winning game, sell stocks despite high bond prices?

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letsgobobby
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winning game, sell stocks despite high bond prices?

Post by letsgobobby » Wed Dec 14, 2016 12:40 pm

The game is not won but we hit a milestone this week that I never would have dreamed of ten years ago. Quite astounding what a 7 year bull market can do.

Our need to take risk has significantly declined. Ability higher, willingness unchanged.

I assume it is dumb to avoid taking risk off the table just because the 'safe investments' (ie, bonds) don't look that safe. In our case we would be talking about reducing stocks from 60% to 50%, which of course means increasing our fixed income holdings by 25% (from 40% to 50%). Also have to incur some capital gains to do this, a small disincentive.

What do you think?

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nedsaid
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Re: winning game, sell stocks despite high bond prices?

Post by nedsaid » Wed Dec 14, 2016 12:46 pm

How old are you and how many more years left in your career? If you were a few years from retirement, I would consider cutting back to 50/50. If you are ten years or more away from retirement, 60/40 is okay for now. If you haven't rebalanced recently, this is a good opportunity.
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Re: winning game, sell stocks despite high bond prices?

Post by livesoft » Wed Dec 14, 2016 1:04 pm

Some other threads on the same subject are current. Folks are rebalancing nowadays as mentioned quite a few times in posts, but folks are not changing AA by 10%. I suggest you shift AA by no more than 3% and see what you think. So even though your AA is 60%, you probably have 62% in stocks now because of the run up, so you might rebalance to 59%. You can always change more later.

And bond prices have dropped in the last month, so I would not call them "high bond prices."
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Re: winning game, sell stocks despite high bond prices?

Post by nedsaid » Wed Dec 14, 2016 1:10 pm

The environment right now reminds me of 2013. I started a program of mild rebalancing from stocks to bonds that continues to this day. It was rebalancing nirvana, stocks were rising and bonds were falling. A good opportunity to lock in a bit higher interest rates with proceeds from the stock market. As I recall, we had the "taper tantrum" then as the Fed was easing off its program of bond buying. The bond market has fallen a bit but for different reasons. I think this is a great time to rebalance.
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Re: winning game, sell stocks despite high bond prices?

Post by Elysium » Wed Dec 14, 2016 1:14 pm

Almost everyone is experiencing same thing because of the unexpected rise in stock prices. What I have done so far 2-3 times this year, once in summer and now at year end, is to do some extra re-balancing that took my equity allocation lower than what it would have been had the stock market did not perform as well as it did. I feel this is the sensible thing to do. We have to understand though a correction is possible anytime and a bear market is not out of question in the next couple of years. That will correct a lot of things automatically. So, I agree with the idea that people who are close to retirement age should seriously consider this as an opportunity to reduce risk. In my case, I have 10 or more years and will take a lower allocation but just not too low.

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Re: winning game, sell stocks despite high bond prices?

Post by rbaldini » Wed Dec 14, 2016 1:14 pm

Would be nice to know what this milestone is. If it's something like "we achieved a net worth of 1 million" (or some other number), then recognize that you could easily drop below that number in the near future - and then how will you react? The point is just to make sure that you're not overreacting.

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Re: winning game, sell stocks despite high bond prices?

Post by HomerJ » Wed Dec 14, 2016 1:39 pm

Ugh.

Can we stop using the world "rebalancing" to mean AA changes? No wonder it's so confusing around here. Especially stop using the term "extra rebalancing"!!

George Carlin needs to come back to life and do some more English language rants (like how pre-heating an oven is a stupid term. When it's OFF, it's pre-heating). And there's no such thing as "extra" rebalancing.

Changing your AA because your need, willingness, or ability to take risk is perfectly correct. It's NOT rebalancing.

I think there's nothing wrong with going down to 50/50 at this point if you see the finish line in sight. That's what I did a few years back when I realized I could coast to the end even without a large stock allocation, so why take the risk?
Last edited by HomerJ on Wed Dec 14, 2016 1:44 pm, edited 1 time in total.

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Re: winning game, sell stocks despite high bond prices?

