The "never sell" method for staying the course

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28fe6
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The "never sell" method for staying the course

Post by 28fe6 » Fri Feb 01, 2019 3:41 pm

We know that investor behavior is one of the larger risks to one's portfolio, as evidenced by performance of the average investor vs. the indexes, and by the performance of portfolios that people forgot about, etc. Since I am in the accumulation phase, I know this is a risk for me based on my personality. I have changed my desired AA several times and shuffled funds between accounts too many times when I thought I was improving things.

Of course I can create an IPS and never change it, but I am young, and I don't think I can make a permanent IPS right now. I might in the future decide it's not optimum and I will want to change it, which might be a bad idea, or if I get older and want to change my AA, which might be an ok idea. Some of us have the need to feel we are doing something during market turmoil as well.

Therefore I am considering the "never sell anything" pseudo-IPS. The reasoning is that I am accumulating, so why should I be selling anything? If I want to change my AA, I can always buy the appropriate asset to do so. If I decide to rebalance, I can do it by buying, including by manipulating my routine contributions. Naturally, it's pretty hard to make large changes purely through contributions, which is the point.

Right now I think I should change my Roth to small cap because I want to establish a small-cap tilt, and my 401k has no good small-cap fund. My old IPS would say sell some of the Roth funds and buy a small-cap fund. My never-sell IPS would say, start buying small-cap fund in my Roth if I want to, but not allowed to sell during accumulation. Also, during market crash, I am allowed to buy the dip just as much as I am able to, but not allowed to sell anything to rebalance. Basically, it would be a way to stay the course without requiring the investor to "don't just do something, stand there" which some people can't do or find unpleasant.

Is there any case in accumulation phase where refusing to sell would be destructive compared to the possible behavior-based problems of a flawed investor?
Last edited by 28fe6 on Fri Feb 01, 2019 3:48 pm, edited 1 time in total.

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Sandtrap
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Re: The "never sell" method for staying the course

Post by Sandtrap » Fri Feb 01, 2019 3:47 pm

2 classics worth reading and re reading. . . .

Investing Behavior Pitfalls
https://www.bogleheads.org/wiki/Behavioral_pitfalls

TAYLOR LARIMORE ON “SIMPLICTY”
https://www.bogleheads.org/forum/viewt ... p?t=156505

This is important. Because "tweaking" is also behavioral. . . unless it is part of a long term IPS.
(The enemy of a good plan is pursuing a perfect one.)

Do this:
Asset Allocation (what is right for you?)
https://www.bogleheads.org/wiki/Asset_allocation

And this:
Define General Investment Goals and Objectives (what is your plan?)
https://www.bogleheads.org/wiki/Invest ... statement

Then stick to it.
If you can't stick to it then formulate a long term IPS that you can stick to and feel confident with and will not fiddle with.

j
Wiki Bogleheads Wiki: Everything You Need to Know

dbr
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Re: The "never sell" method for staying the course

Post by dbr » Fri Feb 01, 2019 3:55 pm

If you refuse to sell anything the higher returning assets can eventually dominate the portfolio. If that results in an asset allocation you don't want, then you would sell the asset there is too much of and buy the other one. That is called rebalancing and the purpose is the keep your asset allocation where you want it. As you get older and have more money you might especially not want so much of that higher returning asset, so you would sell to reallocate. All of this starts with the assumption that you have a thoughtful asset allocation target. You can also adjust the asset allocation on the fly according to where you invest new money.

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Re: The "never sell" method for staying the course

Post by bloom2708 » Fri Feb 01, 2019 4:01 pm

No hard fast rules needed around "never selling".

Tax loss harvesting scenarios may arise.

Fast forward and you have your taxable account a nice size. Now your income drops (because you want to or because of a job change). You can sell taxable and use them for your Roth IRA contribution.

Trading for tradings sake is different from making an informed change.
"People want confirmation, not advice" Unknown | "We are here to provoke thoughtfulness, not agree with you" Unknown | Four words. Whole food, plant based. Bing it.

