Affirmation of strategy

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Topic Author
gl1ch
Posts: 2
Joined: Wed Jul 21, 2021 9:49 am

Affirmation of strategy

Post by gl1ch »

Hello,

I think I know the answer to this but it would greatly help to hear if I am correct or correct me if I am not. Over a year ago I allocated my investments between total stock market / bonds and foreign stock funds but I was curious about maintaining these allocations.

Is it a good idea to sell from one pool (total stock market) and allocate into another or should I just adjust my contributions to build up my allocations in my other pools?

To give some background on this. As you probably know, US stocks have been increasing rapidly while bonds are fairly stagnant. If I move some of my stocks into bonds it would make sure that any profit from stocks would be maintained even during a downturn but it would also mean that I would miss out on growth until there is a downturn.

Thank you for your time.

Andrew
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retired@50
Posts: 6293
Joined: Tue Oct 01, 2019 2:36 pm
Location: Living in the U.S.A.

Re: Affirmation of strategy

Post by retired@50 »

gl1ch wrote: Wed Jul 21, 2021 9:55 am Hello,

I think I know the answer to this but it would greatly help to hear if I am correct or correct me if I am not. Over a year ago I allocated my investments between total stock market / bonds and foreign stock funds but I was curious about maintaining these allocations.

Is it a good idea to sell from one pool (total stock market) and allocate into another or should I just adjust my contributions to build up my allocations in my other pools?

To give some background on this. As you probably know, US stocks have been increasing rapidly while bonds are fairly stagnant. If I move some of my stocks into bonds it would make sure that any profit from stocks would be maintained even during a downturn but it would also mean that I would miss out on growth until there is a downturn.

Thank you for your time.

Andrew
Welcome to the forum. :happy

The re-balancing process can be easy if you're buying/selling in a tax advantaged account like a Roth IRA or a 401k plan. If you're engaging in these sorts of transactions in a taxable investment account it can generate a tax cost. For details on re-balancing in general, see this wiki link.

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

If the contributions are frequent, and large enough to make a dent in the overall balance(s), then using new contributions to re-balance is certainly one accepted method. Once account balances get large enough, the impact of new contributed money will be reduced.

Regards,
This is one person's opinion. Nothing more.
EnjoyIt
Posts: 5887
Joined: Sun Dec 29, 2013 8:06 pm

Re: Affirmation of strategy

Post by EnjoyIt »

retired@50 wrote: Wed Jul 21, 2021 10:29 am
gl1ch wrote: Wed Jul 21, 2021 9:55 am Hello,

I think I know the answer to this but it would greatly help to hear if I am correct or correct me if I am not. Over a year ago I allocated my investments between total stock market / bonds and foreign stock funds but I was curious about maintaining these allocations.

Is it a good idea to sell from one pool (total stock market) and allocate into another or should I just adjust my contributions to build up my allocations in my other pools?

To give some background on this. As you probably know, US stocks have been increasing rapidly while bonds are fairly stagnant. If I move some of my stocks into bonds it would make sure that any profit from stocks would be maintained even during a downturn but it would also mean that I would miss out on growth until there is a downturn.

Thank you for your time.

Andrew
Welcome to the forum. :happy

The re-balancing process can be easy if you're buying/selling in a tax advantaged account like a Roth IRA or a 401k plan. If you're engaging in these sorts of transactions in a taxable investment account it can generate a tax cost. For details on re-balancing in general, see this wiki link.

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

If the contributions are frequent, and large enough to make a dent in the overall balance(s), then using new contributions to re-balance is certainly one accepted method. Once account balances get large enough, the impact of new contributed money will be reduced.

Regards,
Great synopsis. I would also like to add that many of us like to use rebalancing bands to tell us when to rebalance otherwise we can be rebalancing every week.

Many here us the 5% rule. If any one of your holdings is off by 5% then rebalance. So if you are supposed to be 70 stocks and 30 bonds and the market did very well getting you to 75/25 which is exactly 5% difference then we would sell some stocks and buy bonds.

A second part of the rule is 20% of actual value is time to rebalance. This is needed when holdings are a small percentage. For example lets say you have an asset allocation of 60% US stocks, 10% international stocks and 30% bonds. In this scenario international changing from 10% to 15% is a very large change which is where the 20% of actual value come into play. In this scenario internal can go to 12% or 8% which would initiate rebalancing
(Math: 10% * 20% = 2% which is where I get the rebalancing initiation above)

I hope what I said makes sense. I can clarify more if it does not.
A time to EVALUATE your jitters: | viewtopic.php?p=1139732#p1139732
sycamore
Posts: 2566
Joined: Tue May 08, 2018 12:06 pm

Re: Affirmation of strategy

Post by sycamore »

Welcome to the forum!
gl1ch wrote: Wed Jul 21, 2021 9:55 am ... If I move some of my stocks into bonds it would make sure that any profit from stocks would be maintained even during a downturn but it would also mean that I would miss out on growth until there is a downturn.
Yep, there's no free lunch here.

If your primary focus is on maximizing portfolio growth, you want more stock exposure. But "letting stocks ride up" means you put more money at risk when the next crash comes along.

If your primary focus is on staying within your risk tolerance (e.g., an asset allocation of 80/20 stocks/bonds) that means giving up some potential growth.

Many Bogleheads have found out the hard way that they overestimated their risk tolerance, so figuring out an AA you can live with it is really critical.

As EnjoyIt said, "rebalance bands" are a good way to stay close enough to your AA without having to buy/sell so often.
Topic Author
gl1ch
Posts: 2
Joined: Wed Jul 21, 2021 9:49 am

Re: Affirmation of strategy

Post by gl1ch »

Thank you for the replies everyone! This helped greatly. Its been a question that I have had for a while and finally just realized, why havent I asked yet!

Thanks again!

Andrew
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