IPS says to go 100% in Downturn

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Topic Author
Streptococcus
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IPS says to go 100% in Downturn

Post by Streptococcus » Thu Mar 12, 2020 3:11 pm

Hello bogleheads,

I recently reread my IPS as I remembered there was a mention on what to do during the next bear market.

It says to rebalance AND increase my AA from 70/30 to 80/20 when the SP drops by 20% AND then stay put
Then to go 100% stocks if it drops by 40%.
It does not matter if it continues to drop as I will have captured the benefit of a 40% discount
I still have the need, ability and willingness to take that kind of risk today

My portfolio was in the low 7 figure but I suspect it wont be when the downturn will end.
We usually contribute 100K-130K annually to that portfolio
We dont plan on using our portfolio for another 15-20 years

Can you share your reasons why these IPS allocation increase would not be sound?
Thanks

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cheese_breath
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Re: IPS says to go 100% in Downturn

Post by cheese_breath » Thu Mar 12, 2020 3:14 pm

So your IPS says to time the market.

I guess if that's what you're going to do you should probably have something in your IPS related to closeness to retirement when you do it.
Last edited by cheese_breath on Thu Mar 12, 2020 3:18 pm, edited 1 time in total.
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chevca
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Re: IPS says to go 100% in Downturn

Post by chevca » Thu Mar 12, 2020 3:16 pm

It's your IPS. Why you asking us? :happy

Easier to write it out than put it into action when it's happening?

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Teriyaki
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Re: IPS says to go 100% in Downturn

Post by Teriyaki » Thu Mar 12, 2020 3:17 pm

Sounds reasonable enough to me, go for it. Does it also say how and when you should go back to bonds?

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climber2020
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Re: IPS says to go 100% in Downturn

Post by climber2020 » Thu Mar 12, 2020 3:19 pm

The biggest problem would be if you went unemployed during that period. But if your job is stable and you think you can stick it out, go for it. At least you wrote it down a while ago instead of thinking up of this plan in the last few days.

retiredjg
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Re: IPS says to go 100% in Downturn

Post by retiredjg » Thu Mar 12, 2020 3:25 pm

Streptococcus wrote:
Thu Mar 12, 2020 3:11 pm
Can you share your reasons why these IPS allocation increase would not be sound?
It's bold, but I don't see it as "unsound" unless you find it intolerable.

How much experience did you have with market downturns when you wrote this IPS? Were you invested in 2007 when things went south?

It is now time to move on up to 80/20. How do you feel about that? Maybe more importantly...how does your spouse feel about that?

One thing to consider is this...if you are contributing $100k+ a year, you have little need to take risk because you can save so much.Ask yourself this - Why do you want to take risk if you don't need to take risk?

Was your IPS written when you were less wise than now? If yes, I think rebalancing to your current AA is plenty.

BergeronsBuddies
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Re: IPS says to go 100% in Downturn

Post by BergeronsBuddies » Thu Mar 12, 2020 3:28 pm

Mine is similar.

I was 90/10. I wrote in my IPS to go to 95/5 below a 25 Shiller PE and 100% below a 20 Shiller PE.

Just re-allocated today from 90/10 to 95/5. It is serving it's purpose because it makes me feel a bit more "in control" than if I just held pat.

It's more of a mental thing than anything that will really effect my long-term outcome.

I am 25 years from retirement BTW, if I was under 10, I wouldn't be playing these games.
Last edited by BergeronsBuddies on Thu Mar 12, 2020 3:36 pm, edited 1 time in total.

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Kenkat
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Re: IPS says to go 100% in Downturn

Post by Kenkat » Thu Mar 12, 2020 3:33 pm

When do you go back to 80/20 or 70/30? Otherwise, you are going to go to 100% and stay there.

Other than that, it sounds very aggressive but if you can tolerate it and stick to it long term, it’s not necessarily wrong.

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Streptococcus
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Re: IPS says to go 100% in Downturn

Post by Streptococcus » Thu Mar 12, 2020 3:38 pm

cheese_breath wrote:
Thu Mar 12, 2020 3:14 pm
So your IPS says to time the market.