Post by HomerJ » Wed Dec 14, 2016 1:44 pm

rbaldini wrote:Would be nice to know what this milestone is. If it's something like "we achieved a net worth of 1 million" (or some other number), then recognize that you could easily drop below that number in the near future - and then how will you react? The point is just to make sure that you're not overreacting.
Well, changing his AA now will mean he won't drop as far below the milestone if the next crash comes soon.

If you planned on $2.5 million to retire at 55, you're saving $25k a year, and you hit $2 million at 45, there's nothing wrong with moving to a more conservative AA, since you're well on track to make your goal, and why not preserve more of what you got instead of risking a large amount in the stock market?

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Re: winning game, sell stocks despite high bond prices?

Post by letsgobobby » Wed Dec 14, 2016 1:44 pm

We are early/mid 40s. In about 3-4 years I would like to reduce my hours which would allow us to save only about 3-5% of portfolio value each year, compared to 7-8% currently.

Our target is 60/40 but we are up to 64/36 because of the stock market run. After making charitable donations this month it will be 62/38.

The milestone is a net worth milestone, but more importantly it reflects an X annual expenses milestone. While I expect future volatility will cause that number to fluctuate, at some point you have to say that a goal has been reached and risk exposure should be reduced. I can't take the WBern approach of taking money off the table because the game is not yet won; we're winning but we may only be at halftime. The philosophy should be more incremental than that, I think. So maybe livesoft is right, and the way to go is to reduce from 60 to say 57, and see how I feel a year from now. The drawback is there's no meaningful reduction in risk with such a small shift.

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Re: winning game, sell stocks despite high bond prices?

Post by rbaldini » Wed Dec 14, 2016 1:50 pm

HomerJ wrote:
rbaldini wrote:Would be nice to know what this milestone is. If it's something like "we achieved a net worth of 1 million" (or some other number), then recognize that you could easily drop below that number in the near future - and then how will you react? The point is just to make sure that you're not overreacting.
Well, changing his AA now will mean he won't drop as far below the milestone if the next crash comes soon.

If you planned on $2.5 million to retire at 55, you're saving $25k a year, and you hit $2 million at 45, there's nothing wrong with moving to a more conservative AA, since you're well on track to make your goal, and why not preserve more of what you got instead of risking a large amount in the stock market?
Generally I don't have a problem with taking less risk as your need to decreases. But it seems to me that if allocation is going to change as a function of one's net worth (again, not sure if this is the nature of the milestone), then it should change in proportion. I.e. things shouldn't *suddenly* change just because you've finally achieved some arbitrary sum through slow accumulation. That, I believe would be an over-reaction. There's nothing special about $1,000,000 relative to, say, $992,174 - we just happen to have decimal number system that makes it seem like a big deal when you get that extra digit. I'm just hoping the OP's milestone is actually meaningful and justifies a sudden, large change in AA.

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Re: winning game, sell stocks despite high bond prices?

Post by rbaldini » Wed Dec 14, 2016 1:53 pm

letsgobobby wrote: The philosophy should be more incremental than that, I think
Right. If you incrementally achieved the milestone (e.g., didn't suddenly get a huge windfall), then your asset allocation probably should have only changed incrementally all along. Not do nothing and then suddenly make a big change just because you got to some arbitrary number. (I don't mean to suggest that this is what you're doing - more of a general point.) Proportionate response, etc.

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Re: winning game, sell stocks despite high bond prices?

Post by HomerJ » Wed Dec 14, 2016 1:59 pm

rbaldini wrote:Generally I don't have a problem with taking less risk as your need to decreases. But it seems to me that if allocation is going to change as a function of one's net worth (again, not sure if this is the nature of the milestone), then it should change in proportion. I.e. things shouldn't *suddenly* change just because you've finally achieved some arbitrary sum through slow accumulation. That, I believe would be an over-reaction. There's nothing special about $1,000,000 relative to, say, $992,174 - we just happen to have decimal number system that makes it seem like a big deal when you get that extra digit. I'm just hoping the OP's milestone is actually meaningful and justifies a sudden, large change in AA.
You make a very good point.

