Help me with IPS after learning experience

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Triple digit golfer
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Help me with IPS after learning experience

Post by Triple digit golfer » Fri Mar 20, 2020 7:57 am

I have done some learning and reflecting during this, my first true significant market decline. I had minimal money invested in 2008-09. We are 35 years old. Our portfolio is currently a 3-fund, 80/20 portfolio with only a few months in cash outside the AA. IPS calls for maxing out both of our IRAs as soon as possible. We did it in January.

IPS also calls for rebalancing at 5% bands and contributing new money to whatever asset class is lagging. TLH when opportunity arises greater than $1,000 (hah!). That was easy to hit!

We rebalanced by moving $32k from bonds to equities when the S&P 500 was at 2,480.64 last Thursday, in order to stay at 80/20 after drifting down to 75/25.

I have discovered the following:

-I need more fixed income/cash to sleep well at night. Being a one-income household with a wife and young child at home and probably paid 15-20% above market value, the fear is that I lose my job in a recession and can't find another one for a while and when I do find one, it will pay less than I make now.

-Related to the above, perhaps this calls for more cash in savings, but also a bit more bonds in the AA. Maybe 75/25 instead of 80/20.

-Minimizing regret is more important to me than optimizing anything. I want to have a good savings rate, low cost funds, tax-efficiency, etc. The rest is probably just noise. Getting U.S./international perfectly in balance, total market vs. S&P 500 isn't really important to me.

-I need a contribution and rebalancing program that doesn't require any regular thinking, analyzing, or judgment and minimized regret. Currently, I contribute new money to lagging asset class and rebalance at 5% bands (requires analyzing current market/portfolio). I max out tax-advantaged accounts as soon as possible (this could maximize regret, so perhaps DCA is better for me).

I am considering changing my IPS to the following:

-Change AA from 80/20 to 75/25. I can do this by simply "undoing" my rebalance and moving the $32k I moved to equities back to bonds. The market isn't far off from where I bought in, so I wouldn't be losing much, if anything. This will effectively make things as if I did nothing last week. No tax consequences and I have tax-advantaged space where we can sell equities and buy bonds outside of the account we did the original transaction in, so no 30 day holding periods either.

-Contribute all new money according to 75/25, regardless of what the market is doing (requires no analyzing current market/portfolio).

-Contribute to both of our IRAs quarterly instead of at the beginning of the year (DCA; maybe not optimal, but minimizes regret).

-Rebalance annually on my birthday. This will be at the end of February, which is very close to a year from now, when I'll be back in balance (requires no thinking, just rebalance one day a year regardless of market conditions).

-Each year when rebalancing, balance to age-10 in bonds. This year works out nicely at 75/25. Next year, rebalance to 74/26, etc. This will effectively add more fixed income over time, when in theory I have more money to lose, become less employable, may take longer to find work, and have a shorter period until retirement.

-Over the next six months, increase cash savings from 3 to 6 months expenses before investing in taxable accounts. This will take about six months to complete. At that point, I will continue investing in taxable investments. If money is drawn from savings for any large expenses (say a $3,000 emergency home repair), replenish before investing in taxable accounts.

I'd love your feedback. I am not reacting emotionally. I am simply reassessing my risk tolerance and trying to design a strategy that works with my risk tolerance and personality. I don't think anything I am proposing will be damaging to my long-term success. What are your thoughts?

pkcrafter
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Re: Help me with IPS after learning experience

Post by pkcrafter » Fri Mar 20, 2020 10:36 am

TDG, I'll offer some suggestions for your consideration--
Triple digit golfer wrote:
Fri Mar 20, 2020 7:57 am
I have done some learning and reflecting during this, my first true significant market decline. I had minimal money invested in 2008-09. We are 35 years old. Our portfolio is currently a 3-fund, 80/20 portfolio with only a few months in cash outside the AA. IPS calls for maxing out both of our IRAs as soon as possible. We did it in January.

IPS also calls for rebalancing at 5% bands and contributing new money to whatever asset class is lagging. TLH when opportunity arises greater than $1,000 (hah!). That was easy to hit!

We rebalanced by moving $32k from bonds to equities when the S&P 500 was at 2,480.64 last Thursday, in order to stay at 80/20 after drifting down to 75/25.

I have discovered the following:

-I need more fixed income/cash to sleep well at night. Being a one-income household with a wife and young child at home and probably paid 15-20% above market value, the fear is that I lose my job in a recession and can't find another one for a while and when I do find one, it will pay less than I make now.

-Related to the above, perhaps this calls for more cash in savings, but also a bit more bonds in the AA. Maybe 75/25 instead of 80/20.

We don't know how much you have in emergency funds, but you may need to increase it. I suggest you move to 70/30 and leave it there for maybe 10 years at which point you can again evaluate portfolio value vs need and ability to take risk.

-Minimizing regret is more important to me than optimizing anything. I want to have a good savings rate, low cost funds, tax-efficiency, etc. The rest is probably just noise. Getting U.S./international perfectly in balance, total market vs. S&P 500 isn't really important to me.

-I need a contribution and rebalancing program that doesn't require any regular thinking, analyzing, or judgment and minimized regret. Currently, I contribute new money to lagging asset class and rebalance at 5% bands (requires analyzing current market/portfolio). I max out tax-advantaged accounts as soon as possible (this could maximize regret, so perhaps DCA is better for me).

You have two IRA accounts, but are there any company options or taxable retirement accounts? In tax-advantaged accounts you could go to target (TR), lifestrategy (LS) funds, or even balanced funds. I don't see why adding to tax-advantaged accounts ASAP should cause regret, but using TR or LS funds will probably make things easier for now.

I am considering changing my IPS to the following:

-Change AA from 80/20 to 75/25. I can do this by simply "undoing" my rebalance and moving the $32k I moved to equities back to bonds. The market isn't far off from where I bought in, so I wouldn't be losing much, if anything. This will effectively make things as if I did nothing last week. No tax consequences and I have tax-advantaged space where we can sell equities and buy bonds outside of the account we did the original transaction in, so no 30 day holding periods either.

You have two IRA accounts, but are there any company options or taxable retirement accounts?

-Contribute all new money according to 75/25, regardless of what the market is doing (requires no analyzing current market/portfolio).

Good, but I'll still suggest 70/30.

-Contribute to both of our IRAs quarterly instead of at the beginning of the year (DCA; maybe not optimal, but minimizes regret).

No, go with beginning of the year if you can.

-Rebalance annually on my birthday. This will be at the end of February, which is very close to a year from now, when I'll be back in balance (requires no thinking, just rebalance one day a year regardless of market conditions).

That's OK. I check twice a year, March and October because those months seem to pivotal. :happy

-Each year when rebalancing, balance to age-10 in bonds. This year works out nicely at 75/25. Next year, rebalance to 74/26, etc. This will effectively add more fixed income over time, when in theory I have more money to lose, become less employable, may take longer to find work, and have a shorter period until retirement.

I don't think resetting AA by 1% does anything but add needless fiddling.

-Over the next six months, increase cash savings from 3 to 6 months expenses before investing in taxable accounts. This will take about six months to complete. At that point, I will continue investing in taxable investments. If money is drawn from savings for any large expenses (say a $3,000 emergency home repair), replenish before investing in taxable accounts.

:thumbsup

Paul

I'd love your feedback. I am not reacting emotionally. I am simply reassessing my risk tolerance and trying to design a strategy that works with my risk tolerance and personality. I don't think anything I am proposing will be damaging to my long-term success. What are your thoughts?
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.

