AA, IPS. Tinkering trap?

[chickadee]

About two months ago I finally actually wrote out an IPS. In it, the main AA chosen was 65/35 with 10% of equities in international.

Now, I'm thinking that 60/40 would be better. And that international should be 15% of equities. I feel that I was taking some recency bias when I chose such a low international allocation, and that if it's going to be in the portfolio, it needs to be higher, or I should just not invest in it at all.

When I wrote the IPS, I was at 65/35, so leaving things alone was the easier choice. But this 65/35 was due to a run up in equities. In essence, we had floated out to 65 equities, and I think I may have been hesitant to pull back on the risk a bit. Good equity runs are fun!

Given our ages, I'm thinking 60/40 might be a better choice (60/49) and a number we could maintain for years to come. Retirement/FI is the goal in 7 years.

Does my IPS revision seem reasonable, or am I just falling into the tinkering trap? I've read a lot of the behavioral economics books, but am blind to know if I'm making a early course correction, or am messing with a "good enough" plan.

[jainn]

How close are you to your "number" or goal?
How many years expenses are saved?
Any pensions?

7 years isn't a very long time, if you can reach your goal in 5-7 years, either 65/35 or 60/40 should have negligible differences in when you reach your goal.

Jainn

[chickadee]

Good question. I think I'm about 70% of the way to our "number." No pensions.

[ThrustVectoring]

In terms of simplifying and fighting the urge to slice-and-dice, 5% of your overall portfolio is a good threshold. Anything that's smaller than that is too little money to move the needle. At that point, either drop it entirely or add money to it until it's big enough to matter.

Also, 65/35 is pretty close to 60/40. People often use rebalancing bands - for instance, buying/selling back to a 60/40 allocation whenever your equity percentage goes above 65% or below 55%.

It also sounds like your investment philosophy is pretty close to the Vanguard LifeStrategy Moderate Growth Fund (VSMGX). The big difference is that it uses more international exposure (40% of equities, 30% of bonds). If you want to simplify and make it harder for you to futz with things, you could switch to a one-fund approach.

[livesoft]

I think it is fine to switch to 60/40 and adjust your international allocation. I don't think you have a tinkering trap in front of you. Maybe next time you ask it will be a trap.

I have found that even a change as little as 3% has been psychological beneficial to me and it might be for you, too.

Another benefit of 60/40 has already been hinted at: There are numerous single-funds with an allocation near 60/40 that one can use for a benchmark. If one is not keeping up with the benchmarks, then perhaps one is tinkering too much or not implementing their portfolio management plan successfully.

[pkcrafter]

About two months ago I finally actually wrote out an IPS. In it, the main AA chosen was 65/35 with 10% of equities in international.

Hmm, two months ago, and now already thinking of changing it. Changing to 60/40 isn't much of a change, but if you will be more comfortable with it change do it, then don't tinker with it again.

Now, I'm thinking that 60/40 would be better. And that international should be 15% of equities. I feel that I was taking some recency bias when I chose such a low international allocation, and that if it's going to be in the portfolio, it needs to be higher, or I should just not invest in it at all.

Upping international sounds like recency bias since international is performing well. Why did you choose 10% to start with? Again, an IPS is supposed to keep you from doing what you are now doing. Your portfolio will seldom be humming on all cylinders, so make a choice and stay with it.

When I wrote the IPS, I was at 65/35, so leaving things alone was the easier choice. But this 65/35 was due to a run up in equities. In essence, we had floated out to 65 equities, and I think I may have been hesitant to pull back on the risk a bit. Good equity runs are fun!

Sounds like maybe the run up is now making you nervous and you want to back off the equity AA. This might be a tinkering trap for you, but you have to learn to not let current conditions move you.

Paul

[Dale_G]

So after two months, the cold hard reality of what you have written is sinking in .

I think a revision is perfectly okay. You need to be comfortable with your IPS, and it is very reasonable to make minor tweaks until you really believe it is something you can live with. But after a few tweaks, you should regard it as set in stone unless there are life events (not market events) that justify a change.

Dale

[JBTX]

The adjustments seem reasonable to me for a 60 year old nearing retirement in a extended bull market now. Not a huge enough to make a giant difference.

The upside of such minor tinkering is it won't materially affect your situation but it may make you feel that you are more actively involved. Over the years I read stuff and tinker with this or that but they rarely have a material impact on the total portfolio.

[aj76er]

I have a rule in my IPS that states no change can be made unless a period of 3months has passed. More often than not, I disregard a proposed change before the 3months .

Having said that, the stock/bond ratio is the biggest decision for an AA and it's perfectly okay to change it a few times before settling on something that makes you comfortable.

[Dandy]

Make an IPS and in 2 months you want to revise it upward to match equity gains - sounds like tinkering to me. Sounds like a bit of rebalancing might be in order vs an IPS revision. Run ups in value are still fun when you have 60% allocated to equities.

[stemikger]

I would go with a solid tried and true 60/40 AA.

I am 53 and have never held international because I feel it doesn't really matter much. John Bogle has many good reasons for not holding international. My asset allocation is currently 60/40.

My plan is to hold the balanced index fund for life and stay the course.

Here is a thread I started in 2015 you might find interesting.

viewtopic.php?t=164521

Good Luck! Either way, your plan is fine.

[welderwannabe]

I have changed my IPS 4-5 times over the last year. My IPS is only a year old. What happened in my case is that as I went to implement it I figured out that the 'ideal' percentages I had determined during my excessive research was complicated that necessary. Instead of 60% of this, 40% of that I changed it to just 50/50. That happened in a couple different places.

In addition paying off my mortgage because a strong possibility due to some life events and that caused me to rethink my very conservative allocation on my taxable side. Without the necessity of paying a mortgage every month I decided that I didn't need as much cash/bonds anymore in taxable I could tap if things got tough.

Long story short, sticking with a plan rigidly doesn't make a lot of sense to me. Situations change, circumstances change. The old saying: "Life is what happens while you are busy making other plans".

In my mind, the IPS is there to help you resist impulsive changes.