. Example of some dates:

Some dates for MTUM :
2018-02-05: -4.28
2018-02-08: -4.23
2018-03-22: -3.27
These are closing price drops. There are other days when intraday prices dropped a lot, but by the close they had recovered.


You mentioned you sold the equities to rebalance a few days later when equities went back up, do you have this rebalance point defined as well (in terms of a percentage I would guess)?
No, I do not have this defined as well. Equities don't have to go back up anyways. They might go down even more.

And finally, how would you react if there were three bad days in a row but none by themselves met the definition of a RBD, but together they were certainly a RBD, would you shift % from bonds to equities then as well?
3 bad days in a row would not be an RBD signal. However, if my portfolio hit my lower rebalancing band trigger from such a market movement, then I would rebalance.
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ef11
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Re: How do Bogleheads Take Advantage of Dips When Fully Invested?

Post by ef11 »

BeBH65 wrote: Thu Apr 05, 2018 12:18 pm Are you refering to the same? "5/25" is an often used rebalancing rule. One would then rebalance id an asset deviates either 5% in absolute terms or 25% in relative terms. Your 20% is it absolute or relative?
Thanks for the reply. My 20% rebalancing band is on all asset classes and is relative. A 20% rebalancing trigger and rebalancing it back to a 10% tolerance.

Example - My S&P 500 allocation is 45%. If this hits 80% or 120% [36% - 54%] then I would rebalance to 90% or 110% [40.5% - 49.5%]. Below is the PDF that I read years ago and established this policy.

https://carlsoncap.com/wp-content/uploa ... ancing.pdf
ef11 wrote: Thu Apr 05, 2018 7:32 am I am very interested in what you are discussing here for sure, but I am not as good a candidate as you are due to my only 10% bond allocation compared to your 40%. I could only justify moving 1-2% of my bond allocation on a RBD whereas you could probably do 3-5% of a much larger dollar amount. The other downfall I see, is what if we sustained 5 or 10 RBDs before a recovery ever occurred, if you shift 3% on each RBD to equities you are quickly moving 15-30% of your total 40% allocation into equities which would make your AA much more aggressive than you've originally designed. Now I can certainly see the argument that the best time to shift your allocation to 90% equities is after 10 RBDs in a row, so as long as you are comfortable with that it makes sense to me.

Thanks again, I really like your strategy here and also you benchmarking technique.
Livesoft, any comments on this part of my response to you? Would you essentially continue shifting your AA if we continuously had RBDs? And if you don't have the rebalance points on the other side defined, how do you ever get back to 60/40 if the market heads down significantly over a year or more and hasn't recovered yet? I would see you being in 80-90% stocks if you continued to shift on RBDs. But maybe you only do this one time and don't keep repeating it.

From the link you sent it doesn't appear this strategy actually provides benefit...maybe I am missing something though.

Thanks
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