TLH and Re-balancing a buy and hold 3 fund portfolio

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investintex
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Joined: Wed Nov 07, 2018 8:24 pm

TLH and Re-balancing a buy and hold 3 fund portfolio

Post by investintex » Wed Nov 07, 2018 8:43 pm

New to investing and just learning about TLH and Rebalancing.

Recently started a "3 fund" buy and hold ETF portfolio.

IVV: S&P 500 - $50,000
IJH: S&P mid cap - $15,000
IJR: S&P small cap - $15,000
IEFA: international - $16,500
IXUS: international - $16,500
MUB - Muni Bond Fund - $12,500

I will most likely never contribute more money into this investment as I make a pretty low income and any savings will go into a 401K and an IRA.

So my only future contributions into this account will be reinvested dividends.

Question: can I really expect to TLH with a buy and hold ETF portofio like this in a long term Bull market when re-balancing?

I made my investment right before this recent market correction, so I was able to sell my entire portfolio at a loss of $2,765 and rebuy an entirely new portfolio of similar but not identical funds. But it seems to me that If (big "if") the string bull market continues for the next 2 years, most of my portfolio will gain value, except maybe the bond fund. And if I am re-balancing by selling my "winners" and buying more "losers" how could I ever TLH?

Maybe I will just have to see if some of my shares purchased with reinvested dividends actually see temporary declines in the middle of the bull market? or maybe I will only be able to TLH when the market starts falling below my original investment point (if that even happens)?

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Mursili
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Re: TLH and Re-balancing a buy and hold 3 fund portfolio

Post by Mursili » Sun Nov 11, 2018 5:45 pm

I don't know why no one else is responding, but I will...

You need a loss in order to tax loss harvest. If the market just goes up that is a great thing, is it not?

TLH should be a secondary consideration in your investing, not something that you actively pursue. After all, you generally need gains in order to make TLH worth the hassle, do you not?
When it comes to havoc, no one wreaks like me! - Dr. Heinz Doofenshmirtz

jsprag
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Joined: Sun Nov 26, 2017 11:25 am

Re: TLH and Re-balancing a buy and hold 3 fund portfolio

Post by jsprag » Mon Nov 12, 2018 10:22 am

Agree with Mursili - TLH is not the goal, it's the consolation prize for when you miss the goal. Making lemonade out of lemons.

Only new thing that I'd add is to turn off automatic dividend re-investing if possible. Manually re-investing gives you an opportunity to re-balance periodically and helps keep you clear of making an inadvertent wash sale.

investintex
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Joined: Wed Nov 07, 2018 8:24 pm

Re: TLH and Re-balancing a buy and hold 3 fund portfolio

Post by investintex » Wed Nov 14, 2018 7:29 pm

This is all True. I will focus on the positives of an overall gain in my portfolio. Definitely a huge positive.

I guess my concern is that, since this is a buy and hold strategy, I worry I may not have other opportunities to TLH even during future dips in the market.

Ex. if in 5 years my portfolio has gained 23%, and then a market correction lowers my portfolio by 10%, I would still be up about 13% and unable to TLH.

I am hoping I will have ways to take advantage of TLH in a down market, even while my overall portfolio is still in the positive.

I am guessing this is where recently reinvested dividends can be sold at a loss, even though my overall portfolio may be a gain (assuming some dividends are reinvested shortly before a downturn in the market).

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grabiner
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Re: TLH and Re-balancing a buy and hold 3 fund portfolio

Post by grabiner » Wed Nov 14, 2018 10:25 pm

investintex wrote:
Wed Nov 14, 2018 7:29 pm
This is all True. I will focus on the positives of an overall gain in my portfolio. Definitely a huge positive.

I guess my concern is that, since this is a buy and hold strategy, I worry I may not have other opportunities to TLH even during future dips in the market.

Ex. if in 5 years my portfolio has gained 23%, and then a market correction lowers my portfolio by 10%, I would still be up about 13% and unable to TLH.
This will affect everyone who hasn't made new investments, not just you. If you bought something in the fourth year (and even without adding new money, you may still make new purchases with reinvested dividends), you will be able to harvest that loss in the fifth year.

Since I am still adding to my taxable account every year, I do still have opportunities to harvest losses when the market drops. I have been buying VSS (Vanguard FTSE All-World Ex-US Small-Cap) since 2009, and recently sold only those shares I had bought in November 2017 and April 2018. Meanwhile, the shares I bought in 2009 and 2012 still have large gains, and those I bought earlier in 2017 are about even.
Wiki David Grabiner

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