Allocations Stable for 18 months?

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save4kollege
Posts: 75
Joined: Sun Mar 15, 2015 4:48 pm

Allocations Stable for 18 months?

Post by save4kollege »

I “discovered” and implemented asset allocation during 1Q17. Details below. I realize I’m still a newbie to asset allocation, but, I have expected more movement between asset classes since 1Q17. My plan was to rebalance on April 1st and October 1st if any class becomes +/- 10% of the target. Since 03/03/17 no category has been off by more than -4%. So, I need a sanity check on why things seem stable? Is this typical or normal? Is this what other Bheads are seeing with their allocations? I do realize I “own the market” with the funds I have – is this why things appear so stable? Am I doing something out of whack? Thanks!

• 35% US stocks
• 25% Intl stocks
• 25% US bonds
• 10% Intl bonds
• 5% TIPS

Balances and % by asset class 03/01/17 and 08/01/18
US stock 337,957 36% +1% 424,023 35% 0%
Intl stock 237,372 23% -2% 259,043 21% -4%
US bond 266,392 25% 0% 330,512 27% 0%
Intl bond 94,224 9% -1% 118,420 10% 0%
TIPS 75,300 7% 2% 76,305 6% 1%
1,051,245 1,208,303

Fund Info

Her rIRA
VAIPX TIPS 76,305

His 401k (VTTVX – Target 2025)
VITPX US stock 401,782
VTPSX Intl Stock 259,043
VTBIX US bond 278,075
VTIFX Intl bond 118,420

His rIRA
VBTLX US bond 52,437
VFIAX Intl bond 22,241
Silk McCue
Posts: 8912
Joined: Thu Feb 25, 2016 6:11 pm

Re: Allocations Stable for 18 months?

Post by Silk McCue »

Holding broadly diversified positions helps reduce wider swings in both directions caused by heavily tilted investment strategies. The past year could have just as easily had a significant downturn in US stocks with only a mild turn down or increase in International even with broadly diversified holdings. It won't be stable forever that's for sure.

Cheers
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grabiner
Advisory Board
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Joined: Tue Feb 20, 2007 10:58 pm
Location: Columbia, MD

Re: Allocations Stable for 18 months?

Post by grabiner »

Allocations don't change as much as the market moves. Say that you have $600K in stock and $400K in bonds, for a 60/40 allocation. If the bond market doesn't move, then to get to 70/30, you would need the stock to rise to $933K, a 55% gain. To get to 50/50, you would need the stock to fall to $400K, a 33% loss. (The reason for the difference between these numbers is primarily that a percentage loss has a greater effect than the same percentage gain; to make up the 33% loss would require a 50% gain.)
Wiki David Grabiner
PFInterest
Posts: 2684
Joined: Sun Jan 08, 2017 11:25 am

Re: Allocations Stable for 18 months?

Post by PFInterest »

save4kollege wrote: Wed Aug 08, 2018 9:14 am I “discovered” and implemented asset allocation during 1Q17. Details below. I realize I’m still a newbie to asset allocation, but, I have expected more movement between asset classes since 1Q17. My plan was to rebalance on April 1st and October 1st if any class becomes +/- 10% of the target. Since 03/03/17 no category has been off by more than -4%. So, I need a sanity check on why things seem stable? Is this typical or normal? Is this what other Bheads are seeing with their allocations? I do realize I “own the market” with the funds I have – is this why things appear so stable? Am I doing something out of whack? Thanks!

• 35% US stocks
• 25% Intl stocks
• 25% US bonds
• 10% Intl bonds
• 5% TIPS

Balances and % by asset class 03/01/17 and 08/01/18
US stock 337,957 36% +1% 424,023 35% 0%
Intl stock 237,372 23% -2% 259,043 21% -4%
US bond 266,392 25% 0% 330,512 27% 0%
Intl bond 94,224 9% -1% 118,420 10% 0%
TIPS 75,300 7% 2% 76,305 6% 1%
1,051,245 1,208,303

Fund Info

Her rIRA
VAIPX TIPS 76,305

His 401k (VTTVX – Target 2025)
VITPX US stock 401,782
VTPSX Intl Stock 259,043
VTBIX US bond 278,075
VTIFX Intl bond 118,420

His rIRA
VBTLX US bond 52,437
VFIAX Intl bond 22,241
i would get the fixed income out of the rIRAs if possible.
your portfolio needs to be streamlined it looks like.
wolf359
Posts: 3206
Joined: Sun Mar 15, 2015 8:47 am

Re: Allocations Stable for 18 months?

