100% stocks, looking to lock-in gains and maybe introduce bonds

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
LIGuy82
Posts: 160
Joined: Mon Apr 16, 2018 12:51 am

100% stocks, looking to lock-in gains and maybe introduce bonds

Post by LIGuy82 » Mon Apr 22, 2019 4:51 am

My allocation is 100% stocks, and has done quite well the past several years. That said, I am considering adjustments to lock in gains, but am not sure where to park the money...I was thinking move 10% of total stock market index into REITs, but with regard to TSP and taxable account, should I move towards bonds (total bond index in taxable and F fund in TSP)? I know this borders on market-timing, and I am comfortable with volatility, but I worry that my ability to tolerate risk is causing me to take on more risk than is needed without improving performance. I welcome advice and opinions. Long story short, I am 36, no debt but mortgage on rental, will receive pension at 50, and have more than four times my annual salary saved and invested.

tigermilk
Posts: 589
Joined: Thu Aug 15, 2013 9:32 am

Re: 100% stocks, looking to lock-in gains and maybe introduce bonds

Post by tigermilk » Mon Apr 22, 2019 6:02 am

It is your personal decision. That said, you sound a bit like me. I was 100% equities in the TSP until almost 3 years ago when I was 47. I went to 90/10 with the 10 being composed of one third F and two thirds G. Each year I have been increasing the bond portion of the AA by a point. My plan is to retire when eligible at 57. One reason I had for not having bonds for so long is that my contributions plus the matching, inject a sizeable portion each year. So if equities are down, the buying power of those biweekly contributions took the place of rebalancing. Even now those contributions on an annual basis are still somewhat substantial even with my (barely) two comma TSP balance.

I have a strategy for each account I have, and they all have different allocations. The TSP will be tapped into first, so I introduced bonds for that gentle glide to retirement. I don't plan on touching our Roths until 70, so I haven't even thought about anything other than equities at this point. HSA is mostly equity aside from cash that is sitting there waiting for some expensive dental work in 2 months. Finally, brokerage account is a mix of total stock market (VTI), moderate growth (VSMGX), and money market. This account will only be tapped for big purchases (e.g., new car, roof, A/C, new house) between now and retirement.

Currently everything is on track. Nearly 8x my salary in investments and savings today and 7 years from retirement, a pension that will cover everything needed to live (debt free, so just have property taxes, insurance, utilities, food), and savings to fund a hopefully relaxing retirement. The bigger challenge, as I see it, will be learning to spend more in the coming years.

Topic Author
LIGuy82
Posts: 160
Joined: Mon Apr 16, 2018 12:51 am

Re: 100% stocks, looking to lock-in gains and maybe introduce bonds

Post by LIGuy82 » Mon Apr 22, 2019 6:52 am

tigermilk wrote:
Mon Apr 22, 2019 6:02 am
It is your personal decision. That said, you sound a bit like me. I was 100% equities in the TSP until almost 3 years ago when I was 47. I went to 90/10 with the 10 being composed of one third F and two thirds G. Each year I have been increasing the bond portion of the AA by a point. My plan is to retire when eligible at 57. One reason I had for not having bonds for so long is that my contributions plus the matching, inject a sizeable portion each year. So if equities are down, the buying power of those biweekly contributions took the place of rebalancing. Even now those contributions on an annual basis are still somewhat substantial even with my (barely) two comma TSP balance.

I have a strategy for each account I have, and they all have different allocations. The TSP will be tapped into first, so I introduced bonds for that gentle glide to retirement. I don't plan on touching our Roths until 70, so I haven't even thought about anything other than equities at this point. HSA is mostly equity aside from cash that is sitting there waiting for some expensive dental work in 2 months. Finally, brokerage account is a mix of total stock market (VTI), moderate growth (VSMGX), and money market. This account will only be tapped for big purchases (e.g., new car, roof, A/C, new house) between now and retirement.

Currently everything is on track. Nearly 8x my salary in investments and savings today and 7 years from retirement, a pension that will cover everything needed to live (debt free, so just have property taxes, insurance, utilities, food), and savings to fund a hopefully relaxing retirement. The bigger challenge, as I see it, will be learning to spend more in the coming years.
This was very helpful. Thanks.

dbr
Posts: 30798
Joined: Sun Mar 04, 2007 9:50 am

Re: 100% stocks, looking to lock-in gains and maybe introduce bonds

Post by dbr » Mon Apr 22, 2019 9:22 am

It is always appropriate to evaluate what one's risk taking should be given how one's situation evolves. I don't think it is helpful to appeal to locking in gains as this is not necessary and really also not so. Getting risk right is sufficient justification, and over time the assumption is that the market delivers a positive return so shifting out of stocks does not lock in gains; it locks out opportunity.