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28fe6
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Re: The "never sell" method for staying the course

Post by 28fe6 » Fri Feb 01, 2019 4:04 pm

dbr wrote:
Fri Feb 01, 2019 3:55 pm
If you refuse to sell anything the higher returning assets can eventually dominate the portfolio.
This doesn't seem like an intolerable outcome.

dbr
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Re: The "never sell" method for staying the course

Post by dbr » Fri Feb 01, 2019 4:08 pm

28fe6 wrote:
Fri Feb 01, 2019 4:04 pm
dbr wrote:
Fri Feb 01, 2019 3:55 pm
If you refuse to sell anything the higher returning assets can eventually dominate the portfolio.
This doesn't seem like an intolerable outcome.
The next sentences refer to the concept of having an asset allocation and going from there. Whether or not the asset allocation in question is intolerable or not depends on the judgement and preference of the individual in their own circumstances. It would probably be more typical for a person approaching retirement on a large nest egg to not be highly invested in stocks rather than a more moderate amount, but each individual gets to decide that for themselves.

A "never sell" method would appear to be not thoughtful, but if that is the strategy one thoughtfully arrives at, then more power to it.

aspiringboglehead
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Re: The "never sell" method for staying the course

Post by aspiringboglehead » Fri Feb 01, 2019 4:18 pm

28fe6 wrote:
Fri Feb 01, 2019 4:04 pm
This doesn't seem like an intolerable outcome.
This can be, but is not necessarily, true. For some people, a wide range of asset allocations can be acceptable, and it's hard to say that any one particular allocation is optimal. That is equivalent to saying that rebalancing is not necessary for some people. If rebalancing is not needed for the rough plan you have in mind, or if you can maintain your allocations in a tolerable range entirely with new contributions, "never sell" may work for you, and it has the benefit of simplicity.

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dunkmachine
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Re: The "never sell" method for staying the course

Post by dunkmachine » Fri Feb 01, 2019 4:34 pm

If I decide to rebalance, I can do it by buying
This may be difficult to do depending how you fund your rIRA. I front load my Roth at the beginning of the year. You may not have any funds available to "buy the dip". If you want to invest in emerging markets, for instance, the high volatility lends itself to being a great rebalancing asset to sell at the highs and buy more at the lows. For the buy and hold, you just want point B to be higher than point A at some time in the future and you don't care how it gets there. For the mathematically inclined, it's a state function. If you're a buy, hold and rebalance you can take advantage of the the volatile path it takes from point A to point B.

H-Town
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Re: The "never sell" method for staying the course

Post by H-Town » Fri Feb 01, 2019 4:35 pm

28fe6 wrote:
Fri Feb 01, 2019 3:41 pm
We know that investor behavior is one of the larger risks to one's portfolio, as evidenced by performance of the average investor vs. the indexes, and by the performance of portfolios that people forgot about, etc. Since I am in the accumulation phase, I know this is a risk for me based on my personality. I have changed my desired AA several times and shuffled funds between accounts too many times when I thought I was improving things.

Of course I can create an IPS and never change it, but I am young, and I don't think I can make a permanent IPS right now. I might in the future decide it's not optimum and I will want to change it, which might be a bad idea, or if I get older and want to change my AA, which might be an ok idea. Some of us have the need to feel we are doing something during market turmoil as well.

Therefore I am considering the "never sell anything" pseudo-IPS. The reasoning is that I am accumulating, so why should I be selling anything? If I want to change my AA, I can always buy the appropriate asset to do so. If I decide to rebalance, I can do it by buying, including by manipulating my routine contributions. Naturally, it's pretty hard to make large changes purely through contributions, which is the point.