I guess if that's what you're going to do you should probably have something in your IPS related to closeness to retirement when you do it.
My IPS does say to time the market as described above in a downturn if I’m still 50% or less of my number.
There also instructions on how to scale back once i get close to my number.

rossington
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Re: IPS says to go 100% in Downturn

Post by rossington » Thu Mar 12, 2020 3:42 pm

Streptococcus wrote:
Thu Mar 12, 2020 3:38 pm
cheese_breath wrote:
Thu Mar 12, 2020 3:14 pm
So your IPS says to time the market.

I guess if that's what you're going to do you should probably have something in your IPS related to closeness to retirement when you do it.
My IPS does say to time the market as described above in a downturn if I’m still 50% or less of my number.
There also instructions on how to scale back once i get close to my number.
There you go, 80/20 it is then.
"Success is going from failure to failure without loss of enthusiasm." Winston Churchill.

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Teriyaki
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Re: IPS says to go 100% in Downturn

Post by Teriyaki » Thu Mar 12, 2020 4:02 pm

Streptococcus wrote:
Thu Mar 12, 2020 3:38 pm
cheese_breath wrote:
Thu Mar 12, 2020 3:14 pm
So your IPS says to time the market.

I guess if that's what you're going to do you should probably have something in your IPS related to closeness to retirement when you do it.
My IPS does say to time the market as described above in a downturn if I’m still 50% or less of my number.
There also instructions on how to scale back once i get close to my number.
Can you describe the instructions on how to scale back and other possible cases where you would go back to 70/30? Just interested...

Topic Author
Streptococcus
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Re: IPS says to go 100% in Downturn

Post by Streptococcus » Thu Mar 12, 2020 4:08 pm

retiredjg wrote:
Thu Mar 12, 2020 3:25 pm
Streptococcus wrote:
Thu Mar 12, 2020 3:11 pm
Can you share your reasons why these IPS allocation increase would not be sound?
It's bold, but I don't see it as "unsound" unless you find it intolerable.

How much experience did you have with market downturns when you wrote this IPS? Were you invested in 2007 when things went south?

It is now time to move on up to 80/20. How do you feel about that? Maybe more importantly...how does your spouse feel about that?

One thing to consider is this...if you are contributing $100k+ a year, you have little need to take risk because you can save so much.Ask yourself this - Why do you want to take risk if you don't need to take risk?

Was your IPS written when you were less wise than now? If yes, I think rebalancing to your current AA is plenty.
I was not invested in 2007. This is my first big downturn. But my level of anxiety is pretty low and I’m mentally ready for a steep decline. I will rebalance to 80/20 today. I actually believe that I can take that risk because I contribute 100K+ a year.

Caduceus
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Re: IPS says to go 100% in Downturn

Post by Caduceus » Thu Mar 12, 2020 4:22 pm

I think it's a good plan, since it's something you've thought out beforehand. Anything can happen in equity markets, so you'd have to be sure you are comfortable without the ballast of bonds. I am in a similar position to you - first real bear market - and it is disconcerting to see money literally evaporating in front of my eyes. It is not affecting the way I invest but I did joke to a colleague that I might have to steal one of his Xanax pills before long.

If your annual contributions are 10% of your portfolio, I think you'd fill up quite a bit of any potential future losses with contributions anyway, which will make any portfolio losses psychologically easier. Good luck to you.

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Streptococcus
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Re: IPS says to go 100% in Downturn

Post by Streptococcus » Thu Mar 12, 2020 4:31 pm

Caduceus wrote:
Thu Mar 12, 2020 4:22 pm
I think it's a good plan, since it's something you've thought out beforehand. Anything can happen in equity markets, so you'd have to be sure you are comfortable without the ballast of bonds. I am in a similar position to you - first real bear market - and it is disconcerting to see money literally evaporating in front of my eyes. It is not affecting the way I invest but I did joke to a colleague that I might have to steal one of his Xanax pills before long.

