<p>DrGoogle, :)</p>
<p>OK, so today I looked at how out 401k has been doing in our investments at Principal. Last month, all 4 funds were negative, but prior qtr all were good 2.3 to 6.5%, and longer terms all were good. Until our next big âmarket adjustmentâ, I will keep some holdings in bonds (currently 32%, more than âsomeâ but hedging my bets). Loss was the least last month, however upward gains wonât be as much as the other funds either. My other holdings are large cap stock - blend 37%, mid cap stock - value 19%, and international stock - blend 12%.</p>
<p>I did a investor style q & a and they came up with a goalMaker portfolio (stating various asset classifications and percentage of investment). Interesting. I came up as a moderate investor - in the middle of the spectrum.</p>
<p>Without being an investor, there is free info on web site prudential.com or retirement.prudential.com</p>
<p>A one page explanation of âThe four pillars framework on retirementâ</p>
<p>There are a couple of things on social security education - updated 2012 editionâŠsome details to consider.</p>
<p>I used a retirement calculator without including SS, and it calculated where we should be on monthly income based on retirement age and assets, growth rates, etc. Looks like we should be fine. It doesnât keep me up at night being concerned with enough funds being there. </p>
<p>For information about AA, rather than either book by Graham, Iâd recommend Richad Ferriâs All About Asset Allocation or William Bernsteinâs The Intelligent Asset Allocator. </p>
<p>@dstark, you asked when to rebalance. There are different ways people rebalance:
- Every time period (e.g., once every quarter, once every year, etc.)
- Picking a Vanguard LifeStrategy fund or some other companyâs equivalent which rebalances daily <a href=âVanguard LifeStrategy Funds | Vanguardâ>Vanguard LifeStrategy Funds | Vanguard. They have funds ranging from 20/80 to 80/20.
- In rebalancing bands (e.g., when the percentages are 3% out f whack, 5%, etc.)
- My favorite, especially in taxable accounts, allocate ânewâ money to whichever sector is down (shopping for whatâs on sale)
- A poster on Bogleheads uses RBDs (Really Bad Days) to buy into whatever went down</p>
<p>There are debates on Bogleheads about rebalancing all the time and after a while it gets a bit silly. Bogle himself doesnât rebalance. More important than rebalancing is picking an asset allocation with care, and most importantly, staying the course. If you change your âstrategyâ every time the market swoops up, or down, you will inevitably worsen your results because of buying high and selling low. Rebalancing promotes buying low and selling high. </p>
<p>IxnayBob, thanks for your link and your post. </p>
<p>lxnayBob, nice summary! What does Bogle do if not rebalancing? Just accumulate? </p>
<p>From what little I understand, the advantage of maintaining asset allocation is not because 80/20 will be a better investment than 100% in equity but it keeps one from taking stupid actions when the market gets volatile assuming stocks and bonds move in opposite directions. Itâs hard right now since bonds and stocks move together. If one has a steel nerve, I guess one could go with 100% in equity. </p>
<p>@iglooo, Bogle hasnât told me, but my guess is that he puts new money into assets that are on sale. He is also at a place (I think mid 8 figures, age 84) where it only matters to his heirs. </p>
<p>At different ages and net worth, high equity allocations can make sense. I, for example, have managed to live below my means and want a portfolio where my kids wonât need to support me unless weâre all living in caves, so Iâm on a glide path to 50/50 AA. My kids UTMA accounts are at 80/20. </p>
<p>Our financial advisor did a similar type of investor style q & a with us. He also is looking at the investment mixes of his clients and looking back to also provide him information on what is really working better than other mixes.</p>
<p>The Principal investor style summary split me out into 7 categories, ranging from Fixed income, stable value to sm/mid cap stock value, and sm/mid cap stock growth. I think the stat history of the fund is very telling - so by looking at the investment choices has me looking at both guiding my decisions. I am in 4 funds and see correlation with the percentages on the investor style results.</p>
<p>Does anyone get enough new money to enable you to rebalance from investment unless you have a huge salary? </p>
<p>@iglooo, ^^ in most years, yes. In a year when equities are up 30%, no. </p>
<p>@iglooo, to elaborate, I am reluctant to have capital gains tax consequences caused by rebalancing, so I use new money in our taxable accounts. In tax-advantaged accounts, I donât care, so if necessary I can do true rebalancing in those accounts to offset what I didnât do in the taxable. </p>
<p>I am new to rebalancing. After last year, we needed to rebalance. This time, I did it in the tax-deferred account. Soon, I think I will run out of room. The stock portion was 5% over. I donât see where I can find new money to compensate 5% if it happens again. Dividens/interest provide only about 2% or less.</p>
<p>@iglooo, good problem to have :-). </p>
<p>Not complaining, just trying to find a systematc way to rebalance. For retirees, it is often the case. Diviends/interes produce about 2%/year. If equity goes up 7% bonds stay the same, AA 60/40 portfolio will be out of balance 4%. Not enough new money to rebalance.</p>
<p>Charlie Ellis had an essay in his âClassicsâ anthology that discussed the Yale plan, which the university instituted after the pre-depression crash. The essay explained that the rebalancing cost Yale dearly over the next several decades. IIRC, it likened the concept to âcut your profits and let your losses runâ. </p>
<p>@iglooo, for retirees, assuming that theyâre drawing down assets to fund their life, they can choose to take funds from equities in that case. If they donât need to draw down assets (e.g., SS and pensions are sufficient), I personally would let the AA drift a bit â corrections happen and then everythingâs right again. </p>
<p>I was trying to do the rebalance strategy of 80/20. Though my 20 isnât actually bonds, itâs a combination of money market/high quality bonds that donât go negative, but only pay a couple percent a year. I basically consider it cash. The bond option choices we have are otherwise unattractive, so weâre sticking with this.</p>
<p>But as time went on, and my ratio went to 85/15, we just changed the strategy to just stay at a greater percentage in equities. Iâm guessing eventually weâll be 100/0, which is probably a stupid strategy, but weâve realized that we hate missing the market going up, more than we dislike having too much in when the market goes down. Weâre not planning on withdrawing the money until we have to, in 19 years, anyways.</p>
<p>Iâve never rebalanced as a strategy. I did go to bonds in a few accounts in early 2008 and switched to stocks mid 2009. I havenât owned bonds since as I listen to too many say that rates are going up.</p>
<p>Yes, for rebalancing, it is recommended to NOT automatically have your dividends reinvested by consider having them paid to you so you can choose to allocate them at whatever portion of your portfolio is lagging behind your better performers. That provides some new money. You can also rebalance by shifting funds around in tax-deferred accounts without having to pay capitol gains.</p>
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When I was growing up no one had either cleaning or lawn services now almost everyone seems to have either one or the other.</p>
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<p>I think this is because now we have more two-earner families and many folks donât want to spend their free weekend time doing these chores anymore. </p>
<p>mom2- I agree with you.</p>