Although some of us don't check the balances that often, and with a big fast run-up like the last month, one might suddenly find a rather large change in the portfolio instead of a slow incremental increase, which "might" justify a larger than normal change in allocation.

The real argument against small changes is they just don't matter that much. 62/38 really isn't much different of a risk profile than 59/41.
Last edited by HomerJ on Wed Dec 14, 2016 2:02 pm, edited 1 time in total.

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Re: winning game, sell stocks despite high bond prices?

Post by TheTimeLord » Wed Dec 14, 2016 2:02 pm

letsgobobby wrote:The game is not won but we hit a milestone this week that I never would have dreamed of ten years ago. Quite astounding what a 7 year bull market can do.

Our need to take risk has significantly declined. Ability higher, willingness unchanged.

I assume it is dumb to avoid taking risk off the table just because the 'safe investments' (ie, bonds) don't look that safe. In our case we would be talking about reducing stocks from 60% to 50%, which of course means increasing our fixed income holdings by 25% (from 40% to 50%). Also have to incur some capital gains to do this, a small disincentive.

What do you think?

Everyone is different, but for having enough money in safe investments to cover a more than adequate lifestyle from now until Social Security has been exhilarating. Plus we have a nice separate post-SS portfolio to draw upon when that day comes. That said we are a dual income couple who will get quite a kick once we start receiving SS so the bridge years are our biggest obstacle. Congratulations on achieving your goal.
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Re: winning game, sell stocks despite high bond prices?

Post by nedsaid » Wed Dec 14, 2016 2:24 pm

letsgobobby wrote:We are early/mid 40s. In about 3-4 years I would like to reduce my hours which would allow us to save only about 3-5% of portfolio value each year, compared to 7-8% currently.

Our target is 60/40 but we are up to 64/36 because of the stock market run. After making charitable donations this month it will be 62/38.

The milestone is a net worth milestone, but more importantly it reflects an X annual expenses milestone. While I expect future volatility will cause that number to fluctuate, at some point you have to say that a goal has been reached and risk exposure should be reduced. I can't take the WBern approach of taking money off the table because the game is not yet won; we're winning but we may only be at halftime. The philosophy should be more incremental than that, I think. So maybe livesoft is right, and the way to go is to reduce from 60 to say 57, and see how I feel a year from now. The drawback is there's no meaningful reduction in risk with such a small shift.
I am a stock guy and even rebalancing is not easy for me. I have done the small shifts as psychologically it is easier than doing it all at once. My recommendation is to do a small shift as Livesoft recommends, harvesting your stock gains a bit to put into bonds. The thing is, there are risks in the Bond Market too and this is another argument for moving slowly. Not only that, but you are still relatively young.
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Re: winning game, sell stocks despite high bond prices?

Post by btenny » Wed Dec 14, 2016 2:26 pm

I suggest a small incremental change in AA to something like 57% stocks to go with your age of 40ish. That is 5% shift from your 62% after your donations. IMO anything smaller is meaningless. Anything bigger (like going to 50% right now) is just too conservative versus your age IMO. So 57/43 stocks to bonds seems fine to me right now.

Then maybe change it again in 5 years to something even more conservative, but not some arbitrary $$ number. The issue is to lower your risk as you get older and nearer your retirement age.

Good Luck.

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Re: winning game, sell stocks despite high bond prices?

Post by bigred77 » Wed Dec 14, 2016 2:37 pm

I don't know why anyone would bother shifting their AA by any less than at least 5-10 absolute percentage points. Moving from 58% to 55% stocks will not make a noticeable difference. Its just noise IMO.

I would normally suggest someone whose need to take risk has significantly shifted just go ahead and permanently change their AA to a lower percentage of stocks. However, in this case, someone who was already at a 60/40 split while still in their 40s, I would recommend just staying the course. There is so much time ahead of you and in your own words, you haven't quite won the game just yet. I think rebalancing and sticking with a 60/40 portfolio for the foreseeable future is the way to go.

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Re: winning game, sell stocks despite high bond prices?

