Why not exchange all total bond for total market today?

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CrankAddict
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Why not exchange all total bond for total market today?

Post by CrankAddict »

This is coming from a perspective of being strategic, not one of panic. I don't need any of my retirement fund for another 10 years. So if one is betting on this being a temporary correction and looking to buy at discount prices, then what are the potential downsides of a temporary switching of AA - converting all total bond to total market? If the market goes further down then sure, this move could have been improved by waiting, but that's pure market timing. What is wrong with locking in a solid 20% discount today and not getting greedy? If the markets are back to record high territory in 3-6 months then this seems like an obvious win. However, I could imagine some scenario where the market would stay depressed perhaps for years and then you'd be missing out on your bond returns during that time. But the other side of that coin is the longer the market stays depressed, the more discounted new total market you'd accumulate too. Would this still not put you ahead once the market eventually got back to new highs? I'm sure I'm missing some obvious issue here.

Thanks!
deanmoriarty
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Re: Why not exchange all total bond for total market today?

Post by deanmoriarty »

How about you just sell enough bonds to put you back to your target AA? I just placed an order this morning to sell $50k BND and buy VT, bringing me back to the 70/30 AA.
Day9
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Re: Why not exchange all total bond for total market today?

Post by Day9 »

You should have decided your rebalancing strategy well in advance. The Boglehead way is to develop a workable plan and stay the course.

https://www.bogleheads.org/wiki/Boglehe ... philosophy

Two common rebalancing strategies are to rebalance once or twice a year (e.g. on your birthday or early January after maxing IRA contributions for the year and 4th of July), or rebalancing bands (e.g. rebalance if your asset allocation is off by 5% or more)
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Kenkat
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Re: Why not exchange all total bond for total market today?

Post by Kenkat »

Because the market could still go down more. They call this “trying to catch a falling knife”. Sometimes you catch it, sometimes you get cut.

Rather than make these bold, all in, gut moves, most here would say stay true to your plan via rebalancing, etc.
chevca
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Re: Why not exchange all total bond for total market today?

Post by chevca »

Strategic = market timing in your scenario. Are you actually asking on BHs if this is a good idea or not??
RNJ
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Re: Why not exchange all total bond for total market today?

Post by RNJ »

Because "the market" can go down another 10% tomorrow. And the next day. And the next . . .

Which is not to say that if you've hit a rebalancing threshold, don't adjust. But "all in" isn't strategy.
rkhusky
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Re: Why not exchange all total bond for total market today?

Post by rkhusky »

The market could drop another 20% and not come back to today's closing price for 20 years. How would that affect your retirement plans?
mega317
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Re: Why not exchange all total bond for total market today?

Post by mega317 »

Presumably you’ve been investing in stocks for years because you expected them to go up. What’s different now? Why weren’t you all stock last summer at these prices, or last winter at lower prices?
https://www.bogleheads.org/forum/viewtopic.php?t=6212
DecoyDave
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Re: Why not exchange all total bond for total market today?

Post by DecoyDave »

It's a little risky. It would probably work. It's not the Boglehead way. You're a human being, not a robot. You're gonna hear a lot of "we're Bogelheads, we don't do that", and you gotta admit, they have a point, since this is the Bogleheads forum and not The Motley Fool forum. I wish you good luck, and I mean that, I'm not trying to say "well good luck with that!". I guess one question I'd have is: is Vanguard OK with that kind of trading? I don't honestly know, because I've never done it.
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Re: Why not exchange all total bond for total market today?

Post by CrankAddict »

rkhusky wrote: Mon Mar 09, 2020 2:39 pm The market could drop another 20% and not come back to today's closing price for 20 years. How would that affect your retirement plans?
If that happens I won't be able to retire whether I would do what I'm proposing or not. I'd like to know how many around here have a portfolio that will weather a never-happened-before nightmare scenario and still allow retirement on track. What seems far more likely is that the markets drop another 20% over the next two months and then take 2 years to get back to last month's level. In that case I'm giving up 2 years of bond yields in exchange for a 20% boost on 30% of my portfolio. Am I ahead or not? That's what I was trying to calculate.

But I do understand the "don't make crazy moves" sentiment. Doing bite sized pieces via rebalancing certainly is more conservative. Though in a couple other threads around here in the past week even that was discouraged and "only once a year" was touted as the prescription.
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Re: Why not exchange all total bond for total market today?

