I've taken the time to understand the math and charted out a reasonable value path using the accompanying spreadsheet Edleson provides and recommendations on choosing values for r and g.
That said, a lot of our previous research has pointed at the need to maintain a balanced portfolio between equities and fixed assets. Right now our target is 75% equity and 25% fixed assets (right now a mixture of bonds and cash).
As we've begun to follow our value path (2nd period with monthly "Value Averaging" sessions), we're seeing our fixed assets allocation rise because the stock market is doing relatively well recently. Our understanding is that asset allocation primarily plays a risk management, yet Value Averaging has a compelling case for yielding superior performance, as seen below from the Journal of Financial and Strategic Decisions study linked above.
What is the community's thought on balancing the benefits of a controlled asset allocation as compared with allowing the asset allocation to fluctuate a bit depending on performance of the market and the resulting contributions/sales that are dictated by a reasonable value path?
Here's how we're playing out this month as an example:
- Target asset allocation: 75% equity, 25% fixed
- Actual asset allocation after following value path: 69% equity, 31% fixed