Post by bigred77 » Wed Dec 14, 2016 2:38 pm

btenny wrote:I suggest a small incremental change in AA to something like 57% stocks to go with your age of 40ish. That is 5% shift from your 62% after your donations. IMO anything smaller is meaningless. Anything bigger (like going to 50% right now) is just too conservative versus your age IMO. So 57/43 stocks to bonds seems fine to me right now.

Then maybe change it again in 5 years to something even more conservative, but not some arbitrary $$ number. The issue is to lower your risk as you get older and nearer your retirement age.

Good Luck.
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Re: winning game, sell stocks despite high bond prices?

Post by kolea » Wed Dec 14, 2016 2:58 pm

letsgobobby wrote:We are early/mid 40s.
I don't think the word "milestone" was even in my vocabulary when I was 40. :)
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Re: winning game, sell stocks despite high bond prices?

Post by SGM » Wed Dec 14, 2016 3:41 pm

In your mid 40's you have a lot of human capital left. Will you be able and willing to increase your hours if something happens to greatly decrease your portfolio or increase your expenses? If not then I would go with the 50:50 portfolio. Yellen is calling for two or three increases in rates in 2017. (I haven't digested what she has said yet). So bond funds should go down in value in 2017. However, they tend to catch up as you know when they start replacing bonds with higher yield bonds. This may be market timing, but I feel like there is a change in the business climate and stocks will generally go up next year.....but of course I could be wrong. I will be selling some stock in early 2017 to change my AA in early retirement slowly. I am done taking any more LT capital gains in 2016.

I like your "normalization" of savings when going part time by looking at your savings rate in terms of percent of portfolio rather than percent of earned income.

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Re: winning game, sell stocks despite high bond prices?

Post by buckstar » Wed Dec 14, 2016 5:21 pm

Are you planning on retiring anytime soon? If you've reached your milestone, and are planning on retiring in the next few years, by all means change your asset allocation. But if you're planning on working for the next 20 years, just continue with your plan per your investment policy statement. You have an investment policy statement, right? That's what they are for, so you don't make wholesale changes to your financial plan because of some extrinsic factors.

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Re: winning game, sell stocks despite high bond prices?

Post by letsgobobby » Wed Dec 14, 2016 5:40 pm

buckstar wrote:Are you planning on retiring anytime soon? If you've reached your milestone, and are planning on retiring in the next few years, by all means change your asset allocation. But if you're planning on working for the next 20 years, just continue with your plan per your investment policy statement. You have an investment policy statement, right? That's what they are for, so you don't make wholesale changes to your financial plan because of some extrinsic factors.
My IPS allows for reduced risk taking if my need to take risk decreases.

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Re: winning game, sell stocks despite high bond prices?

Post by Peter Foley » Wed Dec 14, 2016 5:56 pm

With 20 years to go I would stay the course if that is what my IPS stated. Yours addresses the need to take risk factor so I would be inclined to drop the equities in my AA by 5% to 10%. I would not go below 50/50 at your age. The change you have proposed is fairly modest.

So hypothetically, at your age if your AA were 50/50 and you had met your goals, I would be advising you to stay at 50/50.

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Re: winning game, sell stocks despite high bond prices?

Post by Taylor Larimore » Wed Dec 14, 2016 6:01 pm

letsgobobby wrote:The game is not won but we hit a milestone this week that I never would have dreamed of ten years ago. Quite astounding what a 7 year bull market can do.

Our need to take risk has significantly declined. Ability higher, willingness unchanged.

I assume it is dumb to avoid taking risk off the table just because the 'safe investments' (ie, bonds) don't look that safe. In our case we would be talking about reducing stocks from 60% to 50%, which of course means increasing our fixed income holdings by 25% (from 40% to 50%). Also have to incur some capital gains to do this, a small disincentive.

What do you think?
letsgobobby:

It is nearly always a bad idea to take unnecessary risk of a bad outcome hoping for higher return. Nearly all experts recommend a higher allocation to bonds as we get older. I think you should probably reduce stocks and pay the capital-gain tax.

Wait until January to postpone paying the tax.

