Shifting away from 100% stocks - how do you execute shift without timing?

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
YoungSisyphus
Posts: 21
Joined: Mon Sep 24, 2018 7:35 am

Shifting away from 100% stocks - how do you execute shift without timing?

Post by YoungSisyphus » Mon Apr 15, 2019 9:20 am

I have been contemplating moving to a more mixed investment portfolio. Currently am 100% in stocks and this was my experience over the last 6 months Image.

It wasn't a bad ride, and I am investing for the long-term (currently 30 years old), so the larger swings do not concern me as much. However, I'm coming to the realization that I would be comfortable with a lower rate of return with less volatility. So, I'm considering going to something like 80% stocks / 20% bonds. However, I'm trying to figure out how best to execute this massive re-balancing, along with a plan to continue to re-balance to avoid timing and do these changes on a schedule. Currently I have a mix of tax advantaged accounts:

401k - 75% of portfolio (currently save maximum rate of 45% company allowed match. My plan is to move to after-tax contributions quickly this year to roll over into my Roth IRA, which I'd like to do to build some flexibility in my funds)
Roth IRA - 15% of portfolio
HSA - 10% of portfolio
Cash account - may decide to invest ~$10k into a taxable account

If you were me and making a big move like this, what would your strategy be for getting there? Would the date you decide to execute on be arbitrary and one that you can pick on an ongoing basis - e.g. May 1 of every year for re-balancing?

Dottie57
Posts: 5736
Joined: Thu May 19, 2016 5:43 pm

Re: Shifting away from 100% stocks - how do you execute shift without timing?

Post by Dottie57 » Mon Apr 15, 2019 9:25 am

Just sell a portion of your stocks and wait for it to settle. The purchase bonds . I have sold on an up day for stocks.

You just have to do it.

smallpotato
Posts: 19
Joined: Thu Jul 07, 2016 11:48 am

Re: Shifting away from 100% stocks - how do you execute shift without timing?

Post by smallpotato » Mon Apr 15, 2019 9:27 am

Looks like nothing is in taxable.

Design a portfolio that meets your goals that you can stick with.
Click the sell button.
Do not look into the rear view mirror.

MJD
Posts: 18
Joined: Sat Aug 04, 2018 6:17 pm

Re: Shifting away from 100% stocks - how do you execute shift without timing?

Post by MJD » Mon Apr 15, 2019 9:28 am

If you have a long investment horizon, what will be the difference in your overall return if you do it all at once, over the course of several days/weeks/months/years/etc? Probably relatively minor, given that you are only shifting 20% to bonds. For your initial rebalancing, anyways.

For more regular rebalancing, I personally do it once a year. The timing has not always been "exactly" annually, but generally every 10-14 months. YMMV depending on how far out of sync your allocation % gets. The last several years, mine has not swung wildly enough to be way out of whack with desired AA.

dbr
Posts: 28542
Joined: Sun Mar 04, 2007 9:50 am

Re: Shifting away from 100% stocks - how do you execute shift without timing?

Post by dbr » Mon Apr 15, 2019 9:29 am

No, you should not attempt to time this path to a more conservative allocation.

In my opinion you are exaggerating the magnitude of the shift. 80/20 is not very different from 100/0. In any case you can devise a pathway to follow by gradual steps. An example of that is the glide path for target retirement funds: https://www.bogleheads.org/wiki/Glide_paths

Making a change annually is probably a good idea, but if you are making contributions you can affect the AA continuously by just biasing your contributions to the increasing asset.

magicrat
Posts: 643
Joined: Sat Nov 29, 2014 7:04 pm

Re: Shifting away from 100% stocks - how do you execute shift without timing?

Post by magicrat » Mon Apr 15, 2019 9:30 am

Doing it now is implementing your plan, not timing.

User avatar
Wiggums
Posts: 647
Joined: Thu Jan 31, 2019 8:02 am

Re: Shifting away from 100% stocks - how do you execute shift without timing?

Post by Wiggums » Mon Apr 15, 2019 9:36 am

I agree. Just sell the 20% and make your purchase after the settlement period.

Mike Scott
Posts: 1220
Joined: Fri Jul 19, 2013 2:45 pm

Re: Shifting away from 100% stocks - how do you execute shift without timing?