If your annual contributions are 10% of your portfolio, I think you'd fill up quite a bit of any potential future losses with contributions anyway, which will make any portfolio losses psychologically easier. Good luck to you.
That was precisely my reasoning. I feel like I can take more risk because of my yearly contribution. And I should take less risk once I’m closer to my number.

retiredjg
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Re: IPS says to go 100% in Downturn

Post by retiredjg » Thu Mar 12, 2020 4:40 pm

It is always true that people who do not need risk are the same ones who can afford to take it. For many of them, it's a bad choice because of their physical and emotional responses to risk.

Not saying that is true of you, but it is certainly true of someone reading this thread.

equanimity
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Re: IPS says to go 100% in Downturn

Post by equanimity » Thu Mar 12, 2020 4:43 pm

I think that if you have a long investment horizon and stable employment then it is a good way to ultimately own more shares.

This is my first bear market with any real skin in the game. It is surreal to watch my portfolio lose a sizable chunk of its value, but I believe that it is the best long-term financial interest for our family to rebalance by exchanging my bond index for my stock index during downturns while also (2) to continue aggressive contributions into VTSAX in an automated fashion. I believe this is a good way to ultimately own more shares of the market.

And, if things really hit the fan and pandemonium ensues, then all of this monopoly money doesn't matter.
___ Don't gain the world and lose your soul. Wisdom is better than silver and gold ___

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Re: IPS says to go 100% in Downturn

Post by jjface » Thu Mar 12, 2020 4:49 pm

I think if you have a solid plan then it makes sense especially with your large contribution. Just don't be swayed by emotions along the way or mess anything up or panic :D

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Nate79
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Re: IPS says to go 100% in Downturn

Post by Nate79 » Thu Mar 12, 2020 5:03 pm

It's easy to write these plans when the market was going up. I fail to understand why you are asking. It's either your plan or not. But it seems you have already failed in your plan since you had to ask.

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Streptococcus
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Re: IPS says to go 100% in Downturn

Post by Streptococcus » Thu Mar 12, 2020 5:06 pm

equanimity wrote:
Thu Mar 12, 2020 4:43 pm
I think that if you have a long investment horizon and stable employment then it is a good way to ultimately own more shares.

This is my first bear market with any real skin in the game. It is surreal to watch my portfolio lose a sizable chunk of its value, but I believe that it is the best long-term financial interest for our family to rebalance by exchanging my bond index for my stock index during downturns while also (2) to continue aggressive contributions into VTSAX in an automated fashion. I believe this is a good way to ultimately own more shares of the market.

And, if things really hit the fan and pandemonium ensues, then all of this monopoly money doesn't matter.

Totally agree

Topic Author
Streptococcus
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Re: IPS says to go 100% in Downturn

Post by Streptococcus » Thu Mar 12, 2020 5:07 pm

Nate79 wrote:
Thu Mar 12, 2020 5:03 pm
It's easy to write these plans when the market was going up. I fail to understand why you are asking. It's either your plan or not. But it seems you have already failed in your plan since you had to ask.
I’m really comfortable with my plan. And with asking. And executing. Thank you :beer

minimalistmarc
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Re: IPS says to go 100% in Downturn

Post by minimalistmarc » Thu Mar 12, 2020 5:07 pm

Streptococcus wrote:
Thu Mar 12, 2020 3:11 pm
Hello bogleheads,

I recently reread my IPS as I remembered there was a mention on what to do during the next bear market.

It says to rebalance AND increase my AA from 70/30 to 80/20 when the SP drops by 20% AND then stay put
Then to go 100% stocks if it drops by 40%.
It does not matter if it continues to drop as I will have captured the benefit of a 40% discount
I still have the need, ability and willingness to take that kind of risk today

My portfolio was in the low 7 figure but I suspect it wont be when the downturn will end.
We usually contribute 100K-130K annually to that portfolio
We dont plan on using our portfolio for another 15-20 years

Can you share your reasons why these IPS allocation increase would not be sound?
Thanks
Sounds like a good plan to me. If you’re going to be 100% equities much better to do it after a crash

KlangFool
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Re: IPS says to go 100% in Downturn

Post by KlangFool » Thu Mar 12, 2020 5:09 pm

OP,

Why do you think that you would make more money by this type of market timing move versus a fixed AA of 60/40 or 70/30 with 5/25 band based rebalancing?