Best wishes
Taylor
Last edited by Taylor Larimore on Wed Dec 14, 2016 6:30 pm, edited 1 time in total.
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Re: winning game, sell stocks despite high bond prices?

Post by HomerJ » Wed Dec 14, 2016 6:09 pm

Peter Foley wrote:With 20 years to go I would stay the course
I don't think he has 20 years to go... That's the point. He's planning to retire early, and he's almost got his number.

Time to take some risk off the table in my mind... Changing to 50/50 could be a good move. Certainly doesn't hurt to make the change in a up market. Maybe split cap gains between this year and next year.

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Re: winning game, sell stocks despite high bond prices?

Post by HomerJ » Wed Dec 14, 2016 6:10 pm

Taylor Larimore wrote:
letsgobobby wrote:The game is not won but we hit a milestone this week that I never would have dreamed of ten years ago. Quite astounding what a 7 year bull market can do.

Our need to take risk has significantly declined. Ability higher, willingness unchanged.

I assume it is dumb to avoid taking risk off the table just because the 'safe investments' (ie, bonds) don't look that safe. In our case we would be talking about reducing stocks from 60% to 50%, which of course means increasing our fixed income holdings by 25% (from 40% to 50%). Also have to incur some capital gains to do this, a small disincentive.

What do you think?
letsgobobby:

Anytime my stock/fixed income allocation differs more than 10% from my asset allocation plan -- I rebalance. You should probably do something similar even if it means paying a capital-gain tax.

Best wishes
Taylor
Taylor, I think he's asking if he should CHANGE his AA from 60/40 to 50/50 now that he's very close to his goal. Not just rebalance back to 60/40.

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Re: winning game, sell stocks despite high bond prices?

Post by Taylor Larimore » Wed Dec 14, 2016 6:22 pm

HomerJ wrote:
Taylor Larimore wrote:
letsgobobby wrote:The game is not won but we hit a milestone this week that I never would have dreamed of ten years ago. Quite astounding what a 7 year bull market can do.

Our need to take risk has significantly declined. Ability higher, willingness unchanged.

I assume it is dumb to avoid taking risk off the table just because the 'safe investments' (ie, bonds) don't look that safe. In our case we would be talking about reducing stocks from 60% to 50%, which of course means increasing our fixed income holdings by 25% (from 40% to 50%). Also have to incur some capital gains to do this, a small disincentive.

What do you think?
letsgobobby:

Anytime my stock/fixed income allocation differs more than 10% from my asset allocation plan -- I rebalance. You should probably do something similar even if it means paying a capital-gain tax.

Best wishes
Taylor
Taylor, I think he's asking if he should CHANGE his AA from 60/40 to 50/50 now that he's very close to his goal. Not just rebalance back to 60/40.
Homer:

I re-read letsgobobby's post and realize that you are correct. I will go back and edit my reply.

Thank you and Happy Holiday!
Taylor
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Re: winning game, sell stocks despite high bond prices?

Post by Rodc » Wed Dec 14, 2016 8:48 pm

A shift of 10% is fairly modest. It will have modest effects on return and modest effects on risk. (I would not think it of as a 25% change of allocation; a change from 99% stocks and 1% bonds to 98/2 would be, gasp! a 100% change in some sense, but so what?)

I think if you have significantly changed your need for high returns such a modest change would be entirely sensible.

But as you note your ability to take on risk has risen and you are not bothered by the risk you have. So also entirely sensible to let it ride.

I am in a somewhat similar boat and a few years ago dropped from 70/30 to 60/40. I have no idea, really, if 60/40 is somehow optimal. But it is good enough.

Best of luck.
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Re: winning game, sell stocks despite high bond prices?

Post by why3not » Wed Dec 14, 2016 9:18 pm

letsgobobby wrote:We are early/mid 40s.

The milestone is a net worth milestone, but more importantly it reflects an X annual expenses .
My wife and I were in the exact same situation. We hit 20x at about that time. We had been running 80/20 and our IPS called for a shift to 60/40 at that point. We did it lump sum, i have personally never liked it. I would be 100% stocks were it up to only me, so i havent really liked any of the AA adjustments along the way. But because i was reluctant there is no way i could have done the small step thing.
It is emotionally easier for me to follow the plan than trying to massage the plan mid-stream.