Topic Author
Triple digit golfer
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Re: Help me with IPS after learning experience

Post by Triple digit golfer » Fri Mar 20, 2020 11:04 am

pkcrafter wrote:
Fri Mar 20, 2020 10:36 am
TDG, I'll offer some suggestions for your consideration--
Triple digit golfer wrote:
Fri Mar 20, 2020 7:57 am
I have done some learning and reflecting during this, my first true significant market decline. I had minimal money invested in 2008-09. We are 35 years old. Our portfolio is currently a 3-fund, 80/20 portfolio with only a few months in cash outside the AA. IPS calls for maxing out both of our IRAs as soon as possible. We did it in January.

IPS also calls for rebalancing at 5% bands and contributing new money to whatever asset class is lagging. TLH when opportunity arises greater than $1,000 (hah!). That was easy to hit!

We rebalanced by moving $32k from bonds to equities when the S&P 500 was at 2,480.64 last Thursday, in order to stay at 80/20 after drifting down to 75/25.

I have discovered the following:

-I need more fixed income/cash to sleep well at night. Being a one-income household with a wife and young child at home and probably paid 15-20% above market value, the fear is that I lose my job in a recession and can't find another one for a while and when I do find one, it will pay less than I make now.

-Related to the above, perhaps this calls for more cash in savings, but also a bit more bonds in the AA. Maybe 75/25 instead of 80/20.

We don't know how much you have in emergency funds, but you may need to increase it. I suggest you move to 70/30 and leave it there for maybe 10 years at which point you can again evaluate portfolio value vs need and ability to take risk.

-Minimizing regret is more important to me than optimizing anything. I want to have a good savings rate, low cost funds, tax-efficiency, etc. The rest is probably just noise. Getting U.S./international perfectly in balance, total market vs. S&P 500 isn't really important to me.

-I need a contribution and rebalancing program that doesn't require any regular thinking, analyzing, or judgment and minimized regret. Currently, I contribute new money to lagging asset class and rebalance at 5% bands (requires analyzing current market/portfolio). I max out tax-advantaged accounts as soon as possible (this could maximize regret, so perhaps DCA is better for me).

You have two IRA accounts, but are there any company options or taxable retirement accounts? In tax-advantaged accounts you could go to target (TR), lifestrategy (LS) funds, or even balanced funds. I don't see why adding to tax-advantaged accounts ASAP should cause regret, but using TR or LS funds will probably make things easier for now.

I am considering changing my IPS to the following:

-Change AA from 80/20 to 75/25. I can do this by simply "undoing" my rebalance and moving the $32k I moved to equities back to bonds. The market isn't far off from where I bought in, so I wouldn't be losing much, if anything. This will effectively make things as if I did nothing last week. No tax consequences and I have tax-advantaged space where we can sell equities and buy bonds outside of the account we did the original transaction in, so no 30 day holding periods either.

You have two IRA accounts, but are there any company options or taxable retirement accounts?

-Contribute all new money according to 75/25, regardless of what the market is doing (requires no analyzing current market/portfolio).

Good, but I'll still suggest 70/30.

-Contribute to both of our IRAs quarterly instead of at the beginning of the year (DCA; maybe not optimal, but minimizes regret).

No, go with beginning of the year if you can.

-Rebalance annually on my birthday. This will be at the end of February, which is very close to a year from now, when I'll be back in balance (requires no thinking, just rebalance one day a year regardless of market conditions).

That's OK. I check twice a year, March and October because those months seem to pivotal. :happy

-Each year when rebalancing, balance to age-10 in bonds. This year works out nicely at 75/25. Next year, rebalance to 74/26, etc. This will effectively add more fixed income over time, when in theory I have more money to lose, become less employable, may take longer to find work, and have a shorter period until retirement.

I don't think resetting AA by 1% does anything but add needless fiddling.

-Over the next six months, increase cash savings from 3 to 6 months expenses before investing in taxable accounts. This will take about six months to complete. At that point, I will continue investing in taxable investments. If money is drawn from savings for any large expenses (say a $3,000 emergency home repair), replenish before investing in taxable accounts.

:thumbsup

Paul

I'd love your feedback. I am not reacting emotionally. I am simply reassessing my risk tolerance and trying to design a strategy that works with my risk tolerance and personality. I don't think anything I am proposing will be damaging to my long-term success. What are your thoughts?
Thanks for your response.

I would be fine at 70/30 indefinitely. I am hesitant about moving now and essentially locking in losses. I am not panicked or anything. In fact I am very calm. I have the self control not to sell in a panic and ride it out. Does that change anything or should I just lock in the losses? At this point it would be selling about $64k from equities to bonds. $32k would essentially be undoing what I did last week, and $32k would be truly locking in losses after a 30% drop. The way I see it, it'll cost me around $10k. Ouch, but maybe still worth it?

We have $15k in savings, which would be an emergency fund, plus $180k in taxable equities. We have $125k in bonds. Expenses at $6k per month (assuming COBRA in the case of job loss) would be right about two years in cash+bonds combined. The bonds are in a tax-deferred account, so I'd sell taxable equities and exchange bonds to equities in tax-deferred in the case of an emergency.

Our accounts are my 401k (bi-weekly $750 contributions), my rollover/traditional IRA (no longer contributing), my Roth IRA ($6k contributed in January), my wife's traditional IRA ($6k contributed in January), and our taxable account ($180k in equities, were contributing around $2k monthly, now considering stopping for six months to beef up emergency fund).

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WoodSpinner
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Re: Help me with IPS after learning experience

Post by WoodSpinner » Fri Mar 20, 2020 1:59 pm

OP,

I suspect the market will help you rebalance down to a 75/25 with no real action on your part. I wouldn’t actively rebalance to achieve it.

Another reality is that there is almost NO difference between an 80/20 and a 75/25 allocation. I suspect you may be having a similar response to the market gyrations that I have been suffering from—namely the Re-balance bands are being hit way too often.

Not sure if you have seen my post on trying to amend my IPS to deal with things. Would love your perspective on the discussion since we are in strange times!

WoodSpinner

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Triple digit golfer
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Re: Help me with IPS after learning experience

Post by Triple digit golfer » Fri Mar 20, 2020 2:01 pm

WoodSpinner wrote:
Fri Mar 20, 2020 1:59 pm
OP,

I suspect the market will help you rebalance down to a 75/25 with no real action on your part. I wouldn’t actively rebalance to achieve it.

Another reality is that there is almost NO difference between an 80/20 and a 75/25 allocation. I suspect you may be having a similar response to the market gyrations that I have been suffering from—namely the Re-balance bands are being hit way too often.

Not sure if you have seen my post on trying to amend my IPS to deal with things. Would love your perspective on the discussion since we are in strange times!

WoodSpinner
Thanks WoodSpinner. I'll check out your thread later on or this weekend. I will have plenty of time. Our governor (IL) is set to announce a "shelter in place" order this afternoon. Not that I'd be out and about anyway.

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Triple digit golfer
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Re: Help me with IPS after learning experience

Post by Triple digit golfer » Wed Mar 25, 2020 12:01 pm

Bumping.

My wife and I have been at 80/20 for 13 years. After the initial crash, I was wishing I had more cash/bonds in order to sleep well at night.

Our allocation dropped to 75/25, so I rebalanced back to 80/20 with a $32k exchange from Total Bond to Total Stock in a traditional IRA. I had a bit of regret shortly thereafter, wishing I had just let it ride at 75/25 and then keeping it there instead of 80/20.

