Market Philosophy

[DomB]

@Benny Profane moved this over here.

I get this in principle but haven't found an easy way to do this.

This is what I am seeing with my intermediate bond fund. Yes prices are down, almost as much as stocks, over the last 12 months. But the dividends are up (a lot) and as they get re-invested they are buying comparatively more shares.

So like any investment, as long as I don't HAVE to sell NOW, how bad is it, really?

And this is like the worst year ever for bonds right?

1. If you don't have to sell now, it matters nothing in my opinion. It is a paper loss, and as you noted in an intermediate bond fund at some point it will cycle through. By the time it would have cycled through, rates will come down again (I think those funds have around 8 year average bond life)

2. I don't know. But it is the first time this movement has happened (stock down 19% bonds down 15%) since around 1980.

Harv, as we have similar investment philosophies, I had similar returns as you. As I do every year, I took 15 minutes to rebalance my portfolio based off a spreadsheet that shows my intended asset allocation. I did not have to sell to reallocate; I typically can do it through buys. If we had a huge year where stocks were up 30 and bonds down 30, I would be in a different boat.

To me, so long as you don't have to sell, you stay within some kind of range of your asset allocation, then who cares? It is a little different if you have to draw down, but not really: if you planned, most of these types of years are cycled into the rules of thumb, etc. Good luck all.

 

[Harvey]

I think we do have similar investment philosophies, except for a few things. I have never had the courage to rebalance. The only thing I do is change future contributions to make up for shortfalls.

The other difference is I am older. And I believe Benny is older than I am. He's assuming in retirement, you have to be able to sell. If you've got a big position in cash, you can avoid that, holding out for a better time to sell.

I love the simplicity of having it all with Vanguard, and I can't figure out how to set up a bond ladder in my VG account. I'm sure it can be done.

Since I gave up on the bond ladder I decided to add a position in short term bonds, so if I had to sell some bonds I could sell those, which should theoretically be less volatile. Not a great time to do that because they are relatively expensive compared to stocks or medium term bonds. Back to my irrational fear of rebalancing, I am doing that incrementally (a few dollars a month) which actually should minimize the impact of the fact that I am doing it at the "wrong time."

I am coming to realize that saving is actually quite simple, if you are disciplined. How to withdraw your funds when retired is much more nuanced. I probably need help with that, but MAN people who do that want a lot of money for advice.

 

[DomB]

I think we do have similar investment philosophies, except for a few things. I have never had the courage to rebalance. The only thing I do is change future contributions to make up for shortfalls.

The other difference is I am older. And I believe Benny is older than I am. He's assuming in retirement, you have to be able to sell. If you've got a big position in cash, you can avoid that, holding out for a better time to sell.

I love the simplicity of having it all with Vanguard, and I can't figure out how to set up a bond ladder in my VG account. I'm sure it can be done.

Since I gave up on the bond ladder I decided to add a position in short term bonds, so if I had to sell some bonds I could sell those, which should theoretically be less volatile. Not a great time to do that because they are relatively expensive compared to stocks or medium term bonds. Back to my irrational fear of rebalancing, I am doing that incrementally (a few dollars a month) which actually should minimize the impact of the fact that I am doing it at the "wrong time."

I am coming to realize that saving is actually quite simple, if you are disciplined. How to withdraw your funds when retired is much more nuanced. I probably need help with that, but MAN people who do that want a lot of money for advice.

Yes - you are 100 % right. Withdrawals are harder to figure out, but once you figure out it can become like the 15 minute excercise of rebalancing. Don't worry I don't think you are missing out too much on rebalancing. I am not a huge believer in it but people tell me it helps on the margins.

Two hopefully helpful suggestions -

1) google gocurry cracker & withdrawal strategy - the early retirement community has to focus on wd strategy alot so I think he has some good posts. The main point is to keep your taxable ordinary income below about 80,000 in which case you pay 0 on long term cap gains (stock sales). You will see posts working out how to think about w/d from after tax accounts, IRAs, and 401ks. If I remember correctly I think you are just about at the age where you can w/d from 401ks. 401ks are ordinary income when withdrawn. See https://www.gocurrycracker.com/never-pay-taxes-again/ (note: I believe we should all pay our fair share of taxes. I happen to pay a lot which I am ok with. That said, I hope not to pay much when I get to the point in the road when I retire. It is possible).

2) Next time you call VGD, ask to speak with an advisor. They will have a conversation for free and give you some helpful thoughts. I freely admit they have gotten more 'salesy' lately (they bugged me to speak to an advisor which I politely declined when I called to do a back door Roth conversion at year end), that also means they will have a convo with a long time customer like you. Tell them you are starting to think about withdrawal strategy and would like to chat with someone on an introductory basis.

3). If you conclude it is helpful to speak with someone on a paid basis, my opinion is the only way to do it is 1) a flat fee or hourly basis NOT tied to your assets under management. That way you can control how much you pay, and it is tied to something like the value you get. 2) Only get advice to someone who agrees to have a 'fiduciary duty' to you. Some advisors will agree to this. If they don't, you don't want to speak with them about these types of issues. (TJ I am not talking about Brokerage situations don't get mad at me). Fiduciary means basically they have to put your interests ahead of theirs. See Salmon v. Meinhard (Fiduciary duty requires 'the punctillio of honor', not the ethics of the workaday world - love that Cardozo quote).

 

[DomB]

Woops 3. Having my morning coffee.

 

[tirolski]

Woops 3. Having my morning coffee.

It’s only numbers

 

[Harvey]

Woops 3. Having my morning coffee.

I don't get what happened here?

Dom if I may ask... how old are you?

 

[DomB]

I don't get what happened here?

Dom if I may ask... how old are you?

Hey. The whoops was I said I had two pieces of three but if you look I gave three. (Take that Tirol - the number was not relevant to my advice but of course indicates sloppiness which should make you question my advice : ) ).

All good. Age - I am 42, turning 43 this month. All good. At some point I have to stop sharing info on myself as I don't like to identify myself on a public forum. Happy to send whatever by PM.

 

[tirolski]

Hey. The whoops was I said I had two pieces of three but if you look I gave three. (Take that Tirol - the number was not relevant to my advice but of course indicates sloppiness which should make you question my advice : ) ).

The edit function to posts on here works for a few hours.

 

[DomB]

This was interesting about rebalancing. I rebalance annually at year end, but only require it when I hit these 10% levels. In fact I have actually rebalanced to within 1% almost every year since I started rebalancing 5 or 6 years ago.

Summary: You don't really need to worry about rebalancing. Looking at you Harv.

The Case Against Frequent Rebalancing of Portfolios

Investors are constantly told to rebalance on a regular schedule. But the numbers tell a different story.

www.wsj.com

 

[Harvey]

Haha I'll take anything that justifies my crazy ways.

Beyond adjusting contributions going forward, I've only ever done it once it.

Seriously though thanks.