Mr Larry's 5/25% rule ? for 30% of 30% international positio

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kikie
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Mr Larry's 5/25% rule ? for 30% of 30% international positio

Post by kikie »

Mr Larry's 5/25% rule ? for 30% of 30% international position

so if my target is 30% of my stock will be international, and 30% of the entire portfolio is ALL eg total world

but the international portion is only 8 % of the entire portfolio ; should I be using 25% against the 8% value or 5% against the 30% ?


currently all stock IS at 30% but international portion is down near 25% of the 30% if you follow
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larryswedroe
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Re: Mr Larry's 5/25% rule ? for 30% of 30% international pos

Post by larryswedroe »

The rule is the lesser of the two triggers
So if the allocation is 8%, 25% of that is 2% so rebalance if exceed 10 or go below 6. But always rebalance with new cash
Larry
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kikie
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Re: Mr Larry's 5/25% rule ? for 30% of 30% international pos

Post by kikie »

well then do i have to sell part of the TSM to buy more International, if TSM is at 30% ( my target ) but International hits my trigger, as new money would then increase my TSM holdings , even if not at a trigger, or maybe i just use new money , if i have it , and wait for a TSM trigger ?


i was intending to rebalance 1x/year april 1, or august 1; do i just wait out the trigger till those dates ?
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larryswedroe
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Re: Mr Larry's 5/25% rule ? for 30% of 30% international pos

Post by larryswedroe »

paix
You have to rebalance at all levels when triggers breached
So first at the stock vs bond, then for stocks US vs. International and EM and within them if you also own small and value or large and growth separately you have to rebalance at that level
For FI do same type thing perhaps between TIPS and nominals or gov't and corp.

And always rebalance with new cash

Also be sure to consider taxes, would not likely take ST gain (unless small) to rebalance, likely wait for LT gain
Best wishes
Larry
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kikie
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Re: Mr Larry's 5/25% rule ? for 30% of 30% international pos

Post by kikie »

sorry larry don't understand

My target is 30% stock, of that 30%, 30% international(however, I'm calculating what that 30% international is, based on the total portfolio value, as a lesser percentage say 8% ; then using a 25% trigger on it.

So, international is at the negative trigger, but all stock is still at 30%; so, if I buy more International with new money, I'm messing up the All stock percentages (higher) just to make the international higher.

If you follow? That is the only thing that has been triggered, and needing adjustment; all my stock is now in taxable, perhaps, since I don't have enough "new money"; I need to buy a little stock in my TSAs to avoid cap gain tax ..........?
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CABob
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Re: Mr Larry's 5/25% rule ? for 30% of 30% international pos

Post by CABob »

Paix,

Perhaps the way you are describing your portfolio is causing some of the confusion. I interpret your targets as follows –

Domestic stock – 21%
International stock – 9%
Bonds – 70%

Is this correct? If not what are the correct percentages?
Bob
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Aptenodytes
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Re: Mr Larry's 5/25% rule ? for 30% of 30% international pos

Post by Aptenodytes »

paix wrote:sorry larry don't understand

My target is 30% stock, of that 30%, 30% international(however, I'm calculating what that 30% international is, based on the total portfolio value, as a lesser percentage say 8% ; then using a 25% trigger on it.

So, international is at the negative trigger, but all stock is still at 30%; so, if I buy more International with new money, I'm messing up the All stock percentages (higher) just to make the international higher.

If you follow? That is the only thing that has been triggered, and needing adjustment; all my stock is now in taxable, perhaps, since I don't have enough "new money"; I need to buy a little stock in my TSAs to avoid cap gain tax ..........?
Sometimes new money just won't be sufficient, so you have to shift assets. Sounds like your domestic grew faster than your international, so to get back in balance you need to shift from domestic into international. Before you do that evaluate the tax consequences. It may be better to tolerate a bit of imbalance in exchange for lower taxes.

Also, note that there's nothing wrong with your total stock percentage going above 30%. You have an upper band precisely to make it easier to navigate these kinds of swings.