Now, the market looks like it will close well above where I bought in, so I have an chance to undo my $32k purchase and even make a bit of money on it.

I am considering exchanging $32k back. However, I would have to exchange from S&P 500 (not Total Market) to a different bond fund (not Total Bond) because of the 30 day trading rule. No wash sale issues, but just the frequent trading policy. In 30 days after, I'd be able to move back to Total Bond from whatever replacement bond fund I choose.

I'm sort of torn on what to do. Do I just stick with my 80/20 that we've had for 13 years? Do I do the exchange today and stay at 75/25 moving forward?

In the mean time, we are going to bump up emergency (currently 3 months in cash savings) fund by stopping taxable equity investments for a while. If I go to 75/25, I'll likely stop at 6 months savings. If we stay at 80/20, I'll bump up savings to 9-12 months.

Just looking for some perspective. The thing that gave me angst wasn't that equities dropped, but the fear of losing my job and not having enough "safe" assets. So maybe the real question is not, "Do I go to a more conservative AA" but "Should I just keep increasing emergency savings to 9-12 months."

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Re: Help me with IPS after learning experience

Post by keakakea » Wed Mar 25, 2020 12:28 pm

So maybe the real question is not, "Do I go to a more conservative AA" but "Should I just keep increasing emergency savings to 9-12 months."
It seems like you would be more comfortable with 9-12 months so I think that sounds like a good plan. Peace of mind is worth a lot in my opinion and if that helps you sleep better, it’ll be worth it. My personal investing philosophy focuses more on being lower stress than being as efficient and lucrative as possible

btenny
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Re: Help me with IPS after learning experience

Post by btenny » Wed Mar 25, 2020 12:33 pm

Asset Allocations of 60/40 (for accumulators) has been the gold standard for decades for good reasons. I suggest 70/30 maximum. But you have already done your changes for this year. So I suggest NO more selling or rebalancing for now. I would not change anything for a long time. Once a year changes are enough and much safer. I like doing my changes in the fall but I guess spring is OK too. Just pick a time and stick with it. If you are only nervous you are OK for now. Give this craziness time to mature and see were stuff goes.

I also like making 401K and IRA contributions (and employee matches) spread out over the year. This cost averaged my purchases. I bought a balance each month that matched my AA. But there are good arguments for doing it completely early in the year.

If you can save extra I also suggest keeping reserve bond $$ in taxable as a emergency fund. I do this instead of keeping a lot of cash in CDs or savings as separate emergency fund. But this is my plan.

Good Luck.

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Triple digit golfer
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Re: Help me with IPS after learning experience

Post by Triple digit golfer » Wed Mar 25, 2020 1:18 pm

keakakea wrote:
Wed Mar 25, 2020 12:28 pm
So maybe the real question is not, "Do I go to a more conservative AA" but "Should I just keep increasing emergency savings to 9-12 months."
It seems like you would be more comfortable with 9-12 months so I think that sounds like a good plan. Peace of mind is worth a lot in my opinion and if that helps you sleep better, it’ll be worth it. My personal investing philosophy focuses more on being lower stress than being as efficient and lucrative as possible
Thanks for chiming in. I am definitely going to keep increasing savings as opposed to taxable investing until I'm at 9-12 months.

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Triple digit golfer
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Re: Help me with IPS after learning experience

Post by Triple digit golfer » Wed Mar 25, 2020 1:21 pm

btenny wrote:
Wed Mar 25, 2020 12:33 pm
Asset Allocations of 60/40 (for accumulators) has been the gold standard for decades for good reasons. I suggest 70/30 maximum. But you have already done your changes for this year. So I suggest NO more selling or rebalancing for now. I would not change anything for a long time. Once a year changes are enough and much safer. I like doing my changes in the fall but I guess spring is OK too. Just pick a time and stick with it. If you are only nervous you are OK for now. Give this craziness time to mature and see were stuff goes.

I also like making 401K and IRA contributions (and employee matches) spread out over the year. This cost averaged my purchases. I bought a balance each month that matched my AA. But there are good arguments for doing it completely early in the year.

If you can save extra I also suggest keeping reserve bond $$ in taxable as a emergency fund. I do this instead of keeping a lot of cash in CDs or savings as separate emergency fund. But this is my plan.

Good Luck.
Thanks for your post. On one hand, I know that 60/40 was the gold standard, but on the other, we're likely done with what was one of the most lucrative bond markets in history. However, that doesn't necessarily mean that one should take extra risk on the equity side. Perhaps it means we should just accept the market's lower returns for what they are.

I understand what you're saying about no more selling/rebalancing because I've already done it this year, but I'd just be undoing what I did already. What's the harm? I'd be at 75/25 and stay there for a decade or longer.

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iceport
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Re: Help me with IPS after learning experience

Post by iceport » Wed Mar 25, 2020 1:46 pm

Triple digit golfer wrote:
Fri Mar 20, 2020 7:57 am
-Contribute all new money according to 75/25, regardless of what the market is doing (requires no analyzing current market/portfolio).
Regardless of what you decide for your AA, you can get there quicker — and stay there more consistently — if you direct all new contributions to only those positions that are below target.

I never did that before the 2008/2009 crash, and instead fully automated all contributions across the entire portfolio according to my AA. After the Great Recession, I found it was far more effective and not much more trouble to become just a bit more "hands on" in the approach to new contributions.

My spreadsheet includes a column showing the dollar value of any deviations from the target allocations. Before my bi-weekly retirement plan contributions, or any other contributions I had automated, I would consult the spreadsheet and make sure I was not going to contribute to an over-allocated position. In practice, this only meant changing my new contribution fund selections a handful of times a year. The vast majority of the time, what was below target one time would still be below target two weeks later.

Besides achieving and maintaining balance quicker, this method results in smaller rebalancing events, if you do that annually, for example, as I do. That's comforting to me because I see rebalancing events as potentially performance-draining, depending on the subsequent market moves. (I'd prefer not to rebalance in to equities right before a correction, for example.) The lighter the touch on the portfolio, the better, IMHO.
"Discipline matters more than allocation.” ─William Bernstein

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Triple digit golfer
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Re: Help me with IPS after learning experience

Post by Triple digit golfer » Wed Mar 25, 2020 2:19 pm

iceport wrote:
Wed Mar 25, 2020 1:46 pm
Triple digit golfer wrote:
Fri Mar 20, 2020 7:57 am
-Contribute all new money according to 75/25, regardless of what the market is doing (requires no analyzing current market/portfolio).
Regardless of what you decide for your AA, you can get there quicker — and stay there more consistently — if you direct all new contributions to only those positions that are below target.

I never did that before the 2008/2009 crash, and instead fully automated all contributions across the entire portfolio according to my AA. After the Great Recession, I found it was far more effective and not much more trouble to become just a bit more "hands on" in the approach to new contributions.

My spreadsheet includes a column showing the dollar value of any deviations from the target allocations. Before my bi-weekly retirement plan contributions, or any other contributions I had automated, I would consult the spreadsheet and make sure I was not going to contribute to an over-allocated position. In practice, this only meant changing my new contribution fund selections a handful of times a year. The vast majority of the time, what was below target one time would still be below target two weeks later.

