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Out of balance

Posted: Mon Dec 18, 2017 11:18 am
by Jack Jones
I'm currently at:

Stocks: 26.73%
Bonds: 15.81%
Cash: 42.45%
Gold: 15%

Stocks and most of the cash is held in my 401k and bonds and gold are held in IRAs. Moving forward I won't be contributing as much to my 401k as I have in the past, so I think I won't have my hands tied as much in the future. Also I should be looking for new employment opportunities soon, so there might be more asset flexibility on the horizon.

Looks like I can shift some cash into stocks to get both below 35%, but it feels like a bad time to do so. On the other hand, I'm 32 and feel uncomfortable having so much money parked in cash.

What would you folks do in this situation?

Re: Out of balance

Posted: Mon Dec 18, 2017 1:13 pm
by farjean2
This is like when my kids ask me for advice about a situation they have gotten themselves into and I can tell them how they got themselves into it but not necessarily how to get out.

If you really think you'll be leaving the company soon maybe you don't want to do anything right now. Assuming you will be rolling your 401k over into your IRA you'll be liquidating it any way and then you can distribute the cash to re-balance. If you find you are going to be with the company longer than anticipated and there is a market correction I would definitely shift some of that cash into stocks. And if you decide you're going to be staying with the company for the long term I would definitely stop directing any more 401k contributions to cash. DCA'ing into stock and bond funds, or maybe a target date fund until the rest of it catches up with the cash would make a lot more sense to me.

Just my opinion and probably worth what you paid for it.

Re: Out of balance

Posted: Mon Dec 18, 2017 3:05 pm
by Cortopassi
How many years have I though the stock market has been overvalued? At least 5-6.

And how many of those years would I have been wrong? All of them.

The market may correct tomorrow, or 5 years from now. If tomorrow, you'll feel great about not having rebalanced. If 5 years from now, it will eat at you more and more the longer you stay out, esp. if it continues upwards and gets harder and harder to pull the trigger on it.

I understand your hesitation for sure. For me, personally, my past hunches about how to invest and when to stay in vs. when to get out, have almost always been incorrect, and the mindless, unemotional sticking to percentages in the PP is what has saved me.

Re: Out of balance

Posted: Mon Dec 18, 2017 11:15 pm
by eufo
That's quite a pickle. It's one I considered awhile ago when I was contemplating how to divvy my holdings between my taxable account and non-taxable. In my case, I decided to hold my allocations the exact same in each account. The main reason... I can only dump so much into my non-taxable per year and I didn't want it to be holding the losers and throw me way out of whack. Even so, with my taxable I could be buying up the laggards and make things all even again, but 401ks are just so limited.

I think MangoMan is on the right path of trying to bring at least your bonds back in line a bit. You could also go purchase some physical gold to hold onto. This is the perfect excuse to do it!

Re: Out of balance

Posted: Tue Dec 19, 2017 9:39 am
by Jack Jones
MangoMan wrote:Why can't you just use some of the cash to buy bonds inside the 401k? That won't help with the gold, but it's better than where you're at now if you're trying to follow the rules of PP.
The best I could do there is an aggregate bond fund. Good expense ratio (0.02%), but only 5.95 years duration.

The cash is currently parked in a stable value fund (0.3249% ER).

Yeah, moving some of the cash to the bond fund would definitely make things look more balanced on paper, but I don't know if I want to own any corporate bonds. Then again, I don't know how I feel about this stable value fund either. It seems pretty complicated involving insurance companies, etc.
Rule #9: Don't ever do anything you don't understand.
Cortopassi, I liked your advice, thank you. I didn't consider how my decision might eat away at me over time.

Farjean2, I'm also tempted to do nothing considering possible employment changes on the horizon.

Eufo also votes for the bond fund. Thanks

Re: Out of balance

Posted: Wed Dec 20, 2017 2:05 pm
by dualstow
I'd have no problem buying a bit more stocks, Jack. Stocks could do well for the next five years (I've been listening to Robert Shiller).
It's not like you're betting the farm on stocks.