<<It says to rebalance AND increase my AA from 70/30 to 80/20 when the SP drops by 20% AND then stay put
Then to go 100% stocks if it drops by 40%.>>

In this kind of system, you would run out of extra money to put into the stock market as soon as you had one 40% drop. Meanwhile, a 60/40 or 70/30 will be able to "Buy Low and Sell High" across multiple stock market drops.

KlangFool

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Streptococcus
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Re: IPS says to go 100% in Downturn

Post by Streptococcus » Thu Mar 12, 2020 5:14 pm

KlangFool wrote:
Thu Mar 12, 2020 5:09 pm
OP,

Why do you think that you would make more money by this type of market timing move versus a fixed AA of 60/40 or 70/30 with 5/25 band based rebalancing?

KlangFool
Great question -
I own a simple lazy portfolio
I believe that a 20-40% dip would make international stocks (VTIAX) greatly undervalued, especially after underperforming for so long. So going all in (100%) would increase my risk and my reward in the long run versus a fixed 60/40.
A 20-40% dip would also make us stock a great buy.
Its a classic buy low well high strategy

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Doom&Gloom
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Re: IPS says to go 100% in Downturn

Post by Doom&Gloom » Thu Mar 12, 2020 5:16 pm

Nate79 wrote:
Thu Mar 12, 2020 5:03 pm
It's easy to write these plans when the market was going up. I fail to understand why you are asking. It's either your plan or not. But it seems you have already failed in your plan since you had to ask.
+1

MoneyMarathon
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Re: IPS says to go 100% in Downturn

Post by MoneyMarathon » Thu Mar 12, 2020 5:24 pm

Streptococcus wrote:
Thu Mar 12, 2020 3:11 pm
Can you share your reasons why these IPS allocation increase would not be sound?
The downside would have been that you miss out a little on gains in a long bull market by being 70/30. That ship has sailed, for now.

But your IPS is not completely unreasonable. While it's not for me, it does offer some protection against being unable to make long term gains from equities in an extended, choppy sideways market, if that were ever the prevailing condition. It's basically just a negative feedback loop.

So I guess the other downside would be if you were unable to follow through on your plan.

MiddleOfTheRoad
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Re: IPS says to go 100% in Downturn

Post by MiddleOfTheRoad » Thu Mar 12, 2020 5:26 pm

Streptococcus wrote:
Thu Mar 12, 2020 3:11 pm
Hello bogleheads,

I recently reread my IPS as I remembered there was a mention on what to do during the next bear market.

It says to rebalance AND increase my AA from 70/30 to 80/20 when the SP drops by 20% AND then stay put
Then to go 100% stocks if it drops by 40%.
It does not matter if it continues to drop as I will have captured the benefit of a 40% discount
I still have the need, ability and willingness to take that kind of risk today

My portfolio was in the low 7 figure but I suspect it wont be when the downturn will end.
We usually contribute 100K-130K annually to that portfolio
We dont plan on using our portfolio for another 15-20 years

Can you share your reasons why these IPS allocation increase would not be sound?
Thanks
I have a similar plan and situation but is a little more granular with the drops. I have been putting it to work. I will go back to 70/30 when the market recover to 90% all time high.

KlangFool
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Re: IPS says to go 100% in Downturn

Post by KlangFool » Thu Mar 12, 2020 6:14 pm

Streptococcus wrote:
Thu Mar 12, 2020 5:14 pm
KlangFool wrote:
Thu Mar 12, 2020 5:09 pm
OP,

Why do you think that you would make more money by this type of market timing move versus a fixed AA of 60/40 or 70/30 with 5/25 band based rebalancing?

KlangFool
Great question -
I own a simple lazy portfolio
I believe that a 20-40% dip would make international stocks (VTIAX) greatly undervalued, especially after underperforming for so long. So going all in (100%) would increase my risk and my reward in the long run versus a fixed 60/40.
A 20-40% dip would also make us stock a great buy.
Its a classic buy low well high strategy
Streptococcus,

<< So going all in (100%) would increase my risk and my reward in the long run versus a fixed 60/40. >>

Why should that be true?

<<A 20-40% dip would also make us stock a great buy. >>

Why should this be true either? Especially for multiple drops. The 60/40 people will beat the 100/0 people. There is no money for the subsequent drops for the 100/0 people.