Besides achieving and maintaining balance quicker, this method results in smaller rebalancing events, if you do that annually, for example, as I do. That's comforting to me because I see rebalancing events as potentially performance-draining, depending on the subsequent market moves. (I'd prefer not to rebalance in to equities right before a correction, for example.) The lighter the touch on the portfolio, the better, IMHO.
Your method is exactly how I've been doing it to this point. I may still continue to do it that way. It takes very little effort to do and like you said, in practice doesn't really involve changing where new contributions are directed very often. Market momentum changes my portfolio AA at this point more than new contributions. Probably a different story for somebody just starting out, but in that case it probably doesn't matter much how they direct new money anyway.

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iceport
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Re: Help me with IPS after learning experience

Post by iceport » Wed Mar 25, 2020 2:30 pm

Triple digit golfer wrote:
Wed Mar 25, 2020 2:19 pm
Your method is exactly how I've been doing it to this point.
Very good, carry on! :beer

(If you are maxing out all your tax-advantaged space, and spilling into taxable space, the overall nudging over the course of a year adds up.)
"Discipline matters more than allocation.” ─William Bernstein

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Triple digit golfer
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Re: Help me with IPS after learning experience

Post by Triple digit golfer » Wed Mar 25, 2020 2:56 pm

iceport wrote:
Wed Mar 25, 2020 2:30 pm
Triple digit golfer wrote:
Wed Mar 25, 2020 2:19 pm
Your method is exactly how I've been doing it to this point.
Very good, carry on! :beer

(If you are maxing out all your tax-advantaged space, and spilling into taxable space, the overall nudging over the course of a year adds up.)
Yes, we are maxing tax-advantaged space ($31.5k: a 401k and two IRAs) and putting around $15-18k into tax-advantaged per year. Right now, that $15-18k represents 3 months of expenses. So, for a year or so, we're going to forego taxable investing and bump up the emergency fund to 6 months from 3.

75/25 AA + 6 months in cash = SWAN

Current 80/20 + 3 months in cash = SOAN (Sleep okay at night)

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iceport
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Re: Help me with IPS after learning experience

Post by iceport » Wed Mar 25, 2020 8:32 pm

Triple digit golfer wrote:
Wed Mar 25, 2020 2:56 pm
iceport wrote:
Wed Mar 25, 2020 2:30 pm
Triple digit golfer wrote:
Wed Mar 25, 2020 2:19 pm
Your method is exactly how I've been doing it to this point.
Very good, carry on! :beer

(If you are maxing out all your tax-advantaged space, and spilling into taxable space, the overall nudging over the course of a year adds up.)
Yes, we are maxing tax-advantaged space ($31.5k: a 401k and two IRAs) and putting around $15-18k into tax-advantaged per year. Right now, that $15-18k represents 3 months of expenses. So, for a year or so, we're going to forego taxable investing and bump up the emergency fund to 6 months from 3.

75/25 AA + 6 months in cash = SWAN

Current 80/20 + 3 months in cash = SOAN (Sleep okay at night)
Okay, now that I've read your post more thoroughly, it seems your primary question is one of your basic equity/fixed income split. I think you are possibly assigning more significance to the question than the rather narrow range of AAs you are considering deserves. You're doing a terrific job of portfolio management in general, from what I see. One comment I have is that your savings rate, given that it is so high, will still probably swamp the effect of your other decisions over the long term. We can go through long bull markets during which it appears that the market is the primary driver of our wealth. Then the market crashes, and for a long time during the recovery that follows we get reminded that the market isn't quite the magical money maker we came to expect it to be. Your savings rate, when all is said and done, is probably what will form the lion's share of your financial security.

I happen to agree with Paul on the 70/30 AA, but I'm biased. That's the AA I had settled on when I was going through the same kind of soul searching you're doing now. As chance would have it, I managed to get it fully implemented by July 2008, just before the crash. Before that, my fixed income allocation was a paltry 5% to 10%, and I wasn't happy with how I came through the prior slow-rolling dot.com bust. I can't tell you how different it felt weathering the 2008 crash with the additional ballast of 30% fixed income. Sure, I still lost a ton. But my mental accounting kept track of where I would have been with only 5% fixed income, and I was quite pleased with the comparison.

In retrospect, when I ponder my investing choices over my own lifetime, I wish I had had the sense to just set out from Day 1 with a 70/30 AA and held it there steadily until transitioning into a retirement AA. The difference between 70/30, 75/25, and 80/20 is just not that great. Settle on something that appeals to you, and that you can be comfortable with for a good long while, and then try to put it out of your mind. It'll be difficult, and you'll probably second-guess your decision a million times, if you're anything like me. But over time, you get better at ignoring your own doubts and indecision.

Sorry for the long, rambling post. You really are doing quite well. And you'll be fine — no matter what you finally pick for your AA
"Discipline matters more than allocation.” ─William Bernstein

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Triple digit golfer
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Re: Help me with IPS after learning experience

Post by Triple digit golfer » Wed Mar 25, 2020 9:43 pm

iceport wrote:
Wed Mar 25, 2020 8:32 pm
Triple digit golfer wrote:
Wed Mar 25, 2020 2:56 pm
iceport wrote:
Wed Mar 25, 2020 2:30 pm
Triple digit golfer wrote:
Wed Mar 25, 2020 2:19 pm
Your method is exactly how I've been doing it to this point.
Very good, carry on! :beer

(If you are maxing out all your tax-advantaged space, and spilling into taxable space, the overall nudging over the course of a year adds up.)
Yes, we are maxing tax-advantaged space ($31.5k: a 401k and two IRAs) and putting around $15-18k into tax-advantaged per year. Right now, that $15-18k represents 3 months of expenses. So, for a year or so, we're going to forego taxable investing and bump up the emergency fund to 6 months from 3.

75/25 AA + 6 months in cash = SWAN

Current 80/20 + 3 months in cash = SOAN (Sleep okay at night)
Okay, now that I've read your post more thoroughly, it seems your primary question is one of your basic equity/fixed income split. I think you are possibly assigning more significance to the question than the rather narrow range of AAs you are considering deserves. You're doing a terrific job of portfolio management in general, from what I see. One comment I have is that your savings rate, given that it is so high, will still probably swamp the effect of your other decisions over the long term. We can go through long bull markets during which it appears that the market is the primary driver of our wealth. Then the market crashes, and for a long time during the recovery that follows we get reminded that the market isn't quite the magical money maker we came to expect it to be. Your savings rate, when all is said and done, is probably what will form the lion's share of your financial security.

I happen to agree with Paul on the 70/30 AA, but I'm biased. That's the AA I had settled on when I was going through the same kind of soul searching you're doing now. As chance would have it, I managed to get it fully implemented by July 2008, just before the crash. Before that, my fixed income allocation was a paltry 5% to 10%, and I wasn't happy with how I came through the prior slow-rolling dot.com bust. I can't tell you how different it felt weathering the 2008 crash with the additional ballast of 30% fixed income. Sure, I still lost a ton. But my mental accounting kept track of where I would have been with only 5% fixed income, and I was quite pleased with the comparison.

In retrospect, when I ponder my investing choices over my own lifetime, I wish I had had the sense to just set out from Day 1 with a 70/30 AA and held it there steadily until transitioning into a retirement AA. The difference between 70/30, 75/25, and 80/20 is just not that great. Settle on something that appeals to you, and that you can be comfortable with for a good long while, and then try to put it out of your mind. It'll be difficult, and you'll probably second-guess your decision a million times, if you're anything like me. But over time, you get better at ignoring your own doubts and indecision.

Sorry for the long, rambling post. You really are doing quite well. And you'll be fine — no matter what you finally pick for your AA
Thank you for that post! It is greatly appreciated.

