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  • Avatar Tim 
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    @tangler,

    now age 45: 90:10
    age 48: 80:20
    age 50: 75:25
    age 55: 70:30

    Great start.
    1)The discussion about volatile markets is folly.
    Fast or gradual makes zero difference. Rebalancing guidelines handle that. How much straying from target or do you use a fixed time method?
    2) Are you holding 70:30 for age 55+? You only did half the job. At least plan to 90. You can alway change it later.
    By the way, at 45 your half way there. Life doesn’t end at 55.
    Finish it!
    That’s the problem folks. Life looks different at 55-60. That’s why you’re saving.

    #205468 Reply
    Liked by Tangler
    Lordosis Lordosis 
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    Status: Physician
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    I like the idea of having dry powder but how do you know when to deploy it. Ok the market dropped 20% but what if it goes down another 20%. Or what if it rebounds quickly like it just did. When I do add in bonds I plan to rebalance once a year on a specific date not based on market events.
    It just seems like time out of the market to me.
    I agree with the mumbo jumbo. But since I am young I would love if they are right about poor future returns in the upcoming decade.

    “Never let your sense of morals prevent you from doing what is right.”

    #205475 Reply
    Liked by Hank, Zaphod
    Zaphod Zaphod 
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    I like the idea of having dry powder but how do you know when to deploy it. Ok the market dropped 20% but what if it goes down another 20%. Or what if it rebounds quickly like it just did. When I do add in bonds I plan to rebalance once a year on a specific date not based on market events.
    It just seems like time out of the market to me.
    I agree with the mumbo jumbo. But since I am young I would love if they are right about poor future returns in the upcoming decade.

    Click to expand…

    This is the issue. There is never a sign, bell or other obvious thing that tells you when the time is. I dont feel like bonds are much for dry powder in these scenarios. Either way its violating some part of the point of the bonds. You cant simultaneously use them for volatility smoothing AND dry powder. At some point unless you know the best time to buy, you’re out of bonds and 100% equities. Then you neither have dry powder nor volatility smoothing. Bonds do not have to move in a negatively correlated fashion either, they can both lose value at once (like 2018q1).

    What if you deploy all your bonds at only halfway down? Enjoy. In reality if you are a true buy/hold index person, aside from new contributions there is really no way to have dry powder without disrupting your asset allocation. Forgive me if im wrong but the point of the asset allocation is to smooth volatility so you dont make terrible decisions not to have some cash on hand during a dip.

    #205502 Reply
    Avatar Tim 
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    @zaphod,
    “You cant simultaneously use them for volatility smoothing AND dry powder. “
    You may be correct. Well , there scenarios when you are correct.
    1) New funds brought in that exceeds losses.
    2) Stocks and bonds decrease in the same amount
    3) No such thing as permanent loss.
    4) AA (stocks/bonds) is ignored.
    I mean all three in a philosophical way.

    Volatility smoothing assumes stocks lose and gain more than bonds. Rebalancing is by definition designed reallocate assets by creating it using dry powder.
    Stocks do poorly, sell bonds and but stock.
    Stocks go fantastic, sell stock and but more bonds.
    The point you are missing or rather deciding is not appropriate for you is that that you don’t need a stock and bond split for maintaining dry powder. I hope sincerely that never incur permanent losses never lose the ability to continue to invest new funds.

    Mechanically, even 90/10 forces you to adjust. That In itself is a good thing. My fear on ignoring AA is those that have only experienced one significant downturn, and that was insignificant because they had limited assets 10 years ago. The “dry powder” generated by keeping 10 to 20% bonds is great insurance at a very small decrease in average returns. If you have bonds, you will always stay in the game. The extra point or 2 claims many casualties. In good times, it’s counter intuitive, selling stock to buy bonds. Yep, saving up dry powder. Same as saving for retirement, some day you will be glad you did. Think about 10-20%. You don’t gain much ignoring AA.

    #205542 Reply
    Liked by Tangler
    Avatar Perry Ict 
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    Status: Physician
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    Joined: 01/20/2019

    I like the idea of having dry powder but how do you know when to deploy it. Ok the market dropped 20% but what if it goes down another 20%. Or what if it rebounds quickly like it just did.