Right now I think I should change my Roth to small cap because I want to establish a small-cap tilt, and my 401k has no good small-cap fund. My old IPS would say sell some of the Roth funds and buy a small-cap fund. My never-sell IPS would say, start buying small-cap fund in my Roth if I want to, but not allowed to sell during accumulation. Also, during market crash, I am allowed to buy the dip just as much as I am able to, but not allowed to sell anything to rebalance. Basically, it would be a way to stay the course without requiring the investor to "don't just do something, stand there" which some people can't do or find unpleasant.

Is there any case in accumulation phase where refusing to sell would be destructive compared to the possible behavior-based problems of a flawed investor?
From what I got out of your post, you are doing the correct thing the wrong way.

How to do it the right way? Don't tinker with your portfolio. Don't bother with where you put your small-cap. Just use the broad market index. Set the right portfolio at the beginning and don't jump back and forth. It might take you a few years to learn and realize this. Or you just take this and run with it. You can focus your time and effort on the right thing - make more money and save more money.

RAchip
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Re: The "never sell" method for staying the course

Post by RAchip » Fri Feb 01, 2019 5:15 pm

dbr wrote:
Fri Feb 01, 2019 3:55 pm
If you refuse to sell anything the higher returning assets can eventually dominate the portfolio. If that results in an asset allocation you don't want, then you would sell the asset there is too much of and buy the other one. That is called rebalancing and the purpose is the keep your asset allocation where you want it. As you get older and have more money you might especially not want so much of that higher returning asset, so you would sell to reallocate. All of this starts with the assumption that you have a thoughtful asset allocation target. You can also adjust the asset allocation on the fly according to where you invest new money.
Sell your winners? That doesn't sound like a good idea to me.

Ferdinand2014
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Re: The "never sell" method for staying the course

Post by Ferdinand2014 » Fri Feb 01, 2019 5:16 pm

I see no problem with this approach. In my 403b and SEP accounts, I only add. I never sell to rebalance. I just add to the down account to obtain my AA over time. However, over time as the total balance becomes a much larger portion relative to your monthly contributions, you may find it takes longer to rebalance. In general, rebalancing is for reducing risk for a given level of return. Not rebalancing often leads to a higher return, but often at a higher risk for the given return. Whatever works for you. If it keeps you from fiddling then it's the best method for you.
“You only find out who is swimming naked when the tide goes out.“ — Warren Buffett

RNJ
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Re: The "never sell" method for staying the course

Post by RNJ » Fri Feb 01, 2019 5:30 pm

Functionally, this is the approach we take. We are mid- to late-stage accumulators. All of the rebalancing we've done over the last few years has been either through the contributions of appreciated securities to our donor advised fund, or through our regular monthly contributions to taxable accounts. Because the bulk of our assets, and 100% of our equities, are in taxable accounts, there is an added disincentive to sell (taxes). We've grazed rebalancing bands once or twice, but never puled the trigger on a sale as time or circumstances did not permit it. Which is fine.

Longer we've been investing in this manner (with a defined, long-term asset allocation & glide path), the easier it is to do nothing more than what I outlined above.

heyyou
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Re: The "never sell" method for staying the course

Post by heyyou » Fri Feb 01, 2019 6:03 pm

Either method will work. Calculations can be done now with numerous assumptions which the stock market will ignore in the future. You are wise to understand your own emotions and to avoid steadily striving to find whatever looks best. The media are paid to attract eyeballs so they do present a flow of supposedly new info. How much and how often you save is far more important that the small differences in the percentages of your allocations. Whatever you sell out will often then go up, while whatever is bought will then stall or fall. That financial and emotional risk is precisely why stock index funds pay far more in the long term than bond funds.

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Re: The "never sell" method for staying the course

Post by MathWizard » Fri Feb 01, 2019 6:14 pm

The biggest cause of failure is investor behavior, so if this is what is needed for you, then go ahead.

When portfolio balances are small, redirecting new contributions to do the rebalancing
is generally enough except for events like in 2001/3 and 2008/9.