I settled on 75/25. I think this is about right for us. This gives us more than two years in fixed income, even at these equity values 25% off the high. Add to that our 3 months in savings and we're at 2.5 years overall. That feels good and makes is feel secure. Over time, it will grow as a multiple of years of expenses and I won't even have to think about it.

I learned that the good feeling of seeing my portfolio grow is not nearly as impactful as the bad feeling of seeing it shrink in a crash.

I am very happy knowing that I have what I consider a sufficient amount in fixed income. I'll never have the optimal portfolio for every scenario and that's how I know I have the optimal portfolio for me overall. A nice easy 3 fund portfolio with the right amount in bonds, with no tracking error. If I continue to save the way I am, good things will happen.

Thanks again!

Here's what I'm considering after a few more days of reflecting:

A maximum AA of 80/20, but minimum 2 years in fixed income.

Scenario 1: Suppose for simplicity the 2 years is $100k and portfolio is $400. I'd hold $100k fixed income and $300k equities which is 75/25.

If equities crash, I do not rebalance because I am already at my fixed income minimum.

If equities go up to $400k, now I'm at 80/20 and I leave it alone.

Scenario 2: Suppose the portfolio is $1 million. I'd hold $200k in fixed income and $800k in equities. Equity changes would result in rebalancing the AA to 80/20 but only as long as fixed income did not fall below $100k.

Is this a silly exercise for an accumulator?

It makes sense intuitively to me because my sleep at night number ultimately relates to how long we could last without an income, which for me I'm comfortable at 2 years. We are a single income family with a young child.

I also think it makes sense because I don't get any anxiety over equities declining. My anxiety previously came only from worrying that my fixed income was too low after I rebalanced into equities. Now that I've corrected that and have 2 years (and realistically probably 2.5 years) in fixed income and know I won't rebalance below my minimum, I have zero investing anxiety.

Is this a silly method for an accumulator? I happen to be at 75/25 now with the two year bonds (in other words, portfolio is 8x annual expenses). I don't necessarily desire to be at 75/25. I simply desire that bond minimum. If the portfolio was 20x expenses I'd be happy to have 4x in bonds. If portfolio dropped to 4x expenses, I'd still want that 2x expenses minimum in bonds.

I think this accomplishes two things:

1. Prevents bonds from getting too low below my comfort level.

2. Adds bonds to portfolio over time as portfolio grows.

But...maybe keeping it at 75/25 is fine too. But another 40% crash and it would require rebalancing below the 2 years to stay there, so that doesn't really make sense either.

Poke holes in it and make recommendations if you have any!

Sorry for the rambling!

Topic Author
Triple digit golfer
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Re: Help me with IPS after learning experience

Post by Triple digit golfer » Sun Mar 29, 2020 9:09 am

This is strange. I made the above post just now but the time states 4 days ago?

Olemiss540
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Re: Help me with IPS after learning experience

Post by Olemiss540 » Sun Mar 29, 2020 10:08 am

Honestly I believe your natural anxiety about this current pandemic may be tilting your financial decision making progress. Do you really think 75/25 really moves the needle versus 80/20 now that we have run into recession territory?

You have near 200k in taxable assets, these can be sold if needed and bonds exchanged in your tax advantaged accounts for stocks so you do not have to sell low. Did you base your expenses on current or on if you were out of work and had tightened your belt? Did you factor in ability to file for unemployement?

I honestly dont think either idea is a bad idea (moving to a more conservative AA or increasing cash position), I just am revisiting the rationale you may have had back when you made the decision in the first place.

Personally, I would consider selling some of your current equities in your taxable account and exchanging them into your tax advantaged account. This will result in zero actual changes to your asset allocation but the bonds in your taxable account (although not as tax efficient) may give you an additional mental level of comfort with your existing asset allocation. This can likely be accomplished right now with minimal taxable gains and can be easily reversed once your anxiety has calmed a bit.

Good luck either way!
I hold index funds because I do not overestimate my ability to pick stocks OR stock pickers.

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Re: Help me with IPS after learning experience

Post by pkcrafter » Sun Mar 29, 2020 12:20 pm

Triple Digit Golfer,
I am not reacting emotionally. I am simply reassessing my risk tolerance and trying to design a strategy that works with my risk tolerance and personality. I don't think anything I am proposing will be damaging to my long-term success. What are your thoughts?


I've reread all your posts in this thread and it appears you have things well under control. You mentioned being short on non-stock, but is this due to AA being too high or not enough in back-up emergency funds. At any rate, I still suggest 70% in stock, or if you wish, 75%, but as I said, you appear to have good control on your strategy, so just continue. One last thing I'll offer is don't over-manage (micro-manage) and get wrapped up in details. You are working with the market and it certainly won't run too smoothly or pay attention to minor details.

cheers,

Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.

Topic Author
Triple digit golfer
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Re: Help me with IPS after learning experience

Post by Triple digit golfer » Sun Mar 29, 2020 1:06 pm

pkcrafter wrote:
Sun Mar 29, 2020 12:20 pm
Triple Digit Golfer,
I am not reacting emotionally. I am simply reassessing my risk tolerance and trying to design a strategy that works with my risk tolerance and personality. I don't think anything I am proposing will be damaging to my long-term success. What are your thoughts?


I've reread all your posts in this thread and it appears you have things well under control. You mentioned being short on non-stock, but is this due to AA being too high or not enough in back-up emergency funds. At any rate, I still suggest 70% in stock, or if you wish, 75%, but as I said, you appear to have good control on your strategy, so just continue. One last thing I'll offer is don't over-manage (micro-manage) and get wrapped up in details. You are working with the market and it certainly won't run too smoothly or pay attention to minor details.

cheers,

Paul
Thanks, Paul. We desire 2 years minimum of non-stock. At present time we have exactly that in bonds, plus an additional 3 months emergency fund/cash savings. This happens to work out, as of now, to 75/25 plus the 3 months in savings. Portfolio excluding savings is presently 8 years of expenses.

I am fine with 80/20 plus 6-9 months emergency fund, 70/30 with 0-3 months emergency fund, or somewhere between.

Regardless, under no circumstances will I let the bonds+cash total get below 2 years. Right now we're at 27 months if I count the cash savings.

Thus, I'm leaning toward sticking with 75/25 plus 3 month emergency fund. If the market falls further tomorrow, I will not rebalance because doing so would require selling bonds, and I am at my minimum comfort level presently. I suppose technically I could sell 3 months worth, but a fall that triggers a rebalance would be more than that anyway.

If the market rises and I hit a 5% band (80/20) then I would rebalance back down to 75/25.

The other option is to slowly build up the cash savings, and if the market rises I let it be at 80/20 and stay there because I'll have a higher cash reserve and thus can take a bit more risk in the portfolio.

So I guess I'm down to 80/20 with larger EF vs. 75/25 with smaller EF.

As you alluded to, this is probably largely irrelevant and perhaps mental accounting.

Topic Author
Triple digit golfer
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Re: Help me with IPS after learning experience

Post by Triple digit golfer » Sun Mar 29, 2020 1:10 pm

Olemiss540 wrote:
Sun Mar 29, 2020 10:08 am
Honestly I believe your natural anxiety about this current pandemic may be tilting your financial decision making progress. Do you really think 75/25 really moves the needle versus 80/20 now that we have run into recession territory?

You have near 200k in taxable assets, these can be sold if needed and bonds exchanged in your tax advantaged accounts for stocks so you do not have to sell low. Did you base your expenses on current or on if you were out of work and had tightened your belt? Did you factor in ability to file for unemployement?