    Click to expand…

    What you’re basically asking his how to time the market (where is the exact bottom?), which is tough to do.  Instead of trying to figure out where the bottom is (probably unknowable, at least for someone like me), one possibility is to plan ahead with a ladder, where you plan to put a lump sum on each step down and buy into weakness – for example, if it drops 20%, put x amount, next 20%, put more.  This is basically what I plan on doing if US equities go on sale at some point.

    Regarding asset allocation, currency is an asset, and in my (unprofessional) opinion there’s nothing wrong with having dollars as some percentage of your portfolio to give you options if things go on sale, among other good reasons for having cash available.

    #205569 Reply
    Lordosis Lordosis 
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    I meant it more rhetorically because I do not actually plan to do that. I have convinced myself timing the market is not something I am capable of.

    “Never let your sense of morals prevent you from doing what is right.”

    #205576 Reply
    Liked by Zaphod
    Avatar Tangler 
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    Joined: 08/23/2018

    I like the idea of having dry powder but how do you know when to deploy it. Ok the market dropped 20% but what if it goes down another 20%. Or what if it rebounds quickly like it just did.

    Click to expand…

    What you’re basically asking his how to time the market (where is the exact bottom?), which is tough to do.  Instead of trying to figure out where the bottom is (probably unknowable, at least for someone like me), one possibility is to plan ahead with a ladder, where you plan to put a lump sum on each step down and buy into weakness – for example, if it drops 20%, put x amount, next 20%, put more.  This is basically what I plan on doing if US equities go on sale at some point.

    Click to expand…

    Yes. some sort of trigger to deploy the dry powder and 20% is actually my trigger. (from JL Collins book)

    I guess what I failed to say is that my my investment policy statement says:

    AA will be kept constant mostly buy buying new funds in taxable and selling/trading in IRAs

    age 45: 90:10
    age 48: 80:20
    age 50: 75:25
    age 55: 70:30, I “think” I will be cool with 70:30 until dead, but at age 55 I will revisit as a lot changes in 10 years.

    Other policy plans of mice and men:

    1. keep AA constant by rebalancing once per year on wife’s birthday (end of June)

    2. ignore market unless it drops >20%. If it drops 20% reballance to keep AA at goal. If it drops another 20% then do it again. etc. Otherwise ignore.

    Will this be perfect? Nope. Will anything? Nope. Is this market timing? matter of perspective.

    Could this decrease returns, sure, but it might improve them and it will give me something to keep me from loosing my stuff when the poo hits the blades.

    Other policy details: home paid off by age 55 so that expenses = minimal and work = optional! If the market tanks, might need to revisit when work becomes “optional”

    I still have a lot to learn but this seems like a good start.

    #205583 Reply
    Liked by Tim
    Avatar Tangler 
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    Status: Physician
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    Joined: 08/23/2018

    @tangler,

    now age 45: 90:10
    age 48: 80:20
    age 50: 75:25
    age 55: 70:30

    Great start.
    1)The discussion about volatile markets is folly.
    Fast or gradual makes zero difference. Rebalancing guidelines handle that. How much straying from target or do you use a fixed time method?
    2) Are you holding 70:30 for age 55+? You only did half the job. At least plan to 90. You can alway change it later.
    By the way, at 45 your half way there. Life doesn’t end at 55.
    Finish it!
    That’s the problem folks. Life looks different at 55-60. That’s why you’re saving.

    Click to expand…

    Yes. Great points. see above and thanks

    #205585 Reply
    Liked by Tim
    Zaphod Zaphod 
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    Joined: 01/12/2016

    Really just saying this thread feels like lots of market timing packages behind good sounding ideas like asset allocation. Can be dangerous and lead to bad decisions unless it’s part of your strategy before.

    #205592 Reply
    Avatar Tim 
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    Status: Accountant
    Posts: 3341
    Joined: 09/18/2018

    @zaphod,
    “Can be dangerous and lead to bad decisions unless it’s part of your strategy before.”