Still, if your stocks are at 26% and gold is at 15%, shouldn't you be buying gold?
If it's 401k constraints that are the problem, well, I contribute less to my solo 401k, too. I max out my Roth, I've given up on gold ETFs, and I just buy my gold in physical.

Re: Out of balance

Posted: Thu Dec 21, 2017 10:56 am
by Libertarian666
dualstow wrote:I'd have no problem buying a bit more stocks, Jack. Stocks could do well for the next five years (I've been listening to Robert Shiller).
It's not like you're betting the farm on stocks.

Still, if your stocks are at 26% and gold is at 15%, shouldn't you be buying gold?
If it's 401k constraints that are the problem, well, I contribute less to my solo 401k, too. I max out my Roth, I've given up on gold ETFs, and I just buy my gold in physical.
Do you have any cash you could use to buy gold outside retirement accounts? Holding gold in a retirement account is not ideal anyway because that converts capital gains into ordinary income when you take it out.

Re: Out of balance

Posted: Thu Dec 21, 2017 11:26 am
by Jack Jones
Not much spare cash at the moment. We just bought our first house. I plan to buy physical gold moving forward though. Pared the 401k contributions back to the company match.

Re: Out of balance

Posted: Fri Dec 22, 2017 12:08 pm
by Mr Vacuum
Libertarian666 wrote:
dualstow wrote:I'd have no problem buying a bit more stocks, Jack. Stocks could do well for the next five years (I've been listening to Robert Shiller).
It's not like you're betting the farm on stocks.

Still, if your stocks are at 26% and gold is at 15%, shouldn't you be buying gold?
If it's 401k constraints that are the problem, well, I contribute less to my solo 401k, too. I max out my Roth, I've given up on gold ETFs, and I just buy my gold in physical.
Do you have any cash you could use to buy gold outside retirement accounts? Holding gold in a retirement account is not ideal anyway because that converts capital gains into ordinary income when you take it out.
Wouldn’t that be effectively taxed as ordinary income either way due to the collectibles rule? (Ordinary income rate, max 28%)

Re: Out of balance

Posted: Fri Dec 22, 2017 12:41 pm
by Libertarian666
Mr Vacuum wrote:
Libertarian666 wrote:
dualstow wrote:I'd have no problem buying a bit more stocks, Jack. Stocks could do well for the next five years (I've been listening to Robert Shiller).
It's not like you're betting the farm on stocks.

Still, if your stocks are at 26% and gold is at 15%, shouldn't you be buying gold?
If it's 401k constraints that are the problem, well, I contribute less to my solo 401k, too. I max out my Roth, I've given up on gold ETFs, and I just buy my gold in physical.
Do you have any cash you could use to buy gold outside retirement accounts? Holding gold in a retirement account is not ideal anyway because that converts capital gains into ordinary income when you take it out.
Wouldn’t that be effectively taxed as ordinary income either way due to the collectibles rule? (Ordinary income rate, max 28%)
Yes, with the exceptions that gains can be offset with losses and of course you don't have to worry about rmds but can take gains when you want to (or never if you are leaving a legacy).

Re: Out of balance

Posted: Fri Dec 22, 2017 12:54 pm
by Mr Vacuum
Libertarian666 wrote:
Mr Vacuum wrote:
Libertarian666 wrote:
Do you have any cash you could use to buy gold outside retirement accounts? Holding gold in a retirement account is not ideal anyway because that converts capital gains into ordinary income when you take it out.
Wouldn’t that be effectively taxed as ordinary income either way due to the collectibles rule? (Ordinary income rate, max 28%)
Yes, with the exceptions that gains can be offset with losses and of course you don't have to worry about rmds but can take gains when you want to (or never if you are leaving a legacy).
Good points, thanks.

Re: Out of balance

Posted: Fri Dec 22, 2017 4:38 pm
by Don
I would not buy bonds at this time. To me it's the most bearish looking asset of them all.

