What happens when I go back to normal AA?

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Boglelicious123
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What happens when I go back to normal AA?

Post by Boglelicious123 » Wed Mar 25, 2020 12:23 pm

In my 403B with TIAA I have moved from my 80%/20% AA to 95%/5% (stocks/bonds). My aim is to switch back to 80%/20% when the market reaches its previous all-time highs (whenever that may be).

When I switch my percentages back to 80%/20% will TIAA sell all my investments, then re-purchase everything at these higher prices, or will they only sell the stocks needed to get to the proper bond %? I assume this will make a significant difference when it comes to avg cost and future returns. Thanks!

tbone555
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Re: What happens when I go back to normal AA?

Post by tbone555 » Wed Mar 25, 2020 12:28 pm

You will only sell enough equities and buy enough bonds to adjust your assest allocation.

Your next question is misguided. If you sell everything and immediately buy back everything you had there are no consequences for long term returns. You will still have the same number of shares and total value.

No taxes either since your investments are inside a 403b.

P.S. you are attempting market timing by changing your allocation the way you described. But you didn't ask a question about that so...

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windaar
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Re: What happens when I go back to normal AA?

Post by windaar » Wed Mar 25, 2020 12:46 pm

TIAA has a policy against frequent trading so if you sell a particular asset you can’t buy back in for (I think) 30 days, so there are in/out limits. Check their site for the exact policy. Plus, your idea isn’t wise, but that’s for you to decide.
Nobody knows nothing.

lws
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Re: What happens when I go back to normal AA?

Post by lws » Wed Mar 25, 2020 1:04 pm

Why did you change you AA?

Topic Author
Boglelicious123
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Re: What happens when I go back to normal AA?

Post by Boglelicious123 » Wed Mar 25, 2020 2:15 pm

Thanks for your responses and input!
lws wrote:
Wed Mar 25, 2020 1:04 pm
Why did you change you AA?
I changed my AA once we hit 30% down off highs because that was my plan for down markets. In this way I should be able to increase my gains as the market rises over time (until it gets back to its previous highs at which point I will go back to 80/20 AA).

Topic Author
Boglelicious123
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Re: What happens when I go back to normal AA?

Post by Boglelicious123 » Wed Mar 25, 2020 2:19 pm

tbone555 wrote:
Wed Mar 25, 2020 12:28 pm
You will only sell enough equities and buy enough bonds to adjust your assest allocation.

Your next question is misguided. If you sell everything and immediately buy back everything you had there are no consequences for long term returns. You will still have the same number of shares and total value.

No taxes either since your investments are inside a 403b.

P.S. you are attempting market timing by changing your allocation the way you described. But you didn't ask a question about that so...
I have a question about where you mention this is misguided. Won’t I be able to purchase more shares due to the current price of the equities I’m buying being lower?

tbone555
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Re: What happens when I go back to normal AA?

Post by tbone555 » Wed Mar 25, 2020 3:11 pm

If I buy 10 shares at $10 per share that is $100 invested. If after a year the shares have risen to $20 my balance is now $200. I can sell the shares and buy them back immediately. Assuming the price hasn't changed in the few seconds it take to sell and buy back, I still have 10 shares at $20 per piece for a total of $200.

But mahybe I do not understand your question. Of course if you sell equities and buy them back sometime later you will have more shares. But that is market timing and is not an approach I take.

Topic Author
Boglelicious123
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Re: What happens when I go back to normal AA?

Post by Boglelicious123 » Wed Mar 25, 2020 3:25 pm

tbone555 wrote:
Wed Mar 25, 2020 3:11 pm
If I buy 10 shares at $10 per share that is $100 invested. If after a year the shares have risen to $20 my balance is now $200. I can sell the shares and buy them back immediately. Assuming the price hasn't changed in the few seconds it take to sell and buy back, I still have 10 shares at $20 per piece for a total of $200.

But mahybe I do not understand your question. Of course if you sell equities and buy them back sometime later you will have more shares. But that is market timing and is not an approach I take.
I see, thanks for the explanation. I understand that...what I am doing is upping my equities % as the market falls in a rules-based manner. I know it’s “non-Bogelhead” but it’s my way of taking advantage of a sharply declining equities market.

bloom2708
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Re: What happens when I go back to normal AA?

Post by bloom2708 » Wed Mar 25, 2020 3:39 pm

One sentiment is the market can go down further and stay down longer than you think.

Keep a floor of fixed income and don't go below it. In theory, you could sell all your bonds and buy stocks and stocks can keep dropping.

There will be some IPS (Investment Policy Statement) adjustments after this one for some.
"People want confirmation, not advice" Unknown | "We are here to provoke thoughtfulness, not agree with you" Unknown | Four words: Whole food, plant based

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Boglelicious123
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Re: What happens when I go back to normal AA?

Post by Boglelicious123 » Wed Mar 25, 2020 4:13 pm

bloom2708 wrote:
Wed Mar 25, 2020 3:39 pm
One sentiment is the market can go down further and stay down longer than you think.

Keep a floor of fixed income and don't go below it. In theory, you could sell all your bonds and buy stocks and stocks can keep dropping.

There will be some IPS (Investment Policy Statement) adjustments after this one for some.
What do you mean by IPS adjustments and how something like that would affect me? Just curious since I’ve never heard the term, and after googling it I’m still not sure how that would apply

Also, I’m only 35 so if stocks never recover to their all-time highs from earlier this year by the time I retire, we are all screwed and it doesn’t even matter what my asset allocation is.

bloom2708
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Re: What happens when I go back to normal AA?

Post by bloom2708 » Wed Mar 25, 2020 4:23 pm

Boglelicious123 wrote:
Wed Mar 25, 2020 4:13 pm
bloom2708 wrote:
Wed Mar 25, 2020 3:39 pm
One sentiment is the market can go down further and stay down longer than you think.

Keep a floor of fixed income and don't go below it. In theory, you could sell all your bonds and buy stocks and stocks can keep dropping.

There will be some IPS (Investment Policy Statement) adjustments after this one for some.
What do you mean by IPS adjustments and how something like that would affect me? Just curious since I’ve never heard the term, and after googling it I’m still not sure how that would apply

Also, I’m only 35 so if stocks never recover to their all-time highs from earlier this year by the time I retire, we are all screwed and it doesn’t even matter what my asset allocation is.
I mean that some rules don't necessarily work as expected during these big drops. Nothing more.

I don't know if we are 1/2 way down or 2/3 or some other percentage toward an eventual bottom. Nobody does.

Some people like to put all their "rules" in an IPS so they just can follow the rules. Some adjustments may be needed.
"People want confirmation, not advice" Unknown | "We are here to provoke thoughtfulness, not agree with you" Unknown | Four words: Whole food, plant based

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