JBTX wrote: ↑Mon May 11, 2020 11:40 pm
I read the OP and some posts after but not the entire thread, so sorry if I'm repeating anything.
The issue I have with this, from a life cycle perspective, is you are buying only stocks for 10-20 years, depending when you start working and saving, and then after 40 you on average are buying mostly bonds. If stocks go up more than bonds, you get to the point where you buy only bonds to keep a target allocation. Now we are saying we go to 100% stocks to 60% in only 20 years. A 10-15 year buy in period is a fairly concentrated buy in period, increasing you risk of buying high and eventually selling low. Then after 40 you will have to more aggressively sell stocks from time to time, and to extent you have stocks in taxable it leads to more capital gains management.
I'm in this situation, and you should have plenty of tax sheltered stocks to convert into bonds. You should not plan on changing AA much within a taxable account, because of the large capital gains. You don't need to worry too much about selling stocks low, because low stocks values boosts your bond percentage of your portfolio. Plan ahead for what you need in your taxable accounts so that you don't have to buy or sell there before retiring.
Let's say you have 10x expenses at 40. You need to add 2% bonds per year, which is 0.2x expenses. That's doable with a 20% investment-to-annual-expenses ratio, so less than 16% of your income. The next year the market drops 25%. Now you have 7.5x expenses in stocks and 0.2x expenses in bonds, and you want 4% bonds. You only need 0.04*(7.7)x or .308x expense in bonds, so you buy .108x expenses in bonds and you have 0.092x expenses left to buy some more stocks.
Let's say you have 20x expenses at 50 and the recommended 20% in bonds, for a total of 16x earnings in stocks and 4x earnings in bonds. You need to add 2% bonds per year, which is 0.4x expenses. That's doable with a 40% investment-to-annual-expenses ratio, which is less than 28% of your income. The next year the market drops 25%. Now you have 12x expenses in stocks and 4x expenses in bonds, and you want 22% bonds. You only need 0.22*(16)x or 3.52x expense in bonds, so you can buy all stocks with your investments for the year and you would sell some bonds to purchase more stocks and get back to 78% stocks and 22% bonds.
What you see from these two examples is that it is easier to meet your bond goals when the market is down, and we are more likely to have to sell stocks when they are up. You can buy stocks when they are down, and even rebalance bonds into stocks.