I just put out a simple example when your strategy failed. It does not handle multiple drops.

If you believe that the stock market oscillates, a fixed 60/40 will work much better.

In your system, after a 40% drop, you will be 100/0. What do you do if another 50% drop comes after that? You have nothing to buy the stock on the cheap anymore.

Meanwhile, for a fixed AA of 60/40, it can handle multiple drops. And, for each drop, it drops less and can recover faster. Plus, it could use the bond to buy the stock on the cheap.

You should test your idea by running through multiple sequences of returns.

KlangFool

KlangFool
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Re: IPS says to go 100% in Downturn

Post by KlangFool » Thu Mar 12, 2020 6:18 pm

OP,

Compare your system versus a fixed AA of 60/40 with 5/25 band based rebalancing.

What happened if you have a sequence of 2 x 40% drops? The 60/40 will win.

KlangFool

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bluquark
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Re: IPS says to go 100% in Downturn

Post by bluquark » Thu Mar 12, 2020 7:44 pm

I have a similar clause in my IPS, but the criteria are forward-looking-valuation-based instead of recent-history-based. Here is what it says:
- Hold 70/30 when Damodaran's 12-month adjusted ERP is between 4% and 6%
- When ERP has been outside of this band for more than 3 months, adjust AA as follows:
- 6.5%+: 80/20
- 6-6.5%: 75/25
- 4-6%: 70/30
- 3.5-4%: 65/35
- 3-3.5%: 60/40
- 2.5-3%: 50/50
- 2-2.5%: 40/60
- <2%: 30/70
- Ranges are intended as a rough plan: if/when valuation reach unusual levels, OK to adjust IPS at that point to formulate a more specific/continuous/principled plan
The main idea behind this is to follow Shiller's principle that valuation-informed indexing is superior to buy-and-hold, and in particular that means cashing out during enormous bubbles like Japan 1989 or US 1999. (The beauty of it is that it doesn't even matter if the bubble ever pops -- if stocks are only going to return a 2% premium over bonds in the future, why bother holding stocks?)

Logically reversing the principle means I should also buy a bit after some crashes. Provided, that is, those crashes are purely fear-based instead of because of rationally reduced predictions of earnings and earnings growth. That can't be seen from price charts alone, and the ERP is a quantitative way to tell the difference. Reduced earnings is exactly what just happened and if my ERP metric bumps above 6% next month, it will probably be a statistical artifact due to the trailing 12-month earnings data, and given my 3-month waiting period, I don't expect to need to deviate from 70/30 just now.

My strategy would not have had me deviate before/after 2008, nor in 1987 or early 2020, but I don't think it's possible to catch all crashes and run-ups, only a particularly predictable subset. Above all I have Japan's famously retirement-crushing "lost decades" in mind: in Japan 1989, exiting the market before the crash worked extremely well and reentering in force expecting a recovery did not work at all.
Last edited by bluquark on Fri Mar 13, 2020 12:13 am, edited 1 time in total.
70/30 portfolio | Equity: global market weight | Bonds: 20% long-term munis - 10% LEMB

averagedude
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Re: IPS says to go 100% in Downturn

Post by averagedude » Thu Mar 12, 2020 7:57 pm

If it sounded reasonable when you wrote it, then you should follow your strategy. That is the purpose of writing it down.

Topic Author
Streptococcus
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Re: IPS says to go 100% in Downturn

Post by Streptococcus » Thu Mar 12, 2020 8:00 pm

KlangFool wrote:
Thu Mar 12, 2020 6:18 pm
OP,

Compare your system versus a fixed AA of 60/40 with 5/25 band based rebalancing.

What happened if you have a sequence of 2 x 40% drops? The 60/40 will win.