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Re: winning game, sell stocks despite high bond prices?

Post by Dandy » Wed Dec 14, 2016 9:29 pm

A lot depends on how close you are to retirement and/or your "winning" number. I see no problem with reducing equities to 50% -- that still provides ample growth. I would suggest allocating a decent amount of your fixed income to short term bond funds and FDIC products. When close to retirement or in it, close to your number and/or exceed it - the goal should usually shift from growth to asset preservation.

This is often hard to do since for all of our accumulation/investment years we usually are focused on growing the pot not preserving it since we will continue to feed it and not withdraw for years/decades. It reminds me of the idea of what does a dog do if he actually catches the car he chases. He is so focused on the chase and maybe not so much on what to do if he succeeds. :confused

Keep in mind that going from 60 to 50% equities is a step toward a more conservative allocation. If the equity market has a major sell off you may not feel the difference -- the asset reduction will still hurt.

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Re: winning game, sell stocks despite high bond prices?

Post by Quark » Wed Dec 14, 2016 9:29 pm

Which is going to make you feel worse - larger losses because you didn't reduce risk or smaller gains because you did reduce risk?

A change of few percent may seem insignificant, but if it's part of a glide path it can add up over time.

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Re: winning game, sell stocks despite high bond prices?

Post by desiderium » Thu Dec 15, 2016 8:25 am

Taxes reduce your investment return
You could front load your charitable giving for a few years using a donor advised fund. Use the tax savings to reinvest in bonds

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Re: winning game, sell stocks despite high bond prices?

Post by BlackStrat » Thu Dec 15, 2016 9:09 am

I assume this is an after-tax account (which would explain the capital gains)? Are you going to invest in bonds in an after-tax basis? Isn't this not very tax efficient?

I'm only asking to see if there's a way you can beef up on the bonds in a tax-advantaged account instead.

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Re: winning game, sell stocks despite high bond prices?

Post by letsgobobby » Thu Dec 15, 2016 11:01 am

Quark wrote:Which is going to make you feel worse - larger losses because you didn't reduce risk or smaller gains because you did reduce risk?

A change of few percent may seem insignificant, but if it's part of a glide path it can add up over time.
More worried about missing gains. In fact this is part of the motivation to consider a shift in AA: I interpret my fear of missing gains as a sign of growing greed, and thus I should defend against it by reducing risk.

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Re: winning game, sell stocks despite high bond prices?

Post by retiredjg » Thu Dec 15, 2016 11:47 am

You said your willingness to take risk is unchanged. You said your need to take risk is lower and your IPS allows for reduced risk taking if your need to take risk decreases. Your question seems to be if it is time to change your target from 60/40 to 50/50.

Seems an easy enough question, but if you don't know, you don't know. At least not yet.

Why not direct all contributions to bonds for awhile and get on the low side of 60/40 instead of the high side. Sit on that for awhile and see if your question is answered.

It may not be that you need to go to 50/50. Maybe all you need is a 60% stock cap. Worked for me a little while back.

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Re: winning game, sell stocks despite high bond prices?

Post by HomerJ » Thu Dec 15, 2016 12:52 pm

retiredjg wrote:Why not direct all contributions to bonds for awhile and get on the low side of 60/40 instead of the high side. Sit on that for awhile and see if your question is answered.
It's always a good solution to rebalance with new contributions, so it sounds like a good plan to use new contributions to slowly change your AA as well. Fixes the cap gains problem too.

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Re: winning game, sell stocks despite high bond prices?

Post by ray.james » Thu Dec 15, 2016 1:06 pm

Early this year, I realized I am on track to FI goals much faster. A combination of DINK, frugal life style helped. I started adding more bonds and change my AA from (age -20) to (age -10) in bonds. When I do the math now, I missed a few K's due to changed allocation but still on track to reach my goals "early". So as far as I am still on track to my number, I am fine with the missed $$'s.