I honestly dont think either idea is a bad idea (moving to a more conservative AA or increasing cash position), I just am revisiting the rationale you may have had back when you made the decision in the first place.

Personally, I would consider selling some of your current equities in your taxable account and exchanging them into your tax advantaged account. This will result in zero actual changes to your asset allocation but the bonds in your taxable account (although not as tax efficient) may give you an additional mental level of comfort with your existing asset allocation. This can likely be accomplished right now with minimal taxable gains and can be easily reversed once your anxiety has calmed a bit.

Good luck either way!
Thanks for your post. My concern was more about the non-stock portion of my portfolio.

The equities in taxable have a $5k gain currently. I did some tax loss harvesting a couple weeks ago. If they fall, I will consider at least selling some to convert to bonds and doing the reverse in tax deferred. Currently, the taxable portion is about 27 months of expenses. So a moderate equity fall leaves me with less than 2 years available in taxable, excluding the 3 months in savings.

Olemiss540
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Re: Help me with IPS after learning experience

Post by Olemiss540 » Sun Mar 29, 2020 1:47 pm

Triple digit golfer wrote:
Sun Mar 29, 2020 1:10 pm
Olemiss540 wrote:
Sun Mar 29, 2020 10:08 am
Honestly I believe your natural anxiety about this current pandemic may be tilting your financial decision making progress. Do you really think 75/25 really moves the needle versus 80/20 now that we have run into recession territory?

You have near 200k in taxable assets, these can be sold if needed and bonds exchanged in your tax advantaged accounts for stocks so you do not have to sell low. Did you base your expenses on current or on if you were out of work and had tightened your belt? Did you factor in ability to file for unemployement?

I honestly dont think either idea is a bad idea (moving to a more conservative AA or increasing cash position), I just am revisiting the rationale you may have had back when you made the decision in the first place.

Personally, I would consider selling some of your current equities in your taxable account and exchanging them into your tax advantaged account. This will result in zero actual changes to your asset allocation but the bonds in your taxable account (although not as tax efficient) may give you an additional mental level of comfort with your existing asset allocation. This can likely be accomplished right now with minimal taxable gains and can be easily reversed once your anxiety has calmed a bit.

Good luck either way!
Thanks for your post. My concern was more about the non-stock portion of my portfolio.

The equities in taxable have a $5k gain currently. I did some tax loss harvesting a couple weeks ago. If they fall, I will consider at least selling some to convert to bonds and doing the reverse in tax deferred. Currently, the taxable portion is about 27 months of expenses. So a moderate equity fall leaves me with less than 2 years available in taxable, excluding the 3 months in savings.
You dont have any tax lots with a loss? Using specID for your sell price? Sounds like a plan.
I hold index funds because I do not overestimate my ability to pick stocks OR stock pickers.

Topic Author
Triple digit golfer
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Re: Help me with IPS after learning experience

Post by Triple digit golfer » Sun Mar 29, 2020 2:02 pm

Olemiss540 wrote:
Sun Mar 29, 2020 1:47 pm
Triple digit golfer wrote:
Sun Mar 29, 2020 1:10 pm
Olemiss540 wrote:
Sun Mar 29, 2020 10:08 am
Honestly I believe your natural anxiety about this current pandemic may be tilting your financial decision making progress. Do you really think 75/25 really moves the needle versus 80/20 now that we have run into recession territory?

You have near 200k in taxable assets, these can be sold if needed and bonds exchanged in your tax advantaged accounts for stocks so you do not have to sell low. Did you base your expenses on current or on if you were out of work and had tightened your belt? Did you factor in ability to file for unemployement?

I honestly dont think either idea is a bad idea (moving to a more conservative AA or increasing cash position), I just am revisiting the rationale you may have had back when you made the decision in the first place.

Personally, I would consider selling some of your current equities in your taxable account and exchanging them into your tax advantaged account. This will result in zero actual changes to your asset allocation but the bonds in your taxable account (although not as tax efficient) may give you an additional mental level of comfort with your existing asset allocation. This can likely be accomplished right now with minimal taxable gains and can be easily reversed once your anxiety has calmed a bit.

Good luck either way!
Thanks for your post. My concern was more about the non-stock portion of my portfolio.

The equities in taxable have a $5k gain currently. I did some tax loss harvesting a couple weeks ago. If they fall, I will consider at least selling some to convert to bonds and doing the reverse in tax deferred. Currently, the taxable portion is about 27 months of expenses. So a moderate equity fall leaves me with less than 2 years available in taxable, excluding the 3 months in savings.
You dont have any tax lots with a loss? Using specID for your sell price? Sounds like a plan.
None with a loss. I have only one lot, purchased a few weeks ago after selling all the others for a loss.

L82GAME
Posts: 132
Joined: Sat Dec 07, 2019 9:29 am

Re: Help me with IPS after learning experience

Post by L82GAME » Sun Mar 29, 2020 2:05 pm

To the OP,

Do you consider the balance in your Taxable account to be retirement assets, a combo. of retirement and EF/discretionary funds, or entirely EF/discretionary funds? Answering this question will play into your next move.

Topic Author
Triple digit golfer
Posts: 4520
Joined: Mon May 18, 2009 5:57 pm

Re: Help me with IPS after learning experience

Post by Triple digit golfer » Sun Mar 29, 2020 2:07 pm

L82GAME wrote:
Sun Mar 29, 2020 2:05 pm
To the OP,

Do you consider the balance in your Taxable account to be retirement assets, a combo. of retirement and EF/discretionary funds, or entirely EF/discretionary funds? Answering this question will play into your next move.
I consider the taxable equity to be retirement assets and the 3 months in savings to be a separate emergency fund.

Olemiss540
Posts: 1218
Joined: Fri Aug 18, 2017 8:46 pm

Re: Help me with IPS after learning experience

Post by Olemiss540 » Sun Mar 29, 2020 2:08 pm

Triple digit golfer wrote:
Sun Mar 29, 2020 2:02 pm
Olemiss540 wrote:
Sun Mar 29, 2020 1:47 pm
Triple digit golfer wrote:
Sun Mar 29, 2020 1:10 pm
Olemiss540 wrote:
Sun Mar 29, 2020 10:08 am
Honestly I believe your natural anxiety about this current pandemic may be tilting your financial decision making progress. Do you really think 75/25 really moves the needle versus 80/20 now that we have run into recession territory?

You have near 200k in taxable assets, these can be sold if needed and bonds exchanged in your tax advantaged accounts for stocks so you do not have to sell low. Did you base your expenses on current or on if you were out of work and had tightened your belt? Did you factor in ability to file for unemployement?

I honestly dont think either idea is a bad idea (moving to a more conservative AA or increasing cash position), I just am revisiting the rationale you may have had back when you made the decision in the first place.

Personally, I would consider selling some of your current equities in your taxable account and exchanging them into your tax advantaged account. This will result in zero actual changes to your asset allocation but the bonds in your taxable account (although not as tax efficient) may give you an additional mental level of comfort with your existing asset allocation. This can likely be accomplished right now with minimal taxable gains and can be easily reversed once your anxiety has calmed a bit.

Good luck either way!
Thanks for your post. My concern was more about the non-stock portion of my portfolio.