Once the portfolio is large relative to contributions, new contributions have less of an effect, and selling
to rebalance would be needed to keep the AA in line with your risk tolerance.

pdavi21
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Re: The "never sell" method for staying the course

Post by pdavi21 » Fri Feb 01, 2019 6:24 pm

The never sell method is fine, but it isn't easily defined. If you are income driven and/or don't reinvest dividends, you can probably (mostly) hold your AA using new purchases. If not, you will deviate into (potentially) riskier assets. This makes your plan inconsistent as your risk will try harder and harder to increase with age (especially if you reinvest dividends).
"We spend a great deal of time studying history, which, let's face it, is mostly the history of stupidity." -Stephen Hawking

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Re: The "never sell" method for staying the course

Post by Big Dog » Fri Feb 01, 2019 6:51 pm

I maintained your philosophy for ~35 years, and it was simple since I maintained a 100%/0% AA and the bulk of my holdings were S&P500 & Total Stock funds. The only thing I missed out on was Tax Loss Harvesting. (I didn't join BH soon enough to understand its advantages.) But, of course, TLH requires that you sell stuff every so often.

dbr
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Re: The "never sell" method for staying the course

Post by dbr » Fri Feb 01, 2019 6:55 pm

Big Dog wrote:
Fri Feb 01, 2019 6:51 pm
I maintained your philosophy for ~35 years, and it was simple since I maintained a 100%/0% AA and the bulk of my holdings were S&P500 & Total Stock funds. The only thing I missed out on was Tax Loss Harvesting. (I didn't join BH soon enough to understand its advantages.) But, of course, TLH requires that you sell stuff every so often.
Yes, the one asset allocation that is compatible with never sell and also having an asset allocation plan is that one. There is nothing wrong with it as long as one understands and desires the consequences.

Well, there actually is another asset allocation plan that is compatible. That plan is that one doesn't care what the asset allocation is and it can go anywhere. There is actually nothing wrong with that either {disclaimer about consequences}.

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Re: The "never sell" method for staying the course

Post by Fallible » Fri Feb 01, 2019 9:07 pm

It’s interesting that you frequently - and wisely - acknowledge a behavioral problem, but then discuss ways that could continue it (changing AA, tinkering with an IPS, talk of tilting, trying this, trying that...).

Rather than just acknowledging behavior, why not learn more about it to understand it better and change it? It's not easy, but with good effort, it can be done. The poster Sandtrap suggested you read the wiki on “Behavioral pitfalls” and I further suggest reading from the book list provided at the end, including, Why Smart People Make Big Money Mistakes and How to Correct Them, by Belsky and Gilovich. Just about every good book on investing takes up investor behavior and shows ways to improve it, to acquire the discipline to stay the course.

Also, knowing your age and current AA would help to provide advice.
John Bogle on his often bumpy road to low-cost indexing: "When a door closes, if you look long enough and hard enough, if you're strong enough, you'll find a window that opens."

staythecourse
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Re: The "never sell" method for staying the course

Post by staythecourse » Fri Feb 01, 2019 9:19 pm

Does it matter what you do if you can't stop yourself? I am in the minority where I think talking about behavioral finance is a complete waste of time. There is no point knowing why folks make mistakes WITHOUT a plan that has shown to improve the problem an d so far there isn't. Folks just keep publishing that their is a problem and come up with new, cool terms for it. Nonsense.

Most would advice just to give the reigns to a fee only FA. That won't work either, because in the end if you want to do something and the adviser says no you would just fire him and take over the portfolio and continue to make mistakes. My advice in these situations is keep a simple 3 fund portfolio (less moving pieces means less spots to make mistakes), automate EVERYTHING in contributions, then pick a randomly generated 10 digit code for the account (sure there are programs that do that), Don't log on for 1 week and by then you will have forgotten the 10 digit password, then stop paying attention to your portfolio and go drink and have fun in your personal life and/ or get other hobbies.

Difficult to hear, but not everyone is cut out to handle their personal investments. EVERYONE should understand and start the process young, but some need to figure out how NOT to be involved once it is started as the reality is THEY are the biggest impediment to their own success.

Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle

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Re: The "never sell" method for staying the course

Post by aspirit » Fri Feb 01, 2019 9:23 pm

Simply investing in the interests of a growing world economies for life, say 20-60,
is commendable.
Time & tides wait for no one. A man has to know his limitations. | "Give me control of a nation's money and I care not who makes it's laws" | — Mayer Amschel Bauer Rothschild ~

KlangFool
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Re: The "never sell" method for staying the course

Post by KlangFool » Fri Feb 01, 2019 9:53 pm

28fe6 wrote:
Fri Feb 01, 2019 3:41 pm

Therefore I am considering the "never sell anything" pseudo-IPS. The reasoning is that I am accumulating, so why should I be selling anything? If I want to change my AA, I can always buy the appropriate asset to do so. If I decide to rebalance, I can do it by buying, including by manipulating my routine contributions. Naturally, it's pretty hard to make large changes purely through contributions, which is the point.
28fe6,

A) What if you could not maintain your AA without selling?

B) What if it would take a few years before your contribution can set your AA correct?

C) What is your rebalancing rule in the first place?

i) 5/25?

ii) Annual?

The only way that you do not need to sell is if you do not intend to keep your AA.

There is a very simple solution. Use a fund of funds like target retirement and/or life strategy fund. Your AA is always correct. You never have to sell.

KlangFool

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28fe6
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Re: The "never sell" method for staying the course

Post by 28fe6 » Fri Feb 01, 2019 11:26 pm


28fe6,

A) What if you could not maintain your AA without selling?
I'm not very committed to any exact or exact asset allocation as long as I'm within the 25/75 to 75/25 window.
B) What if it would take a few years before your contribution can set your AA correct?
Probably not a problem. No sudden changes is probably not destructive.
C) What is your rebalancing rule in the first place?

The only way that you do not need to sell is if you do not intend to keep your AA.
I'm not convinced rebalancing is critical. Research seems to be mixed on the benefits. Also I have little taxable investments and TLH doesn't seem that attractive to me since lowering my cost basis seems like a tough sell to me for only some potential tax deferment.
There is a very simple solution. Use a fund of funds like target retirement and/or life strategy fund. Your AA is always correct. You never have to sell.
That's a very good solution. Unfortunately like many, I have many accounts and most of them have no good funds like that. The only decent fund in my 401k is the S&P500 fund, for example.

evestor
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Re: The "never sell" method for staying the course

Post by evestor » Fri Feb 01, 2019 11:48 pm

You have described what I do.

I only sell an investment when I change my strategy and I do not want to own it at all. Over time this has basically been as I realized that I should look more and more like a 3 fund portfolio and less and less like some mess of complex crap that was an error in the first place.
All 'rebalancing' is done in the form of skewing new dollars in. This is easy when I am in the accumulation phase and when my income is high relative to the portfolio.
This year is a good example where I'm skewing my AA a bit and it will be done entirely through new dollars shifting.

Over time this gets harder unless your income keeps growing pseudo-unbounded. IE at some point in the future you might want to rebalance 'faster' than new investment dollars can support, or in a way that new dollars could never support. But I'm not yet at this point. I'll cross this bridge when I come to it.

These are all good problems to have. So everyone who does this should consider themselves very lucky.

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Re: The "never sell" method for staying the course

Post by qwertyjazz » Sat Feb 02, 2019 7:07 am

This seems to me to be a mostly reasonable strategy. There is not a rebalancing bonus (mostly except in certain specific conditions). You spend money in dollars not percentages so an AA does not actually control you ‘risk’ as to do so would have to account in some way for wealth. The big question is if you have to sell because of bad life events at some point. What would you sell and how? The advantage of AA maintained is it gives an easy answer that avoids behavioral fallacies. If you thought you would never need to sell than you would probably be 100% stocks anyway. So there is a contradiction that I am trying to figure out for myself as well.
G.E. Box "All models are wrong, but some are useful."