The key is, if you will feel the same way about missed $$$ from changing AA. (BTW this is a very good year, I am sure, when I have missed few K's losses, I will be much happy.)
Last edited by ray.james on Thu Dec 15, 2016 1:49 pm, edited 1 time in total.
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Re: winning game, sell stocks despite high bond prices?

Post by letsgobobby » Thu Dec 15, 2016 1:38 pm

Appreciate the thoughts. We are overweight US stocks especially large cap and all of our VTI/VOO equivalent is in taxable; we either have to incur capital gains or donate to rebalance. We do already make 100% of new contributions to bonds so there's no additional rebalancing to be had there.

It seems illogical to donate to reduce risk. If I'm worried about the risk of my stocks going down, what sense does it make to take a 67% loss (100% gift minus the 33% deduction) as a way of protecting against a, say, 50% loss? However we have other reasons for wanting to front load charity in 2016, and maybe this pushes us over the edge. There is the 0.6% fee on DAF assets that needs to be considered over a long period of time.

FillorKill
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Re: winning game, sell stocks despite high bond prices?

Post by FillorKill » Thu Dec 15, 2016 6:23 pm

letsgobobby wrote:Appreciate the thoughts. We are overweight US stocks especially large cap and all of our VTI/VOO equivalent is in taxable; we either have to incur capital gains or donate to rebalance.
You've been in this through both of the last two 50% equity declines and all of the other less impressive pull-backs along the way.... Which is my way of implying surprise that you don't have loss carryforwards to use in rebalancing the taxable account. Hmmm. Wouldn't have guessed that.

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ray.james
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Re: winning game, sell stocks despite high bond prices?

Post by ray.james » Thu Dec 15, 2016 7:29 pm

FillorKill wrote:
letsgobobby wrote:Appreciate the thoughts. We are overweight US stocks especially large cap and all of our VTI/VOO equivalent is in taxable; we either have to incur capital gains or donate to rebalance.
You've been in this through both of the last two 50% equity declines and all of the other less impressive pull-backs along the way.... Which is my way of implying surprise that you don't have loss carryforwards to use in rebalancing the taxable account. Hmmm. Wouldn't have guessed that.
Not commenting this for OP, but it depends on what stage of accumulation one is in. Many would add 10-30% of portfolio in short 3-5 years as combination of higher income, kids college and exceptional market growth. The 50% losses off when actual portfolio value was 40% less would just dwarf the gains.
When in doubt, http://www.bogleheads.org/forum/viewtopic.php?f=1&t=79939

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Re: winning game, sell stocks despite high bond prices?

Post by itstoomuch » Thu Dec 15, 2016 7:55 pm

Meanwhile, on the other side of the river,
Now close to 85% cash. Risks are getting to be high for my IPS. Discretionary accts are up considerably in 2016. Have sell orders out for 90% cash. Executions hopefully when DOW30 hits 20,000 and before end of trading, 12/16.
YMMV :wink:
Rev012718; 4 Incm stream buckets: SS+pension; dfr'd GLWB VA & FI anntys, by time & $$ laddered; Discretionary; Rentals. LTCi. Own, not asset. Tax TBT%. Early SS. FundRatio (FR) >1.1 67/70yo

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Re: winning game, sell stocks despite high bond prices?

Post by Elysium » Thu Dec 15, 2016 7:58 pm

Like I have stated before, there is no problem in doing some extra re-balancing when you have gained so much. I am not a stickler for very rigid AA. For instance, I am fine with a 70/30 or a 75/25 allocation depending on whether equities have done better than expected or not. These things aren't going to make a huge difference in the end. Just a matter of your comfort level.

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Re: winning game, sell stocks despite high bond prices?