The equities in taxable have a $5k gain currently. I did some tax loss harvesting a couple weeks ago. If they fall, I will consider at least selling some to convert to bonds and doing the reverse in tax deferred. Currently, the taxable portion is about 27 months of expenses. So a moderate equity fall leaves me with less than 2 years available in taxable, excluding the 3 months in savings.
You dont have any tax lots with a loss? Using specID for your sell price? Sounds like a plan.
None with a loss. I have only one lot, purchased a few weeks ago after selling all the others for a loss.
Got it. How big was the tax loss? Wouldnt that more than cover any gains since you repurchased or was the 5k in gains including the offsetting tax loss? Not to keep going, just wanted to double check.
I hold index funds because I do not overestimate my ability to pick stocks OR stock pickers.

Topic Author
Triple digit golfer
Posts: 4520
Joined: Mon May 18, 2009 5:57 pm

Re: Help me with IPS after learning experience

Post by Triple digit golfer » Sun Mar 29, 2020 2:15 pm

Olemiss540 wrote:
Sun Mar 29, 2020 2:08 pm
Triple digit golfer wrote:
Sun Mar 29, 2020 2:02 pm
Olemiss540 wrote:
Sun Mar 29, 2020 1:47 pm
Triple digit golfer wrote:
Sun Mar 29, 2020 1:10 pm
Olemiss540 wrote:
Sun Mar 29, 2020 10:08 am
Honestly I believe your natural anxiety about this current pandemic may be tilting your financial decision making progress. Do you really think 75/25 really moves the needle versus 80/20 now that we have run into recession territory?

You have near 200k in taxable assets, these can be sold if needed and bonds exchanged in your tax advantaged accounts for stocks so you do not have to sell low. Did you base your expenses on current or on if you were out of work and had tightened your belt? Did you factor in ability to file for unemployement?

I honestly dont think either idea is a bad idea (moving to a more conservative AA or increasing cash position), I just am revisiting the rationale you may have had back when you made the decision in the first place.

Personally, I would consider selling some of your current equities in your taxable account and exchanging them into your tax advantaged account. This will result in zero actual changes to your asset allocation but the bonds in your taxable account (although not as tax efficient) may give you an additional mental level of comfort with your existing asset allocation. This can likely be accomplished right now with minimal taxable gains and can be easily reversed once your anxiety has calmed a bit.

Good luck either way!
Thanks for your post. My concern was more about the non-stock portion of my portfolio.

The equities in taxable have a $5k gain currently. I did some tax loss harvesting a couple weeks ago. If they fall, I will consider at least selling some to convert to bonds and doing the reverse in tax deferred. Currently, the taxable portion is about 27 months of expenses. So a moderate equity fall leaves me with less than 2 years available in taxable, excluding the 3 months in savings.
You dont have any tax lots with a loss? Using specID for your sell price? Sounds like a plan.
None with a loss. I have only one lot, purchased a few weeks ago after selling all the others for a loss.
Got it. How big was the tax loss? Wouldnt that more than cover any gains since you repurchased or was the 5k in gains including the offsetting tax loss? Not to keep going, just wanted to double check.
Good point. The losses were $24k+. So I could sell as much as I want technically, and put ALL my bonds in taxable, theoretically. I'd be giving up some ordinary income deductions in 2026 and 2027, but that's not the end of the world.

Still, I'm hesitant from a tax efficiency standpoint to put bonds in taxable over equities. However, doing so or at least some would protect my 2 year floor in the case of a market crash.

L82GAME
Posts: 132
Joined: Sat Dec 07, 2019 9:29 am

Re: Help me with IPS after learning experience

Post by L82GAME » Sun Mar 29, 2020 2:19 pm

Triple digit golfer wrote:
Sun Mar 29, 2020 2:07 pm
L82GAME wrote:
Sun Mar 29, 2020 2:05 pm
To the OP,

Do you consider the balance in your Taxable account to be retirement assets, a combo. of retirement and EF/discretionary funds, or entirely EF/discretionary funds? Answering this question will play into your next move.
I consider the taxable equity to be retirement assets and the 3 months in savings to be a separate emergency fund.
Got it. When I read your original post, my instinctual response echoed others above, "SWAN immediately by selling equities from your Taxable account, hold as EF, and then make an offsetting trade from fixed income into equities within the tax-advantaged accounts." However, given that you are not currently in an emergency situation, you should not touch your investment assets. Instead, proceed as you have contemplated by dialing back contributions to your Taxable account and instead contribute to your EF until you've reached your goal of 6mos. equivalent living costs.

Regarding resetting your AA, I think that you're fiddling in pursuit of an ideal exactitude based on conventional wisdom. Frankly, moving from 80/20 to 75/25 isn't an appreciable difference. Step back and consider what you may not be willing to admit to yourself; for your SWAN threshold, a more conservative allocation despite your age may suit you (e.g., 60/40, or 65/35). In which case, you'll be fine due to your savings habits.

Topic Author
Triple digit golfer
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Re: Help me with IPS after learning experience

Post by Triple digit golfer » Sun Mar 29, 2020 2:35 pm

L82GAME wrote:
Sun Mar 29, 2020 2:19 pm
Triple digit golfer wrote:
Sun Mar 29, 2020 2:07 pm
L82GAME wrote:
Sun Mar 29, 2020 2:05 pm
To the OP,

Do you consider the balance in your Taxable account to be retirement assets, a combo. of retirement and EF/discretionary funds, or entirely EF/discretionary funds? Answering this question will play into your next move.
I consider the taxable equity to be retirement assets and the 3 months in savings to be a separate emergency fund.
Got it. When I read your original post, my instinctual response echoed others above, "SWAN immediately by selling equities from your Taxable account, hold as EF, and then make an offsetting trade from fixed income into equities within the tax-advantaged accounts." However, given that you are not currently in an emergency situation, you should not touch your investment assets. Instead, proceed as you have contemplated by dialing back contributions to your Taxable account and instead contribute to your EF until you've reached your goal of 6mos. equivalent living costs.

Regarding resetting your AA, I think that you're fiddling in pursuit of an ideal exactitude based on conventional wisdom. Frankly, moving from 80/20 to 75/25 isn't an appreciable difference. Step back and consider what you may not be willing to admit to yourself; for your SWAN threshold, a more conservative allocation despite your age may suit you (e.g., 60/40, or 65/35). In which case, you'll be fine due to your savings habits.
Thanks for your perspective. Quite honestly, I don't mind seeing equities fall provided that I know I have a safe cushion of a couple years of expenses in fixed income or cash. If my portfolio was 15x expenses I'd probably be fine at 80/20, quite honestly, because I'd have 3x expenses in fixed income. So it's not seeing the portfolio fall that gave me a bit if anxiety, but the realization that, "oh $h!+, this is a black swan event and I should realize that the next one could affect me, so I better make sure I have a cushion in case of a very long period of unemployment." How to get to that cushion and how to maintain moving forward is what I've been contemplating.

I don't necessarily think I need a more conservative AA, although maybe I'm fooling myself. What I believe I need is a minimum dollar (2 years expenses) in fixed income in my IPS. That is why I proposed 80/20 but a minimum of 2 years expenses. If portfolio is 15x expenses, it'll be 80/20 (12 years equities and 3 fixed income) . If it falls to 6 years due to market decline, then only 4 years will be in equities, which happens to calculate to 67/33. All of this will be in addition to a 3-9 month emergency fund. Probably 6 months is where I'd settle happily, but it becomes less important knowing I have that fixed income cushion.

Topic Author
Triple digit golfer
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Re: Help me with IPS after learning experience

Post by Triple digit golfer » Sun Mar 29, 2020 2:39 pm

People have mentioned my savings rate. It is around 27% of my gross salary. We maxed out IRAs early in the year, so to increase the emergency fund won't take as long as it would have had we been DCA'ing to the IRAs. Hope that makes sense.