KlangFool
I appreciate your comment KlangFool :beer

Topic Author
Streptococcus
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Re: IPS says to go 100% in Downturn

Post by Streptococcus » Thu Mar 12, 2020 8:01 pm

bluquark wrote:
Thu Mar 12, 2020 7:44 pm
I have a similar clause in my IPS, but the criteria are forward-looking-valuation-based instead of recent-history-based. Here is what it says:
- Hold 70/30 when Damodaran's 12-month adjusted ERP is between 4% and 6%
- When ERP has been outside of this band for more than 3 months, adjust AA as follows:
- 6.5%+: 80/20
- 6-6.5%: 75/25
- 4-6%: 70/30
- 3.5-4%: 65/35
- 3-3.5%: 60/40
- 2.5-3%: 50/50
- 2-2.5%: 40/60
- <2%: 30/70
- Ranges are intended as a rough plan: if/when valuation reach unusual levels, OK to adjust IPS at that point to formulate a more specific/continuous/principled plan
The main idea behind this is to follow Schiller's principle that valuation-informed indexing is superior to buy-and-hold, and in particular that means cashing out during enormous bubbles like Japan 1989 or US 1999. (The beauty of it is that it doesn't even matter if the bubble ever pops -- if stocks are only going to return a 2% premium over bonds in the future, why bother holding stocks?)

Logically reversing the principle means I should also buy a bit after some crashes. Provided, that is, those crashes are purely fear-based instead of because of rationally reduced predictions of earnings and earnings growth. That can't be seen from price charts alone, and the ERP is a quantitative way to tell the difference. Reduced earnings is exactly what just happened and if my ERP metric bumps above 6% next month, it will probably be a statistical artifact due to the trailing 12-month earnings data, and given my 3-month waiting period, I don't expect to need to deviate from 70/30 just now.

My strategy would not have had me deviate before/after 2008, nor in 1987 or early 2020, but I don't think it's possible to catch all crashes and run-ups, only a particularly predictable subset. Above all I have Japan's famously retirement-crushing "lost decades" in mind: in Japan 1989, exiting the market before the crash worked extremely well and reentering in force expecting a recovery did not work at all.
Thanks for sharing your strategy

razorbacker
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Re: IPS says to go 100% in Downturn

Post by razorbacker » Thu Mar 12, 2020 8:30 pm

KlangFool wrote:
Thu Mar 12, 2020 6:18 pm
OP,

Compare your system versus a fixed AA of 60/40 with 5/25 band based rebalancing.

What happened if you have a sequence of 2 x 40% drops? The 60/40 will win.

KlangFool
I'm kind new on the site but have read and like your posts concerning AA and investing. Could you explain the meaning of "5/25 band based rebalancing" comment? thanks.

KlangFool
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Re: IPS says to go 100% in Downturn

Post by KlangFool » Thu Mar 12, 2020 8:42 pm

razorbacker wrote:
Thu Mar 12, 2020 8:30 pm
KlangFool wrote:
Thu Mar 12, 2020 6:18 pm
OP,

Compare your system versus a fixed AA of 60/40 with 5/25 band based rebalancing.

What happened if you have a sequence of 2 x 40% drops? The 60/40 will win.

KlangFool
I'm kind new on the site but have read and like your posts concerning AA and investing. Could you explain the meaning of "5/25 band based rebalancing" comment? thanks.
razorbacker,

https://www.bogleheads.org/wiki/Rebalancing

Please check out the Wiki. If you need more explanation, please start a new topic and we can go over the example with your actual AA.

KlangFool

Topic Author
Streptococcus
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Re: IPS says to go 100% in Downturn

Post by Streptococcus » Thu Mar 12, 2020 9:37 pm

KlangFool wrote:
Thu Mar 12, 2020 6:14 pm
Streptococcus wrote:
Thu Mar 12, 2020 5:14 pm
KlangFool wrote:
Thu Mar 12, 2020 5:09 pm
OP,

Why do you think that you would make more money by this type of market timing move versus a fixed AA of 60/40 or 70/30 with 5/25 band based rebalancing?

KlangFool
Great question -
I own a simple lazy portfolio
I believe that a 20-40% dip would make international stocks (VTIAX) greatly undervalued, especially after underperforming for so long. So going all in (100%) would increase my risk and my reward in the long run versus a fixed 60/40.
A 20-40% dip would also make us stock a great buy.
Its a classic buy low well high strategy
Streptococcus,

<< So going all in (100%) would increase my risk and my reward in the long run versus a fixed 60/40. >>

Why should that be true?