Re: Out of balance

Posted: Sat Dec 23, 2017 8:19 am
by steve
If my portfolio were out of balance I would buy bonds in a heartbeat! I remember some years back when everyone was talking about interest rate hikes and how bonds were going down. I taxed loss harvested a bond position that I had, I sold tlt and immediately replaced it with the 50/50 split of edv and vglt, I was thinking that if that went down I would again loss harvest and go back into tlt after 30 days. Guess what? I was never able to because it took off from that point. If you follow the PP you buy whatever you need to rebalance without market timing.

Re: Out of balance

Posted: Sat Dec 23, 2017 9:08 am
by ochotona
Don wrote:I would not buy bonds at this time. To me it's the most bearish looking asset of them all.
I don't know. The only asset I'm convinced is overvalued is stocks, but then I also have to acknowledge they could keep going up for years, and become even more overvalued. I think cash is undervalued, if that makes sense, because future volatility or declines in stocks, gold, or bonds or possible all three at once will make people WISH they'd held onto more cash, though the value is not reflected in the interest rate, which is Scheit.

Re: Out of balance

Posted: Sat Dec 23, 2017 11:07 am
by Kbg
I think if one is investing in a PP they should understand that a fundamental premise of the PP is that one can’t predict anything when it comes to markets. Pick a rebalance methodology and stick with it. The wonderful thing about a rebalance methodology is that is buys low and sells high. Historically every component of the PP is overvalued right now. It is what it is. If you can predict when one of the assets is going to mean revert, just rebalance then. You’ll be brilliant and outperform the standard PP. If you can’t, just rebalance when you are supposed to.

It is pretty much an academic fact that the HUGE, HUGE, HUGE majority of professional investors (and the investing public) can’t predict anything that adds to their bottom line in terms of performance.

Sorry for the broken record/continuous rant on this topic. If someone can’t follow their investing approach they need to find something else that they can follow. In the end they will be much better off.

Re: Out of balance

Posted: Sat Dec 23, 2017 2:17 pm
by ochotona
Any kind of rules-based approach is much better than forecasting and guessing.

Re: Out of balance

Posted: Sat Dec 23, 2017 6:22 pm
by Don
Who in their right minds thinks that interest rates will be lower in a year? It's the willful suspension of disbelief at work here.

We don't have to live in cocoons to see what's happening in the real world right now. Do we?

Re: Out of balance

Posted: Sat Dec 23, 2017 6:44 pm
by ochotona
Don wrote:Who in their right minds thinks that interest rates will be lower in a year? It's the willful suspension of disbelief at work here.

We don't have to live in cocoons to see what's happening in the real world right now. Do we?
If we have another financial crisis, the Fed will take the ST rate to 0% again, and if it's a global crisis involving a Euro crisis again, there could be a flight to quality to US Treasuries which would increase demand, bidding up the price, thereby decreasing the yield. Japan's interest rates have been super low for 22 years.

The challenge for investors is in choosing the set of securities and trading rules which would respond best to the set of risks that endanger the accomplishment of their goals, and everyone's goals and risk tolerances are is different. But once that policy portfolio is chosen, investors are best served by sticking to the portfolio, or else they will commit all kinds of emotional errors.

If you're afraid of interest rate risk... don't buy 30 year bonds, buy 10s, or 5s. Problem solved, for you. It's nothing about being in one's right mind or not.

Re: Out of balance

Posted: Sat Dec 23, 2017 11:41 pm
by Don
ochotona wrote:
Don wrote:Who in their right minds thinks that interest rates will be lower in a year? It's the willful suspension of disbelief at work here.

We don't have to live in cocoons to see what's happening in the real world right now. Do we?
If we have another financial crisis, the Fed will take the ST rate to 0% again, and if it's a global crisis involving a Euro crisis again, there could be a flight to quality to US Treasuries which would increase demand, bidding up the price, thereby decreasing the yield. Japan's interest rates have been super low for 22 years.

The challenge for investors is in choosing the set of securities and trading rules which would respond best to the set of risks that endanger the accomplishment of their goals, and everyone's goals and risk tolerances are is different. But once that policy portfolio is chosen, investors are best served by sticking to the portfolio, or else they will commit all kinds of emotional errors.

If you're afraid of interest rate risk... don't buy 30 year bonds, buy 10s, or 5s. Problem solved, for you. It's nothing about being in one's right mind or not.
Sorry, not me.