Post by Mike Scott » Mon Apr 15, 2019 9:37 am

Selling stocks on a up day is better than selling on a down day. This is not the same as selling to sit out for a while and needing to figure out how to get back in at the right time. There is a good chance that your regular contributions will be enough to keep you balanced after you get started. If that's not enough, then pick a day (about any day) to do it. If you hold a taxable account, tax loss harvesting may become part of your rebalancing mix as well.

UpperNwGuy
Posts: 1876
Joined: Sun Oct 08, 2017 7:16 pm

Re: Shifting away from 100% stocks - how do you execute shift without timing?

Post by UpperNwGuy » Mon Apr 15, 2019 9:40 am

Just do it. Do it today. Ignore the daily ups and downs of the S&P 500.

User avatar
NYCPete
Posts: 726
Joined: Thu Apr 12, 2007 1:24 pm
Location: New York, NY

Re: Shifting away from 100% stocks - how do you execute shift without timing?

Post by NYCPete » Mon Apr 15, 2019 9:41 am

Can you simply change your 401k contributions to be 100% toward the bond option? If you're only 30, perhaps your balances aren't big enough yet that rebalancing can't occur with new contributions. Make all your new contributions go toward bonds until you're at an allocation you want. Maybe it takes a couple months, but a few months is minor compared to the years of investing ahead of you.

On a related note, your dilemma is not uncommon and represents one of the problems with a 100% stock allocation. It makes things unnecessarily harder once one decides they don't want to do 100% anymore. Age, age minus 10, age minus 20 etc. in bonds is much easier to start with, and only requires very minimal annual tweaks at the margin to stay within an allocation.

Best,
Peter
To the extent that a fool knows his foolishness, | He may be deemed wise | A fool who considers himself wise | Is indeed a fool. | | Buddha

User avatar
mhc
Posts: 3884
Joined: Mon Apr 04, 2011 10:18 pm
Location: NoCo

Re: Shifting away from 100% stocks - how do you execute shift without timing?

Post by mhc » Mon Apr 15, 2019 9:48 am

If you can get there with only new contributions, then I would do that.

I'm not a big fan of making big moves all at once. Directing new funds to accomplish your goal will be gradual and give the descision time to settle.

banhbao
Posts: 62
Joined: Mon Sep 10, 2018 7:54 pm

Re: Shifting away from 100% stocks - how do you execute shift without timing?

Post by banhbao » Mon Apr 15, 2019 10:48 am

mhc wrote:
Mon Apr 15, 2019 9:48 am
If you can get there with only new contributions, then I would do that.

I'm not a big fan of making big moves all at once. Directing new funds to accomplish your goal will be gradual and give the descision time to settle.
+1

Whenever possible I try to rebalance by changing future investments rather than selling what I already have. But that's just my preference.

I think in your case, you have mostly everything in 401(k) so there wouldn't be any tax penalty, though you may have some blocking rules within your 401(k) that must be considered.

Topic Author
YoungSisyphus
Posts: 21
Joined: Mon Sep 24, 2018 7:35 am

Re: Shifting away from 100% stocks - how do you execute shift without timing?

Post by YoungSisyphus » Mon Apr 15, 2019 11:04 am

Thank you for all of the input. About to get on a plane so I'll have more time to think about all of it:

1. I have ~$250k in these investments. I contribute ~$3,000 in before tax funds per month. And then a variable after tax amount depending on life.. Highest would be $2,000 /month with lowest (planned) amount being $1,000. So let's say ~$4k of contributions a month.
2. Dirty math would then be ~$50k needed to get to new portfolio, or 10-12 months.
3. Of course that would be assuming the original $250k, with a combined $300k portfolio that would only be 16%. And that doesn't take into account fluctuations of the portfolio during that time.
4. But, because it is approximately 1 year of contribution shift, perhaps that is the best way to do it and slowly trend into my new portfolio.

Interesting feedback on the added complexity of getting out of the 100% stock portfolio. Seems fitting!

Edit: I wonder if it is also worth it to consider the additional discount / premium purchases you are missing by not contributing any future funds to stocks. I haven't thought about the math behind letting the existing funds just float for ~1 year with no changes to contributions. Or if that's even important. The one thing I did like about those massive dips was at least I was staying consistent at those ~$3,000 contributions a month to help buy those discount periods.

inbox788
Posts: 6148
Joined: Thu Mar 15, 2012 5:24 pm

Re: Shifting away from 100% stocks - how do you execute shift without timing?