<<A 20-40% dip would also make us stock a great buy. >>

Why should this be true either? Especially for multiple drops. The 60/40 people will beat the 100/0 people. There is no money for the subsequent drops for the 100/0 people.

I just put out a simple example when your strategy failed. It does not handle multiple drops.

If you believe that the stock market oscillates, a fixed 60/40 will work much better.

In your system, after a 40% drop, you will be 100/0. What do you do if another 50% drop comes after that? You have nothing to buy the stock on the cheap anymore.

Meanwhile, for a fixed AA of 60/40, it can handle multiple drops. And, for each drop, it drops less and can recover faster. Plus, it could use the bond to buy the stock on the cheap.

You should test your idea by running through multiple sequences of returns.

KlangFool
I invest over 100k a year. If I go 100% stocks after a 40% dip and it dives another 50% I’ll put 100K in stocks that year. And the next year. And the next...

KlangFool
Posts: 16686
Joined: Sat Oct 11, 2008 12:35 pm

Re: IPS says to go 100% in Downturn

Post by KlangFool » Thu Mar 12, 2020 9:42 pm

Streptococcus wrote:
Thu Mar 12, 2020 9:37 pm


I invest over 100k a year. If I go 100% stocks after a 40% dip and it dives another 50% I’ll put 100K in stocks that year. And the next year. And the next...
Streptococcus,

So what?

The 60/40 will still beat 100/0 when your portfolio is big enough at 1 million or 2 million.

In fact, with 60/40, you will always "buy low". You do not have to buy the stock when it is overpriced.

Your 100K per year cannot wash away the 50% drop in the portfolio if the portfolio is 1 million or 2 million.

KlangFool

dachshunddad
Posts: 145
Joined: Mon Sep 03, 2018 8:22 pm

Re: IPS says to go 100% in Downturn

Post by dachshunddad » Thu Mar 12, 2020 10:05 pm

My IPS allows me to go 80/20 to 90/10 if market down more than 1/3. This isn't so much a market timing strategy as a mental strategy to allow me to "do something" and feel good buying low when the market keeps falling. It then has me go back when market returns to previous high.

Topic Author
Streptococcus
Posts: 377
Joined: Thu Jan 03, 2013 12:17 am

Re: IPS says to go 100% in Downturn

Post by Streptococcus » Thu Mar 12, 2020 10:19 pm

KlangFool wrote:
Thu Mar 12, 2020 9:42 pm
Streptococcus wrote:
Thu Mar 12, 2020 9:37 pm


I invest over 100k a year. If I go 100% stocks after a 40% dip and it dives another 50% I’ll put 100K in stocks that year. And the next year. And the next...
Streptococcus,

So what?

The 60/40 will still beat 100/0 when your portfolio is big enough at 1 million or 2 million.

In fact, with 60/40, you will always "buy low". You do not have to buy the stock when it is overpriced.

Your 100K per year cannot wash away the 50% drop in the portfolio if the portfolio is 1 million or 2 million.

KlangFool
:D

mookie
Posts: 140
Joined: Sun Jul 12, 2015 1:35 pm

Re: IPS says to go 100% in Downturn

Post by mookie » Sat Mar 21, 2020 9:20 am

bluquark wrote:
Thu Mar 12, 2020 7:44 pm
I have a similar clause in my IPS, but the criteria are forward-looking-valuation-based instead of recent-history-based. Here is what it says:
- Hold 70/30 when Damodaran's 12-month adjusted ERP is between 4% and 6%
- When ERP has been outside of this band for more than 3 months, adjust AA as follows:
- 6.5%+: 80/20
- 6-6.5%: 75/25
- 4-6%: 70/30
- 3.5-4%: 65/35
- 3-3.5%: 60/40
- 2.5-3%: 50/50
- 2-2.5%: 40/60
- <2%: 30/70
- Ranges are intended as a rough plan: if/when valuation reach unusual levels, OK to adjust IPS at that point to formulate a more specific/continuous/principled plan
Does anyone have data comparing this strategy or other strategies that change AA based on market peaks and troughs, such as what Bergeronsbuddies posted earlier in this thread, to rebalancing with a 25/5 band?

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