Post by CrankAddict »

mega317 wrote: Mon Mar 09, 2020 2:45 pm Presumably you’ve been investing in stocks for years because you expected them to go up. What’s different now? Why weren’t you all stock last summer at these prices, or last winter at lower prices?
Because this is the first time I'm actually sitting here paying attention in the middle of a significant drop. I'm not interested in putting the thought effort into deviating from the plan on < 10% corrections. But sitting here down 20% just has me pondering a few more "what ifs". Back in 2008 I had an advisor who was supposed to be the one doing the thinking. But I bailed on that around 2016 (almost 20 years after I should have bailed, more than anything I wish I could get those years back!)
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Re: Why not exchange all total bond for total market today?

Post by firebirdparts »

I don't understand how after thousands of years of finance this is all still so confusing.

Nobody knows nothing. It may seem like you do.

It is okay to hold both stocks and bonds and rebalance. It's not required, but it's okay. If you are going to do tactical asset allocation, then you need to have some sort of system.
Last edited by firebirdparts on Mon Mar 09, 2020 3:04 pm, edited 1 time in total.
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Re: Why not exchange all total bond for total market today?

Post by CrankAddict »

DecoyDave wrote: Mon Mar 09, 2020 2:49 pm It's a little risky. It would probably work. It's not the Boglehead way. You're a human being, not a robot. You're gonna hear a lot of "we're Bogelheads, we don't do that", and you gotta admit, they have a point, since this is the Bogleheads forum and not The Motley Fool forum. I wish you good luck, and I mean that, I'm not trying to say "well good luck with that!". I guess one question I'd have is: is Vanguard OK with that kind of trading? I don't honestly know, because I've never done it.
I understand that and I'm thankful for this group of expertise and certainly not trying to troll anybody.

As far as whether vanguard would allow it, It appears that in my 401k, if I sell something I cannot re-buy it for 30 days. In my taxable accounts, same thing unless I have ETFs, in which case it doesn't sound like there's a limit. In either account type, a single one-way move should be allowed or you couldn't perform basic rebalancing. You just can't sell/re-buy within 30 days with mutual funds.

https://personal.vanguard.com/us/whatwe ... angepolicy
Triple digit golfer
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Re: Why not exchange all total bond for total market today?

Post by Triple digit golfer »

Why did you have bonds in the first place?
mickroark
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Re: Why not exchange all total bond for total market today?

Post by mickroark »

Because the market could drop another 35-50%. Wait until the bottom is in. :mrgreen:
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CrankAddict
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Re: Why not exchange all total bond for total market today?

Post by CrankAddict »

Triple digit golfer wrote: Mon Mar 09, 2020 3:02 pm Why did you have bonds in the first place?
Because the portfolio visualizer and back-testing showed an improved return over time with it. Last week when stocks were down 10% my portfolio was down 6.5%. It'll be interesting to see how it looks a week from now. I see BND closed down today so I guess it's not always on the opposite end of the seesaw from stocks.
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Re: Why not exchange all total bond for total market today?

Post by milktoast »

I'm more market timer than typical for boglehead. But that's not a wise move.

You need a written plan. Ideally write up your bear market plan when the market is rising rather than falling - less emotional.

But if you are going to do something like this, it should say something like:
- normal AA is 70/30
- if sp500 has declined more than 10% from peak, adjust AA by 1 pt every month in correction (71/29 the first month, 72/28 the next, etc.)
- if the adjusted AA causes rebalance band to be hit (defined elsewhere), execute a trade to bring portfolio in line

And the tricky part is the recovery. But if you don't have this in your plan you don't have a plan.
- after recovering it's original high, adjust AA back towards 70/30 at 1 pt every two months above the original peak before the correction

That's roughly what mine says. With some extra caveats about buying extra stock (converting emergency fund from cash to credit) prior to altering AA.

Anyway, I'm sure I have a bad plan. But it's a plan. If you just wake up one day and decide today is the "sell all bonds, buy stocks" day. Tomorrow will be another 7% stock drop and that might be the "sell all stocks, buy bonds" day which would permanently lock in losses.
jdilla1107
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Re: Why not exchange all total bond for total market today?

Post by jdilla1107 »

We are back to May of 2019 prices. In May of 2019 everyone here was saying how overvalued the market was. Did you think this in May of 2019?
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Re: Why not exchange all total bond for total market today?

Post by rbaldini »

I don't buy the premise. I have little reason to believe the market will act substantially differently in the future than I believed a few weeks ago. I decided to stick with my current allocation then, and I decide to stick with it now.
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Re: Why not exchange all total bond for total market today?

Post by rkhusky »

jdilla1107 wrote: Mon Mar 09, 2020 3:19 pm We are back to May of 2019 prices. In May of 2019 everyone here was saying how overvalued the market was. Did you think this in May of 2019?
Good point! Were investors hot and bothered about buying back then? There is probably a human cognitive bias that makes us think that way.

