panhead wrote: ↑
Thu Mar 26, 2020 6:55 pm
Triple digit golfer wrote: ↑
Thu Mar 26, 2020 4:07 pm
Sometimes emotions get the best of us. Best thing you could do now is forget what happened, really reflect and decide what your true, tolerable AA is, and get to it immediately, whether it's staying at 100% cash or getting back in the market with some money. Chalk it up to a learning experience. The loss occurred already. You tried to time the market and failed. Waiting to get back in on another low is trying to time it again. Don't get burned again.
On March 12, I rebalanced because I hit a band, selling $32k of bonds to buy $32k of equities. This kept me at 80/20 AA.
I soon thereafter realized that I would have preferred to stay at 75/25, and regretted rebalancing.
Yesterday, I sold the $32k back to bonds. I basically broke even, perhaps coming out a bit ahead. Bonds were down 1-2% in that time and equities were down around 0.25%, so I think I actually came out ahead of where I have been.
Today, of course, seeing a 6% market increase, has me regretting "undoing" my rebalance.
The way I look at it is I got lucky. Here's what happened to me:
1. I initially overestimated my risk tolerance I wanted a bond/cash floor that rebalancing didn't allow me.
2. I rebalanced anyway, forcing myself to use the IPS I created, without acknowledging that maybe the IPS was wrong!
3. I regretted rebalancing because I lost my bond/cash floor.
4. The market came back up to right at the level that I rebalanced, so I did the opposite and "unrebalanced" back.
5. Now, my portfolio is sitting at where it would have been had I never rebalanced in the first place, at 75/25.
6. I plan on staying at 75/25 indefinitely. It allows me a bond/cash floor and lets me sleep well at night.
If the market shoots up, will I rebalance into even more bonds? Yes. The logic is I don't just want a bond floor. I will rebalance on the way up always, but I will never again rebalance below my bond floor in dollars.
Excellent post. We see so many flippant, "stay the course" threads these days, but this shows clearly what people are going through, even people with a plan. I would bet that having that plan kept you from doing anything too crazy, but at the same time these crazy markets made you realize you slightly overestimated your risk tolerance. I hope the OP sees this post, I think it's very valuable...
Yes, I did slightly overestimate my risk tolerance. Not even so much risk tolerance in terms of percentage or dollars lost in equity funds, but I realized that I needed a bond floor to feel secure. The turmoil in the markets, places shutting down, job losses, etc. made me realize, "Shoot, I'm not necessarily immune to a black swan event of my own in my industry" and realized that the level of bonds I happened to have at the time equaled roughly, coincidentally, what would be a 2+ year floor. When I rebalanced, I went less than 2 years and I was not comfortable with it.
Moving forward, I have to determine if I want to stay at 75/25 or simply stay at a 2-2.5 year bond floor with the rest in equities. I am strongly leaning toward 75/25 (but never lower than 2 years in bonds!), the logic being:
1. As I get older, I'm more likely to lose my job, take longer to find a replacement, or run into health issues.
2. I will have more money in my portfolio, which means more money at risk of loss.
3. I will have less time to recoup portfolio losses. The "long term" continually becomes shorter and shorter.
4. Staying with simply a "bond floor" of 2 years means no plan to ever introduce any additional bonds into the portfolio. I don't want to be 2 years from retirement, have 23 years of expenses in equities and 2 in bonds for what feels like a solid 25 years of expenses, and then suddenly the market crashes 60% and then I'm down to 11.2 years and am now far, far away from retirement.
5. It builds a habit of continually holding a steady AA, maintaining a level of overall portfolio risk, and always adds more and more bonds, meaning that theoretically I'm always becoming just a little bit more secure from a black swan event every pay period. Maybe this one is largely mental, but it helps.