If you tailor your monthly contributions more precisely this kind of circumstance will happen less often.
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Re: Mr Larry's 5/25% rule ? for 30% of 30% international pos

Post by larryswedroe »

Paix
think you got your answer already. Remember you don't have to rebalance exactly back to targets, but at least to tolerance bands, especially when considering trade costs and taxes
And always use new cash to rebalance to just buy the losers.
Now if you buy int'l and that pushes you over stock limit than sell domestic equity to buy more bonds.
Larry
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Re: Mr Larry's 5/25% rule ? for 30% of 30% international pos

Post by abuss368 »

Keep investing simple.....
John C. Bogle: “Simplicity is the master key to financial success."
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kikie
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Re: Mr Larry's 5/25% rule ? for 30% of 30% international pos

Post by kikie »

hmm, seems like in order to have "new" money ; i will have to change from "reinvest" to not reinvest my bonds and stock dividends and cap gains in all my funds, depending on what kind of negative swing might take place in my 30% stock holdings....

but since dividends/CG are paid in december, and I'm planning on rebalancing 1x/year late spring/early summer.

i will have to let the new money sit in the money market for 6 months, which doesn't seem wise with the current rates ...... :) ?
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larryswedroe
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Re: Mr Larry's 5/25% rule ? for 30% of 30% international pos

Post by larryswedroe »

paix
Why do you have to let it sit?
And btw taking K gains and divs in cash instead of reinvesting allows you to rebalance, only reason not to do that is if you had transactions costs
Larry
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kikie
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Re: Mr Larry's 5/25% rule ? for 30% of 30% international pos

Post by kikie »

well, lets say I am $10k below my International 30% Target, but $10k above my negative side trigger.

I just made a IRA $5k contribution, which is in Prime Money, so I can buy short term bond index; till my chosen rebalance date of July 1 and check my bands at that point ?

or I can put it now into the unbalanced but not triggered International Fund .

though , it will have to be in the IRA, or not the ideal 'location' for international stock funds.


so, you advise, losing 'opportunity' (risk) for having "new money" to rebalance ? in this kind of situation ?
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Aptenodytes
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Re: Mr Larry's 5/25% rule ? for 30% of 30% international pos

Post by Aptenodytes »

Dude, you are making a simple thing very confusing.

If international equities are your most below-target asset category, why would you put the new money in bonds?
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kikie
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Re: Mr Larry's 5/25% rule ? for 30% of 30% international pos

Post by kikie »

uh, if you could not call me that. I think its a valid question, apologies, if I could help you understand what I've asked, please, ask me a relevant question. thanks for replying.

I am not at my trigger, International could rebound , by the time, i rebalance : July 1st; i'm not wanting to buy international stock in my TSA, etc.


I making a IPS, and intend to adhere to it, but need to iron out these few details,

regards

Aptenodytes wrote:Dude, you are making a simple thing very confusing.

If international equities are your most below-target asset category, why would you put the new money in bonds?
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larryswedroe
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Re: Mr Larry's 5/25% rule ? for 30% of 30% international pos

Post by larryswedroe »

Paix
Why don't you write a real example, not with %, but with dollars
Write your current $ invested in each asset class, then next to it right down the min, target and max for that asset class
Then say you have $x to invest

Think you'll figure it out, again don't have to be exact and don't have to get to targets, but that is the general idea and if can with new money you should

Larry
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CABob
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Re: Mr Larry's 5/25% rule ? for 30% of 30% international pos

Post by CABob »

I just made a IRA $5k contribution, which is in Prime Money, ...
This is the new money that is being talked about. It should have been placed into the asset classes as appropriate to keep your allocation at your target or at least get closer to the target. I see no reason to wait until some arbitrary date to rebalance from the MMF.
Bob
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Aptenodytes
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Re: Mr Larry's 5/25% rule ? for 30% of 30% international pos

Post by Aptenodytes »

paix wrote:uh, if you could not call me that. I think its a valid question, apologies, if I could help you understand what I've asked, please, ask me a relevant question. thanks for replying.
I'm sorry if I was rude. I accept the legitimacy of your questions. What Larry asked is what I would ask in order to better understand the problem. Right now I just don't get it.
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