    100% agree. WCI additional made reference one time to only make any changes after 30 days of a holding period.
    Additionally, I ONLY consider AA changes in good times for reasons of better diversification and less risk. I don’t carry any real estate in the portfolio (house kind of counts in total, but not my retirement fund) Thought about it for 5 or 10 years. If I downsize, I want some.

    IF you choose some debt, it’s purpose is ballast. Take on more or less as needed. Smoother sailing and keeps you on course. I loved OP’s choice of a birthday. 20% or 2 times a year. A plan not a reaction. Most times, doing nothing beats emotion. Doing nothing provides that. 100 % stocks means you are doing nothing, but also no dry powder. Follow your plan. Sit on it for a year. You got time.

    #205606 Reply
    Avatar Tangler 
    Participant
    Status: Physician
    Posts: 384
    Joined: 08/23/2018

    Great info! what do you think of plan like this:
    1. rebalance 1x per year on wife’s B-day
    2. rebalance triggered if:
    -increases or dec >20% before wife B-day
    ->20% change lasts longer than x-days

    #205607 Reply
    Avatar Dont_know_mind 
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    Status: Physician
    Posts: 989
    Joined: 11/21/2017

    I have calculated it.
    Risk portfolio has outperformed in the last 20, 10 and 5 years.
    Just whether you can hold and whether this will be the case in the future.
    All relative to the individual. For some 60:40
    Others 100:0
    Others 130:-30 (30% leverage).

    Even if you get market timing right, dry powder will often underperform. Say you have 20% cash or bonds over the cycle and deploy it during periods with greater than 20% declines. If you backtest, this is a losing strategy most of the time VS allocating to risk.

    Only situation where I see it clearly winning is if you allocate to high beta after a 20% decline, but you are there also taking on more risk. This would be like deploying cash to buy banks or home builders in 2009 or resources in 2016. Really browning your pants situations and liquidated stuff. Not many people can do that as it is hard to wait for it, have the cash when needed and buy stuff that looks like it is going to 0.

    #205613 Reply
    Liked by Lordosis
    Avatar Dont_know_mind 
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    Status: Physician
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    Joined: 11/21/2017

    If you want deep value, contrarian plays, you don’t have to wait until a bear market. There is usually some sectors that have these qualities – like uranium stocks, shipping stocks or Europe currently tick some of those boxes.

    What you get in a bear market is wholesale liquidation. You can probably have the cash/bond allocation outperform over the cycle by taking advantage of this, but I would argue, not by buying index funds. To take advantage of wholesale liquidation, you do start to get into some serious risk taking/gambling and are moving away from the clean path into some very windy, perilous ones.

    #205620 Reply
    Liked by Perry Ict
    Avatar Tim 
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    Status: Accountant
    Posts: 3341
    Joined: 09/18/2018

    “Great info! what do you think of plan like this:”
    The only opinion that matters is yours.
    A sound plan and stick with it. Behavioral finance is an individual thing. The hard part is knowing if it really needs to be changed. Your risk profile changes.

    #205646 Reply
    Liked by Tangler
    Avatar Perry Ict 
    Participant
    Status: Physician
    Posts: 61
    Joined: 01/20/2019

    If you want deep value, contrarian plays, you don’t have to wait until a bear market. There is usually some sectors that have these qualities – like uranium stocks, shipping stocks or Europe currently tick some of those boxes.

    What you get in a bear market is wholesale liquidation. You can probably have the cash/bond allocation outperform over the cycle by taking advantage of this, but I would argue, not by buying index funds. To take advantage of wholesale liquidation, you do start to get into some serious risk taking/gambling and are moving away from the clean path into some very windy, perilous ones.

    Click to expand…

    Good point. This is a strategy I’ve started dabbling with (with variable success), using etfs that are essentially in their bear markets.  Like you mentioned, you need a strong stomach for it, as there’s a good chance you watch your investments trade sideways for awhile, or go down even further until they find the bottom.  It does feel high risk, but it’s probably not much different than the feeling of investing in the S&P 500 in 2009.

    #205877 Reply

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