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Re: The "never sell" method for staying the course

Post by Horton » Sat Feb 02, 2019 8:19 am

At a high level, my general approach is to "rebalance" to my target AA using contributions rather than exchanging existing funds. It's easy since my AA is rather simple and my contributions are still relatively large compared to my total portfolio balance. The strategy becomes more challenging with a complicated portfolio (e.g., slice-and-dice, which is sounds like you are doing) and lower contributions (as a % of your total portfolio).
🏃 since 2005

2015
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Re: The "never sell" method for staying the course

Post by 2015 » Sat Feb 02, 2019 2:53 pm

staythecourse wrote:
Fri Feb 01, 2019 9:19 pm
Does it matter what you do if you can't stop yourself? I am in the minority where I think talking about behavioral finance is a complete waste of time. There is no point knowing why folks make mistakes WITHOUT a plan that has shown to improve the problem an d so far there isn't. Folks just keep publishing that their is a problem and come up with new, cool terms for it. Nonsense.

Most would advice just to give the reigns to a fee only FA. That won't work either, because in the end if you want to do something and the adviser says no you would just fire him and take over the portfolio and continue to make mistakes. My advice in these situations is keep a simple 3 fund portfolio (less moving pieces means less spots to make mistakes), automate EVERYTHING in contributions, then pick a randomly generated 10 digit code for the account (sure there are programs that do that), Don't log on for 1 week and by then you will have forgotten the 10 digit password, then stop paying attention to your portfolio and go drink and have fun in your personal life and/ or get other hobbies.

Difficult to hear, but not everyone is cut out to handle their personal investments. EVERYONE should understand and start the process young, but some need to figure out how NOT to be involved once it is started as the reality is THEY are the biggest impediment to their own success.

Good luck.
I don't think behavioral finance is cool. I think it's brutal. I'll be the first to tell you it's not my personal investments I can't handle, it's myself. I always assume I'm the one most stupid at the poker table. They don't even wait for me to get through the doors of the casino to yell "incoming: patsy!"

I think awareness of behavioral foibles is the very reason why everything you posted is about the best advice in the thread so far. It's definitely a plan that could serve as an anecdote to behavioral weakness inherent in all humans.

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Re: The "never sell" method for staying the course

Post by KlangFool » Sat Feb 02, 2019 3:00 pm

28fe6 wrote:
Fri Feb 01, 2019 11:26 pm

28fe6,

A) What if you could not maintain your AA without selling?
I'm not very committed to any exact or exact asset allocation as long as I'm within the 25/75 to 75/25 window.
28fe6,

In summary, you do not have a fixed AA. It also means that you do not have a fixed risk exposure. I hope that you do understand and know when that is no longer acceptable. By the way, do you have an emergency fund? That will set a lower bound on your risk exposure.

KlangFool

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Re: The "never sell" method for staying the course

Post by ryman554 » Sat Feb 02, 2019 3:12 pm

28fe6 wrote:
Fri Feb 01, 2019 11:26 pm
That's a very good solution. Unfortunately like many, I have many accounts and most of them have no good funds like that. The only decent fund in my 401k is the S&P500 fund, for example.
Where are your other accounts? Move your old workplace accounts to IRAs and consolidate all after tax into one

That is not an excuse for complications.

Choose the s&p fund in your 401k and life strategy funds in your IRAs and /or taxable.

If you liked Klangs strategy, why can't you do it?

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28fe6
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Re: The "never sell" method for staying the course

Post by 28fe6 » Sat Feb 02, 2019 3:59 pm

I have a large 401k from a previous employer (no good balanced or target-date funds), current brand new 401k (no good funds at all except SP500 index), two good Fidelity IRAs (his and hers) and two good Roths. I suppose I could roll my old 401k to the IRAs? I never thought of that being possible. But I was advised once that 401ks are better than IRAs, for asset protection reasons.

I have a 1-year emergency fund in cash, so SWAN is more or less satisfied for me.

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