Post by letsgobobby » Thu Dec 15, 2016 8:15 pm

FillorKill wrote:
letsgobobby wrote:Appreciate the thoughts. We are overweight US stocks especially large cap and all of our VTI/VOO equivalent is in taxable; we either have to incur capital gains or donate to rebalance.
You've been in this through both of the last two 50% equity declines and all of the other less impressive pull-backs along the way.... Which is my way of implying surprise that you don't have loss carryforwards to use in rebalancing the taxable account. Hmmm. Wouldn't have guessed that.
In 2000 I had 5% equities and a tiny portfolio. In 2007 25% equities. Now portfolio is several fold bigger and equity exposure much higher. So I don't have many carryforward losses relative to the size of the gains I would be taking.

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Re: winning game, sell stocks despite high bond prices?

Post by AlohaJoe » Thu Dec 15, 2016 8:20 pm

Dieharder wrote:Like I have stated before, there is no problem in doing some extra re-balancing when you have gained so much
Changing your asset allocation is not "extra rebalancing".

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Re: winning game, sell stocks despite high bond prices?

Post by alexost » Thu Dec 15, 2016 8:23 pm

letsgobobby wrote:The game is not won but we hit a milestone this week that I never would have dreamed of ten years ago. Quite astounding what a 7 year bull market can do.

Our need to take risk has significantly declined. Ability higher, willingness unchanged.

I assume it is dumb to avoid taking risk off the table just because the 'safe investments' (ie, bonds) don't look that safe. In our case we would be talking about reducing stocks from 60% to 50%, which of course means increasing our fixed income holdings by 25% (from 40% to 50%). Also have to incur some capital gains to do this, a small disincentive.

What do you think?
I think it's completely prudent to change asset allocation due to needing less risk to accomplish your goal. Total US bond funds are now a better buy than they were at the beginning of this year.

sambb
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Re: winning game, sell stocks despite high bond prices?

Post by sambb » Thu Dec 15, 2016 8:42 pm

I would definitely rebalance to lower allocation. Why not. Your risk tolerance changed.

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nedsaid
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Re: winning game, sell stocks despite high bond prices?

Post by nedsaid » Thu Dec 15, 2016 8:53 pm

itstoomuch wrote:Meanwhile, on the other side of the river,
Now close to 85% cash. Risks are getting to be high for my IPS. Discretionary accts are up considerably in 2016. Have sell orders out for 90% cash. Executions hopefully when DOW30 hits 20,000 and before end of trading, 12/16.
YMMV :wink:
Wow. When I say that it is a good time to rebalance with the market hitting new highs, I am not thinking of being 90% in cash.

Do you know something the rest of us don't? I have amazing psychic powers but not that amazing.
A fool and his money are good for business.

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Re: winning game, sell stocks despite high bond prices?

Post by itstoomuch » Thu Dec 15, 2016 9:17 pm

^ Nedsaid
IPS says, "+10%, take less risk, it's an election year, concentrate on IRA Discretionary". So I did it.

-I want to clear the Discretionary Accts for 2017.
-Its Discretionary. I can afford to move to cash.
-As Wm. Bernstein says, "If you've won the game, Why continue?" I'm just taking a breather. Reevaluating health. Chips are still on the table.
-Don't particularly like the Risk/Rewards ratio for either bonds or equities.
-Doing the Marge-g gambit, but have been moving to cash essentially since June.
-2nd time Dec'16, snowed-in, MidValley in wine country hills and can no longer take wine or beer. :oops:
YMMV
Last edited by itstoomuch on Thu Dec 15, 2016 9:30 pm, edited 4 times in total.
Rev012718; 4 Incm stream buckets: SS+pension; dfr'd GLWB VA & FI anntys, by time & $$ laddered; Discretionary; Rentals. LTCi. Own, not asset. Tax TBT%. Early SS. FundRatio (FR) >1.1 67/70yo

Elysium
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Re: winning game, sell stocks despite high bond prices?

Post by Elysium » Thu Dec 15, 2016 9:18 pm

AlohaJoe wrote:
Dieharder wrote:Like I have stated before, there is no problem in doing some extra re-balancing when you have gained so much
Changing your asset allocation is not "extra rebalancing".
It doesn't matter to me very much what it is called, this is what I call it, others may reject it as you see fit. I am very much hands off mostly, but I also don't hesitate to make some changes when I feel it is appropriate. This has worked well for me over the years.

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