Re: Out of balance

Posted: Sun Dec 24, 2017 1:39 pm
by buddtholomew
Don wrote:
ochotona wrote:
Don wrote:Who in their right minds thinks that interest rates will be lower in a year? It's the willful suspension of disbelief at work here.

We don't have to live in cocoons to see what's happening in the real world right now. Do we?
If we have another financial crisis, the Fed will take the ST rate to 0% again, and if it's a global crisis involving a Euro crisis again, there could be a flight to quality to US Treasuries which would increase demand, bidding up the price, thereby decreasing the yield. Japan's interest rates have been super low for 22 years.

The challenge for investors is in choosing the set of securities and trading rules which would respond best to the set of risks that endanger the accomplishment of their goals, and everyone's goals and risk tolerances are is different. But once that policy portfolio is chosen, investors are best served by sticking to the portfolio, or else they will commit all kinds of emotional errors.

If you're afraid of interest rate risk... don't buy 30 year bonds, buy 10s, or 5s. Problem solved, for you. It's nothing about being in one's right mind or not.
Sorry, not me.
Then it’s an easy decision for you Don.
100% equities. Anything less will be a drag on your returns. You should also consider margin as it will really boost your growth.

Re: Out of balance

Posted: Sun Dec 24, 2017 1:56 pm
by ochotona
This chart suggests maybe 10 year yields are breaking out... or maybe they've hit their head on the top rail of a three decade long channel, and the Japanification of America is not yet complete. Very interesting.

Image

Re: Out of balance

Posted: Sun Dec 24, 2017 6:07 pm
by Don
buddtholomew wrote:
Don wrote:
ochotona wrote:
If we have another financial crisis, the Fed will take the ST rate to 0% again, and if it's a global crisis involving a Euro crisis again, there could be a flight to quality to US Treasuries which would increase demand, bidding up the price, thereby decreasing the yield. Japan's interest rates have been super low for 22 years.

The challenge for investors is in choosing the set of securities and trading rules which would respond best to the set of risks that endanger the accomplishment of their goals, and everyone's goals and risk tolerances are is different. But once that policy portfolio is chosen, investors are best served by sticking to the portfolio, or else they will commit all kinds of emotional errors.

If you're afraid of interest rate risk... don't buy 30 year bonds, buy 10s, or 5s. Problem solved, for you. It's nothing about being in one's right mind or not.
Sorry, not me.
Then it’s an easy decision for you Don.
100% equities. Anything less will be a drag on your returns. You should also consider margin as it will really boost your growth.
When did I say that?

Re: Out of balance

Posted: Sun Dec 24, 2017 6:39 pm
by Kbg
Be nice kids or you’ll get underwear for Christmas.

Re: Out of balance

Posted: Tue Jan 02, 2018 3:07 pm
by Don
Don wrote:Who in their right minds thinks that interest rates will be lower in a year? It's the willful suspension of disbelief at work here.

We don't have to live in cocoons to see what's happening in the real world right now. Do we?
One might be a lot better off instead of rebalancing back into the losing bond trade to instead place the funds into cash or a M.M. fund. But definitely not into bonds for the foreseeable future. Or just let it ride in stocks.

Re: Out of balance

Posted: Tue Jan 02, 2018 4:01 pm
by glennds
Don wrote:
Don wrote:Who in their right minds thinks that interest rates will be lower in a year? It's the willful suspension of disbelief at work here.

We don't have to live in cocoons to see what's happening in the real world right now. Do we?
One might be a lot better off instead of rebalancing back into the losing bond trade to instead place the funds into cash or a M.M. fund. But definitely not into bonds for the foreseeable future. Or just let it ride in stocks.
I understand the case you're making, but for a subscriber to the Permanent Portfolio as a complete strategy, this recommendation would be attempting to time the market. The idea is to embrace the asset for its negative correlation to other buckets in the portfolio. Even shortening maturities degrades the strategy because we're looking for the increased volatility of the long bond. I think at most times, the PP is requiring you to do something counter-intuitive that would seem out of touch with the real world at the time.