Anchoring?
https://en.wikipedia.org/wiki/List_of_cognitive_biases
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Re: Why not exchange all total bond for total market today?

Post by carminered2019 »

I like the idea of moving forward with 100% equities and stay there but temporary changing AA back and forth is asking for trouble but good luck to you.
Last edited by carminered2019 on Mon Mar 09, 2020 3:27 pm, edited 1 time in total.
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Re: Why not exchange all total bond for total market today?

Post by CrankAddict »

jdilla1107 wrote: Mon Mar 09, 2020 3:19 pm We are back to May of 2019 prices. In May of 2019 everyone here was saying how overvalued the market was. Did you think this in May of 2019?
And May 2019 prices were also available in December 2017... so yeah, a bit bumpy. Wall Street enjoyed celebrating the 25k dow crossing so much it's wanting to experience it 5 or 6 times apparently.

But your point is well taken. That may be the best argument I've heard against doing anything. The market has felt smoke-and-mirrory for a few years now, so considering these current prices as "discounts" may be the real error in judgement.
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Re: Why not exchange all total bond for total market today?

Post by Sandtrap »

CrankAddict wrote: Mon Mar 09, 2020 2:07 pm This is coming from a perspective of being strategic, not one of panic. I don't need any of my retirement fund for another 10 years. So if one is betting on this being a temporary correction and looking to buy at discount prices, then what are the potential downsides of a temporary switching of AA - converting all total bond to total market? If the market goes further down then sure, this move could have been improved by waiting, but that's pure market timing. What is wrong with locking in a solid 20% discount today and not getting greedy? If the markets are back to record high territory in 3-6 months then this seems like an obvious win. However, I could imagine some scenario where the market would stay depressed perhaps for years and then you'd be missing out on your bond returns during that time. But the other side of that coin is the longer the market stays depressed, the more discounted new total market you'd accumulate too. Would this still not put you ahead once the market eventually got back to new highs? I'm sure I'm missing some obvious issue here.

Thanks!
If you exchanged all of your Total Bond today, and Total Bond was 50% of your portfolio, then you would be 100% in equities.
If the market gained back 20% from today forward, there would be a large gain for you depending on the size of your portfolio.

But, if the market continued to fall down to 50%, and you had no more "fixed" to anchor your portfolio.
What would you do then?
Would it be an unhappy time for the duration of the downturn?

But, you say you don't need these funds for 10 years.
So that might turn into a happy place for you at that time when the market recovers, with 100% of your equities.

Where would you invest future funds over the 10 years once having made this switch?

j :happy
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Re: Why not exchange all total bond for total market today?

Post by CrankAddict »

Sandtrap wrote: Mon Mar 09, 2020 3:44 pm
Where would you invest future funds over the 10 years once having made this switch?

j :happy
In my original hypothetical, I'd make all new purchases comply with the existing AA (70/30 stocks/bonds).
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Re: Why not exchange all total bond for total market today?

Post by Sandtrap »

CrankAddict wrote: Mon Mar 09, 2020 4:04 pm
Sandtrap wrote: Mon Mar 09, 2020 3:44 pm
Where would you invest future funds over the 10 years once having made this switch?

j :happy
In my original hypothetical, I'd make all new purchases comply with the existing AA (70/30 stocks/bonds).
Okay. Remaining hypocritical, how would you manage to make more "fixed" purchases when "equity" buys are so favorable in a down market during that 10 years?

I'm trying to follow how this scenario might play out.

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Re: Why not exchange all total bond for total market today?

Post by CrankAddict »

Well, if we continue to drop 20% every month then yes, those future "attractive" prices would have to be ignored. Or, you just keep buying all stocks.
Again, if the market doesn't come back at some point none of this matters anyway.
Last edited by CrankAddict on Mon Mar 09, 2020 4:39 pm, edited 1 time in total.
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Re: Why not exchange all total bond for total market today?

Post by rbaldini »

CrankAddict wrote: Mon Mar 09, 2020 4:35 pm this is a fairly big, and fairly infrequent type of swing we are going through at the moment, so what can be done to profit from it.
The answer to this could well be "nothing".
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Re: Why not exchange all total bond for total market today?

Post by firebirdparts »

Again, part of this is super simple. When this happens, you always wish you had bonds. If you rebalance from bonds to stocks, that is okay. If you don’t maintain a constant AA,then you need a more grandiose plan to tell when to start Holding bonds again.

It’s not trivial.
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Re: Why not exchange all total bond for total market today?

Post by watchnerd »

CrankAddict wrote: Mon Mar 09, 2020 3:17 pm I see BND closed down today so I guess it's not always on the opposite end of the seesaw from stocks.
You might not be asking if you should sell all your bonds and buy all stocks at if you were holding a different kind of bond fund as a portion of your AA.

