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Is Your Asset Allocation Still Appropriate?

Bozo
  |     |   1,375 posts since 2011

With the equity market run this year (+20% for most), folks might be wondering if they are a bit too topsy (if not tipsy) in equities. Background: I've been shedding equities in favor of fixed income for some months, so I'm selection-biased.

Concept: Folks generally like to have an asset allocation which helps them sleep well at night. That might be, for example, "age-in-fixed-income". Problem being, when equities go on a tear, as they did this year, one's asset allocation can get thrown out of whack. That "age-in-fixed-income" which was fine at the start of the year might now be inappropriate. For example, a 70-year old with an AA of 30% stocks/70% fixed-income at the start of the year, might now find his or her AA at 35% stocks/65% fixed-income, depending on equity investments.

Suggestion: As we near the end of the year, do a thorough review of your "entire" portfolio. Stocks, bonds, bond funds, CD ladders, savings accounts, you name it. If your stock gains have pushed you into an uncomfortable AA, wait until after dividends are declared, then take a deep breath. Don't be afraid to sell stock positions to get back to your desired AA. As an old stock-trader told me years ago, there are two adages: (1) few complain about taking profits too soon, and (2) never let green fade to red.

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Kaight
  |     |   1,192 posts since 2011
Bozo, I propose the following gentleman's bet:

I bet you the DJIA will reach 26000 before it reaches 24000. How about it, old top? Will you take that bet?

Before you decide, be aware the only concession I ask is as follows:

If for any reason Congress does not pass tax reform this week, our bet is off. As I write this it appears tax reform will become law. But one never knows. Should anything go wrong I would want the other side of the bet, the side I'm presently offering you. In fact should anything go wrong I think it'll be "look out below" for the stock market, with 24000 not being close to the bottom and 26000 being just a far off dream.
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Bozo
  |     |   1,375 posts since 2011
Kaight, re your bet, simple chronology favors your side. Stated another way, I'll pass.
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Bozo
  |     |   1,375 posts since 2011
Kaight, I remembered your post, and I assume you recall my reply. Yes, indeed, the Dow hit 26000 (intra-day), only to flop back quite quickly.
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newbie1
  |     |   24 posts since 2010
Thanks for the reminder. The disciplined Investor rebalances his/her portfolio. Some might be waiting for the Q4 dividends to post.
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Bozo
  |     |   1,375 posts since 2011
Newbie1, as I did, I whacked off another $10,000 (from VTSAX into VBIAX) after dividends hit. I had been steadily rotating from VBIAX (as a youth) into VTSAX. Now, as an older and grayer investor, I'm rotating back.
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Bozo
  |     |   1,375 posts since 2011
Further to my post from December 25, I will no doubt be harvesting more equity gains in 2018, should the market continue higher. Even with selling equities this past year, I barely moved the needle in my AA. One DA poster had a good suggestion a few days back. I should re-explore VMMXX. The yield is actually competitive with garden-variety savings accounts these days (1.36%).
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Bozo
  |     |   1,375 posts since 2011
A bit of trivia. Back in the mid-2000s (2004, as I recall), Alan Greenspan began to ratchet up the Fed Funds Rate. VMMXX basically tracked the FFR, and one could see the yield go up weekly (if not daily). It was great spectator sport. As I recall, in August of 2006, both the FFR and VMMXX hit a brick wall. It was at that time I took my VMMXX and started an IRA CD ladder. I'm sure Ken Tumin doesn't remember me from way back then, but I used his blog to shop for rates for my ladder.
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newbie1
  |     |   24 posts since 2010
The Balanced is one of my key holdings. It has performed better than the Couch Potato portfolio I built. I am not as disciplined as I need to be to optimize the CP portfolio. VBIAX is comparatively set and forget, and has the bonus of a lower monetary barrier of entry into Admiral status. You are not a Wellington or Wellesley person then?
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Bozo
  |     |   1,375 posts since 2011
newbie1, I looked at Wellington and Wellesley funds, and none really piqued my interest. For major re-balancing, I whack off VTSAX and buy VBTLX. For minor tweaking, I sell VTSAX and buy VBIAX. In 2017, I did both. My VG account is top-heavy in equities. I'm trying to change that.
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Bozo
  |     |   1,375 posts since 2011
While I seem to be repeating myself, the S+P notched another new high today, as did the NASDAQ, and I wonder if the market is now well over its ski-tips. I whacked off another $10,000 a few days ago (from VTSAX into VTIAX). While bond funds are faring poorly these days, it's all about duration. Intermediate-term bond funds will recover. They always do. It's just math.
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Bozo
  |     |   1,375 posts since 2011
I began the New Year with another transfer from VTSAX to VBIAX in the amount of $10,000. The transfer should be accomplished today. Doesn't move the needle much, but it does move it in the right direction.
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Bozo
  |     |   1,375 posts since 2011
Might I say, my efforts at re-balancing have been met with a huge yawn from Mr. Market. It's now, what, January 12, 2018, and every time I whack off some equities, the market shrugs and goes even higher. Vanguard's website is kinda funny. It gives you current totals compared to the end of last year.
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Bozo
  |     |   1,375 posts since 2011
Today's market reversal was the first serious test of whether my contrarian strategy of harvesting gains over the past few months made sense. While one day does not a correction make, so far so good. While my VG portfolio was down, it was down far less than had it been allocated as back in mid-2017. VTSAX was down; VBIAX was down less; VBTLX was up, as was VTIAX.
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Bozo
  |     |   1,375 posts since 2011
Throwing in the proverbial towel, I whacked off another $10,000 from VTSAX and plopped it into VBIAX. Mind you, the change from 100% total stock to 60/40 is not a huge move. As with prior moves, it barely moves the needle in my VG asset allocation.
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Bozo
  |     |   1,375 posts since 2011
Well, friends and neighbors, I finally harvested 90% of my gains from January and moved them to VMMXX. This market was just too weird. Good grief, VTIAX (the international stock index) was up over 7.5% in January. Mind you, that would be an acceptable annual increase over a year. Slowly, but surely, I am selling equities and positioning myself to purchase more IRA CDs.
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