L82GAME
Posts: 132
Joined: Sat Dec 07, 2019 9:29 am

Re: Help me with IPS after learning experience

Post by L82GAME » Sun Mar 29, 2020 3:07 pm

Triple digit golfer wrote:
Sun Mar 29, 2020 2:39 pm
People have mentioned my savings rate. It is around 27% of my gross salary. We maxed out IRAs early in the year, so to increase the emergency fund won't take as long as it would have had we been DCA'ing to the IRAs. Hope that makes sense.
That's helpful contextual info., too. Perhaps you need more than 6mos EF and have the capacity to accumulate the funds. If you were in a bind with 6mos. of EF, are you assuming that you'd incur an early withdrawal penalty and pull money from your trad. IRAs and/or sell equities from your Taxable account?

Topic Author
Triple digit golfer
Posts: 4520
Joined: Mon May 18, 2009 5:57 pm

Re: Help me with IPS after learning experience

Post by Triple digit golfer » Sun Mar 29, 2020 3:13 pm

L82GAME wrote:
Sun Mar 29, 2020 3:07 pm
Triple digit golfer wrote:
Sun Mar 29, 2020 2:39 pm
People have mentioned my savings rate. It is around 27% of my gross salary. We maxed out IRAs early in the year, so to increase the emergency fund won't take as long as it would have had we been DCA'ing to the IRAs. Hope that makes sense.
That's helpful contextual info., too. Perhaps you need more than 6mos EF and have the capacity to accumulate the funds. If you were in a bind with 6mos. of EF, are you assuming that you'd incur an early withdrawal penalty and pull money from your trad. IRAs and/or sell equities from your Taxable account?
I would pull from savings first, but if needed more, then I would sell taxable equities and in tax deferred sell bonds for equities.

If I needed more than I have in savings and taxable equities, I would pull contributions from my Roth IRA.

L82GAME
Posts: 132
Joined: Sat Dec 07, 2019 9:29 am

Re: Help me with IPS after learning experience

Post by L82GAME » Sun Mar 29, 2020 3:21 pm

Triple digit golfer wrote:
Sun Mar 29, 2020 3:13 pm
L82GAME wrote:
Sun Mar 29, 2020 3:07 pm
Triple digit golfer wrote:
Sun Mar 29, 2020 2:39 pm
People have mentioned my savings rate. It is around 27% of my gross salary. We maxed out IRAs early in the year, so to increase the emergency fund won't take as long as it would have had we been DCA'ing to the IRAs. Hope that makes sense.
That's helpful contextual info., too. Perhaps you need more than 6mos EF and have the capacity to accumulate the funds. If you were in a bind with 6mos. of EF, are you assuming that you'd incur an early withdrawal penalty and pull money from your trad. IRAs and/or sell equities from your Taxable account?
I would pull from savings first, but if needed more, then I would sell taxable equities and in tax deferred sell bonds for equities.

If I needed more than I have in savings and taxable equities, I would pull contributions from my Roth IRA.
Okay. I'm trying to understand your "2yr. of exp. years in bonds/fixed income" concern if your order of operations would be EF then taxable equities then Roth". It seems to me that you're more conservative than you might realize, which is just fine. But don't depend on tapping your retirement assets for emergencies. I think you need more than 6mos. EF. That may help you justify maintaining a more aggressive retirement portfolio mix of 80/20 or 75/25, even in bear markets. You seem to have the capacity to quickly build your EF.

Topic Author
Triple digit golfer
Posts: 4520
Joined: Mon May 18, 2009 5:57 pm

Re: Help me with IPS after learning experience

Post by Triple digit golfer » Sun Mar 29, 2020 3:44 pm

L82GAME wrote:
Sun Mar 29, 2020 3:21 pm
Triple digit golfer wrote:
Sun Mar 29, 2020 3:13 pm
L82GAME wrote:
Sun Mar 29, 2020 3:07 pm
Triple digit golfer wrote:
Sun Mar 29, 2020 2:39 pm
People have mentioned my savings rate. It is around 27% of my gross salary. We maxed out IRAs early in the year, so to increase the emergency fund won't take as long as it would have had we been DCA'ing to the IRAs. Hope that makes sense.
That's helpful contextual info., too. Perhaps you need more than 6mos EF and have the capacity to accumulate the funds. If you were in a bind with 6mos. of EF, are you assuming that you'd incur an early withdrawal penalty and pull money from your trad. IRAs and/or sell equities from your Taxable account?
I would pull from savings first, but if needed more, then I would sell taxable equities and in tax deferred sell bonds for equities.

If I needed more than I have in savings and taxable equities, I would pull contributions from my Roth IRA.
Okay. I'm trying to understand your "2yr. of exp. years in bonds/fixed income" concern if your order of operations would be EF then taxable equities then Roth". It seems to me that you're more conservative than you might realize, which is just fine. But don't depend on tapping your retirement assets for emergencies. I think you need more than 6mos. EF. That may help you justify maintaining a more aggressive retirement portfolio mix of 80/20 or 75/25, even in bear markets. You seem to have the capacity to quickly build your EF.
I'm not counting on or depending on tapping retirement accounts for an emergency. Currently, we have 27 months in taxable equities and 3 months in savings. Let's say we needed 15 months due to job loss and whatever else.

First 3 months: pull from savings
Next 12 months: pull from taxable equities; simultaneously exchange bonds to equities inside tax-deferred accounts

The only way we would pull from any retirement accounts is if all of our taxable accounts were emptied. As they say, in a true emergency, everything is fair game. My goal is to simply make sure that the first two years are covered without reducing equities. I am just fine selling equities in taxable and exchanging bonds for equities in tax-deferred because the net effect is pulling bonds.

bgf
Posts: 1311
Joined: Fri Nov 10, 2017 9:35 am

Re: Help me with IPS after learning experience

Post by bgf » Sun Mar 29, 2020 4:26 pm

Triple digit golfer wrote:
Wed Mar 25, 2020 2:56 pm
iceport wrote:
Wed Mar 25, 2020 2:30 pm
Triple digit golfer wrote:
Wed Mar 25, 2020 2:19 pm
Your method is exactly how I've been doing it to this point.
Very good, carry on! :beer

(If you are maxing out all your tax-advantaged space, and spilling into taxable space, the overall nudging over the course of a year adds up.)
Yes, we are maxing tax-advantaged space ($31.5k: a 401k and two IRAs) and putting around $15-18k into tax-advantaged per year. Right now, that $15-18k represents 3 months of expenses. So, for a year or so, we're going to forego taxable investing and bump up the emergency fund to 6 months from 3.

75/25 AA + 6 months in cash = SWAN

Current 80/20 + 3 months in cash = SOAN (Sleep okay at night)
we're similar. we are 34/35 with 2 kids (1 a week old). monthly expenses are 5-6k and will be adding another $880 when the little one starts daycare in the fall. though by then one of our car payments will be gone.

we have about 3 months expenses in cash, and another 5 months in bonds. then another 4-5 months in stocks, at todays levels. all in taxable.

we max 2 roths and 2 401ks per year. put the rest, if any, into 529s. we hold target date 2050 and AOA (80/20 etf).

id say just buy AOA and be done with it. keep enough in a bond fund in a taxable account to let you sleep at night.

despite the world tearing apart recently money has not at all been a worry for me, just a pregnant wife/newborn.

easy peasy.
“TE OCCIDERE POSSUNT SED TE EDERE NON POSSUNT NEFAS EST"

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