I hold long Treasuries for 15% of my AA (see sig).

VGLT (Vanguard Long Treasury Index) is +26% YTD.
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Re: Why not exchange all total bond for total market today?

Post by chevca »

CrankAddict wrote: Mon Mar 09, 2020 3:27 pm so considering these current prices as "discounts" may be the real error in judgement.
It absolutely is, IMO. But, you're not the only one thinking that way.
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Re: Why not exchange all total bond for total market today?

Post by CrankAddict »

watchnerd wrote: Mon Mar 09, 2020 4:58 pm You might not be asking if you should sell all your bonds and buy all stocks at if you were holding a different kind of bond fund as a portion of your AA.

I hold long Treasuries for 15% of my AA (see sig).

VGLT (Vanguard Long Treasury Index) is +26% YTD.
Interesting, I admittedly didn't do a lot of research on all the bond funds and figured a "total bond" fund would have the same benefits as a "total market" fund. But clearly that long index is doing quite well lately. [Off-topic side note based on your username - what I really want to know is when I'll be able to start acquiring pre-ceramic Subs and GMTs at bargain prices. My 16710 that I miss dearly is selling for 2x what I sold it for in 2014. So to that end I'm all for a little short term financial havoc ;)]
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Re: Why not exchange all total bond for total market today?

Post by Cyclesafe »

CrankAddict wrote: Mon Mar 09, 2020 2:54 pm
rkhusky wrote: Mon Mar 09, 2020 2:39 pm The market could drop another 20% and not come back to today's closing price for 20 years. How would that affect your retirement plans?
If that happens I won't be able to retire whether I would do what I'm proposing or not. I'd like to know how many around here have a portfolio that will weather a never-happened-before nightmare scenario and still allow retirement on track. What seems far more likely is that the markets drop another 20% over the next two months and then take 2 years to get back to last month's level. In that case I'm giving up 2 years of bond yields in exchange for a 20% boost on 30% of my portfolio. Am I ahead or not? That's what I was trying to calculate.

But I do understand the "don't make crazy moves" sentiment. Doing bite sized pieces via rebalancing certainly is more conservative. Though in a couple other threads around here in the past week even that was discouraged and "only once a year" was touted as the prescription.
But you'd not be the only one thinking this. You all would be feeding a momentary blip up until Mr Market takes over and goes where it is going. That can be down or up.
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Re: Why not exchange all total bond for total market today?

Post by TheDDC »

CrankAddict wrote: Mon Mar 09, 2020 4:35 pm Well, if we continue to drop 20% every month then yes, those future "attractive" prices would have to be ignored. Or, you just keep buying all stocks.
Again, if the market doesn't come back at some point none of this matters anyway.
I would not waste time reading some of the “cranks” on here posting about a 20+ year down market. For some reason some seem to get off on that.

Yes, you absolutely get a discount buying period when the market bottoms out. That is the two for one deal (risk/reward) that goes into the calculation. I keep 100% equities since I am in the accumulation phase and have continual cash to accrue for the next 40+ years, well into retirement when I expect to continue to invest excess funds.

You are not putting money into a bank account, you are buying shares at a certain cost. That’s the easiest way to think of this process of investing.

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Re: Why not exchange all total bond for total market today?

Post by watchnerd »

CrankAddict wrote: Mon Mar 09, 2020 5:15 pm

Interesting, I admittedly didn't do a lot of research on all the bond funds and figured a "total bond" fund would have the same benefits as a "total market" fund. But clearly that long index is doing quite well lately. [Off-topic side note based on your username - what I really want to know is when I'll be able to start acquiring pre-ceramic Subs and GMTs at bargain prices. My 16710 that I miss dearly is selling for 2x what I sold it for in 2014. So to that end I'm all for a little short term financial havoc ;)]
Long Treasuries have done quite well, but are very volatile. They can go down as fast as they go up.

They're a great equity risk parity matching tool.

But I wouldn't recommend them for people who are looking for a general purpose bond fund.

They have a specific use case for risk parity matching high equity allocations.

Not beginner friendly.
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columbia
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Re: Why not exchange all total bond for total market today?

Post by columbia »

This doesn’t seem like a good idea.

If you really want to do it, at least wait for the market to tank 2x - 2.5x what it has so far.
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Re: Why not exchange all total bond for total market today?

Post by beehivehave »

So why do you think that it is a sure bet that stocks will outperform fixed income over 10 years? Historically, I think this only true about 2/3 of the time. Even after 30 years it has been 80%. What happens if the stock market tanks just before your retirement? Seems wise to hedge your bets a little. That's why investors do bonds.
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