User avatar
grabiner
Advisory Board
Posts: 25389
Joined: Tue Feb 20, 2007 11:58 pm
Location: Columbia, MD

Re: 100% stocks, looking to lock-in gains and maybe introduce bonds

Post by grabiner » Mon Apr 22, 2019 12:44 pm

Since you have the TSP, you probably want to hold all your bonds in the G fund, as this gives you better risk reduction for the same bond holding. Thus, it makes sense to leave your IRA all stock, and move money from the C, S, and I funds to the G fund.
Wiki David Grabiner

carmonkie
Posts: 149
Joined: Fri Jun 29, 2018 4:31 pm

Re: 100% stocks, looking to lock-in gains and maybe introduce bonds

Post by carmonkie » Mon Apr 22, 2019 2:07 pm

grabiner wrote:
Mon Apr 22, 2019 12:44 pm
Since you have the TSP, you probably want to hold all your bonds in the G fund, as this gives you better risk reduction for the same bond holding. Thus, it makes sense to leave your IRA all stock, and move money from the C, S, and I funds to the G fund.
I agree with this. It is not recommended to hold bonds in taxable as the dividends are taxable at ordinary income versus LTCG of the index funds.
If you do introduce bonds, do it all at once, your account balance will be more less the same the day before and after the transactions take place, but will be in the correct AA. There is no need to do gradual transaction trying to time the market hoping equities keep going up, what if there is a new December brewing, you are going to wish you had sold last week.. I moved 5% in December from stocks to bonds in one big transaction even when the market was a bit unsteady. When all settles I was in my new desired AA with the same balance give or take a few bucks...

psy1
Posts: 96
Joined: Thu Jan 31, 2019 1:40 am

Re: 100% stocks, looking to lock-in gains and maybe introduce bonds

Post by psy1 » Mon Apr 22, 2019 10:30 pm

If the idea is that you have 100% stocks in a tax deferred account that has done well, and you thing you are at or near the top of market, then just sell all of it and put it in cash. Determine your ideal asset allocation and then dollar cost average into it from the cash position over the next 1-2 years with monthly allocations. That is what I am (mostly) doing.

User avatar
dogagility
Posts: 635
Joined: Fri Feb 24, 2017 6:41 am

Re: 100% stocks, looking to lock-in gains and maybe introduce bonds

Post by dogagility » Tue Apr 23, 2019 5:05 am

dbr wrote:
Mon Apr 22, 2019 9:22 am
It is always appropriate to evaluate what one's risk taking should be given how one's situation evolves. I don't think it is helpful to appeal to locking in gains as this is not necessary and really also not so. Getting risk right is sufficient justification, and over time the assumption is that the market delivers a positive return so shifting out of stocks does not lock in gains; it locks out opportunity.
Well-stated, dbr. Succinct and wise. :beer
Taking "risk" since 1995.

rkhusky
Posts: 7561
Joined: Thu Aug 18, 2011 8:09 pm

Re: 100% stocks, looking to lock-in gains and maybe introduce bonds

Post by rkhusky » Tue Apr 23, 2019 7:08 am

dbr wrote:
Mon Apr 22, 2019 9:22 am
I don't think it is helpful to appeal to locking in gains as this is not necessary and really also not so.
But it sure feels better when you rebalance from stocks to bonds at a market high, rather than when a market drop rebalances for you.

User avatar
grabiner
Advisory Board
Posts: 25389
Joined: Tue Feb 20, 2007 11:58 pm
Location: Columbia, MD

Re: 100% stocks, looking to lock-in gains and maybe introduce bonds

Post by grabiner » Tue Apr 23, 2019 8:10 am

psy1 wrote:
Mon Apr 22, 2019 10:30 pm
If the idea is that you have 100% stocks in a tax deferred account that has done well, and you thing you are at or near the top of market, then just sell all of it and put it in cash. Determine your ideal asset allocation and then dollar cost average into it from the cash position over the next 1-2 years with monthly allocations. That is what I am (mostly) doing.
This strategy does not make sense. The reason to dollar-cost average is psychological, to increase your risk level gradually as you start investing or add a large amount to your portfolio. If you are already invested, you know your risk tolerance. Therefore, if your ideal asset allocation is 80% stock, and you are currently 100% stock, then you can get to 80% stock by selling just 20% of your portfolio.

The way to tell whether changing your allocation is market timing is to see whether it is based on something you know which the buyer or seller of your stock does not. Thus, decreasing your stock allocation because you are closer to retirement is not market timing; the buyer can also be correct because she is a new investor buying more stock. Decreasing your stock allocation below your target because you believe the market is at a peak is market timing; the buyer knows just as much as you do about the market.
Wiki David Grabiner

Post Reply