Post by wolf359 »

Several things to keep in mind:

1) This time it's different. Really. Your time period includes 2017, which just happened to be one of the most stable 12 month periods in the stock market (ever, I believe, but since I don't want to take the time to look it up, let's just say "most stable in recent memory.") I don't believe there was a single negative month for the S&P 500 in 2017.

2) 18 months is too short a time period for conclusions. Sometimes things are stable. Sometimes they are volatile. Just because they CAN be volatile doesn't mean they are ALWAYS that way. It's important to be mentally prepared for the volatility. Check the data you used to help select your asset allocations. It probably encompassed a time period of decades. You're using a period of months.

3) Indices are less volatile than individual stocks. So yes, using indices will diversify the results, reducing the volatility.

4) For my asset allocation, I typically rebalance once a year. Some years I don't have to rebalance at all. Like you, I didn't rebalance this year. I didn't consider it unusual.

5) You don't actually have to rebalance at all. It may not actually make much of a difference in the long run.

6) Don't sweat asset allocation. Although you may have seen the studies that state that asset allocation is the biggest predictor of returns in a portfolio, the studies that showed that were looking at statistical modeling of buy-and-hold portfolios that were set at the beginning of a long time period and left alone. (In other words, not an actual portfolio held by a real person over time.) You are an actual person. You are affected by life. You probably add to your portfolio with each paycheck, instead of buying once and holding. As life situations change, you might start contributing more or less at various timeframes. You may forget to rebalance, or be slow to do so, to let the market run. You might lose your job, and suspend contributions and pull from it for short-term needs like eating or paying the mortgage. You might start earning more income, or saving more, or spending less, or all of the above. Investor behavior, savings rate, and income can have a much greater effect on your net worth than asset allocation. Asset allocation is worth doing right, but don't sweat it. Tripling your savings rate will improve your net worth results much more than even extreme AA changes, like moving from 100/0 to 50/50.
2retire
Posts: 400
Joined: Wed Jun 13, 2012 9:00 am

Re: Allocations Stable for 18 months?

Post by 2retire »

What you are seeing is perfectly normal. If you are using +/- 5% rebalancing bands, it takes an awful lot of movement for you to hit those bands.

Since 2012, I have only had to rebalance once with a 70s/30b allocation.

The Finance Buff wrote a good post on just how much the market has to move for you to hit your rebalancing bands.

https://thefinancebuff.com/5-percent-re ... -band.html
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save4kollege
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Joined: Sun Mar 15, 2015 4:48 pm

Re: Allocations Stable for 18 months?

Post by save4kollege »

Great feedback, thanks so much, that's the sanity check I was looking for. I've read a lot of material suggested thru the BH forum, and I don't recall this level of detail about AA, specifically that you might not need to rebalance for long periods. Thanks for the insights, very helpful.
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Topic Author
save4kollege
Posts: 75
Joined: Sun Mar 15, 2015 4:48 pm

Re: Allocations Stable for 18 months?

Post by save4kollege »

PFInterest - why and where should I move FI out of rIRAs and what should be streamlined?
PFInterest
Posts: 2684
Joined: Sun Jan 08, 2017 11:25 am

Re: Allocations Stable for 18 months?

Post by PFInterest »

save4kollege wrote: Thu Aug 09, 2018 9:07 am PFInterest - why and where should I move FI out of rIRAs and what should be streamlined?
you want the highest potential growth in rIRAs since they are the last to be withdrawn or never touched.
therefore you would put stocks, REITs etc.
that means you increase the bond portion in your 401k where you have plenty of room.
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