Post by inbox788 » Mon Apr 15, 2019 12:25 pm

YoungSisyphus wrote:
Mon Apr 15, 2019 9:20 am
I'm trying to figure out how best to execute this massive re-balancing, along with a plan to continue to re-balance to avoid timing and do these changes on a schedule.
Hope you've realized that "massive" is relative. It's a matter of perspective. Over the course last 12 months, switching tracks would have cost or gained at most $1k/$10k invested so depending on your luck and timing, moving $50k from stocks to bonds would have made at most a $5k difference. Realize that going forward, a higher bond allocation will likely reduce your overall portfolio return, but with a smoother course.

http://quotes.morningstar.com/chart/fun ... A%5B%5D%7D

More importantly, if you started 12 months ago with 80/20 AA, when and how would you have rebalanced? viewtopic.php?t=250363

If you're not too concerned about 100% for a while, you could take the next decade or two to get there. The wilder swings in the market will help you get there faster. Otherwise, you might find yourself rebalancing more often, which isn't always a good thing.

What do you think you'll want your AA when you're 50?

To compare, Vanguard doesn't begin a gradual glidepath until 40. https://institutional.vanguard.com/VGAp ... TargetDate Some folks are comfortable with higher equities, while others stick with close to 100% stocks to age 50 and take a steeper glidepath using early retirement as the guide or working extra years depending on their stockpile. On the more conservative side, some folks are 50/50 at age 50. Both approaches and everything in between are appropriate, especially if you've considered individual factors.

User avatar
Phineas J. Whoopee
Posts: 8134
Joined: Sun Dec 18, 2011 6:18 pm

Re: Shifting away from 100% stocks - how do you execute shift without timing?

Post by Phineas J. Whoopee » Mon Apr 15, 2019 1:05 pm

Step one: decide to do it.

Step two: do it.

Be sure to take tax considerations into account.

PJW

miket29
Posts: 77
Joined: Tue Jun 20, 2017 9:07 pm

Re: Shifting away from 100% stocks - how do you execute shift without timing?

Post by miket29 » Mon Apr 15, 2019 3:05 pm

YoungSisyphus wrote:
Mon Apr 15, 2019 11:04 am
1. I have ~$250k in these investments. I contribute ~$3,000 in before tax funds per month. And then a variable after tax amount depending on life.. Highest would be $2,000 /month with lowest (planned) amount being $1,000. So let's say ~$4k of contributions a month.
If the 401K annual limit is 19K, how can you contribute 36K/yr pre-tax?

NxNW
Posts: 14
Joined: Fri Sep 14, 2018 12:15 pm

Re: Shifting away from 100% stocks - how do you execute shift without timing?

Post by NxNW » Mon Apr 15, 2019 3:25 pm

No one has mentioned volatility risk which I think is important in assessing risk of a portfolio. Consider the following 2 examples investing $10,000:

Portfolio A has an annual return of 5%. At the end of the first year you have $10,500. At the end of the second year you have $11,025. Compound annual growth rate is 5%.

Portfolio B is more volatile. During the first calendar year ithas a return of +20%. At the end of the first year you have $12,000. However, portfolio B had a return of -10% during the second year. At the end of the second year you have $10,800. Compound annual growth rate is 3.9%.

You can play around with a variety of examples and timelines. I’m sure someone has more technical example and theoretical handle on the issue, but the above helped sway me away from all stocks.

I am currently in the process of shifting from a 90:10 Portfolio to an 80:20 portfolio. As I am in my mid-30s and my annual contribution this year will equal approximately a quarter of my total portfolio value I am doing this through contributions (got a late start). As my entire portfolio is in tax protected investments I could theoretically just click sell and re-balance, but I don’t seem to have the gumption.

Topic Author
YoungSisyphus
Posts: 21
Joined: Mon Sep 24, 2018 7:35 am

Re: Shifting away from 100% stocks - how do you execute shift without timing?

Post by YoungSisyphus » Mon Apr 15, 2019 3:48 pm

miket29 wrote:
Mon Apr 15, 2019 3:05 pm
YoungSisyphus wrote:
Mon Apr 15, 2019 11:04 am
1. I have ~$250k in these investments. I contribute ~$3,000 in before tax funds per month. And then a variable after tax amount depending on life.. Highest would be $2,000 /month with lowest (planned) amount being $1,000. So let's say ~$4k of contributions a month.
If the 401K annual limit is 19K, how can you contribute 36K/yr pre-tax?
You cannot - sorry to imply that. I’ll switch to after tax backdoor Roth contributions when I hit the before tax limit.

Post Reply