Gyroscopic Investing

buddtholomew wrote:I'm not saying put your head in the sand and ignore.
What I am suggesting is not trying to determine which of the components should be dropped from the portfolio because it is so obvious that rates have to go up. All those geniuses that said bond rates will sky rocket and that stocks are over-valued....these are the people I am talking to.

Got it, thanks for clarifying! I was preaching to the choir, ha.

You brought up an interesting point though. I once heard Warren Buffett say something to the effect that there is a peculiar natural bias among us humans thinking that the more complicated something is the better it must be, and conversely the simpler something is the more primitive and worse it must be. Obviously we all know the opposite is very often the case.

Way I look at it I would gladly by long term bonds to re balance , If interest rates keep rising and the value goes down I would just keep tax loss harvesting, No one can predict the future and things do not always go as expected. If the value keeps going down until it once again hit the lower re balance band of 15% I would just re balance again. At some point when things change it would explode to the upside.

stuper1 wrote:Think for yourself all you want, but also go back and look at the predictions for many of the last years about long bonds. The "experts" have been saying they will lose value for years, and in fact what has happened is that many years they have been the biggest winner.

http://www.businessinsider.com/bond-mar ... ch-2017-10

"Bond guru Jeffrey Gundlach has been sounding the alarm on a Treasury market selloff for some time now. On Tuesday, the CEO and founder of DoubleLine Capital took his warning to a whole new level, after the US 10-year yield crossed the 2.40% level, putting in its highest print since May.

"The moment of truth has arrived for secular bond bull market!" Gundlach tweeted. "Need to start rallying effective immediately or obituaries need to be written."

The end of the secular bond bull market would be a significant event. For more than three decades, bond investors have enjoyed massive returns as bond yields pressed lower and lower. Since 1981, the 10-year yield has fallen from near 16% to below 2%, luring in more and more investors along the way. "

I don't think anyone attempted to answer my bond question in another topic, namely, if the bond bull is dead, does that mean a place like Italy, see below, is less risky to park your money?

I don't believe it. I think this is a blip and we'll be back lower soon enough.

Cortopassi wrote:I don't think anyone attempted to answer my bond question in another topic, namely, if the bond bull is dead, does that mean a place like Italy, see below, is less risky to park your money?

I don't believe it. I think this is a blip and we'll be back lower soon enough.

The Federal Reserve cannot allow the Treasury rate to rise significantly because that would send the "budget" into a death spiral.

So they will always choose to print more "money", even if that means hyperinflation.

Of course in the latter case bonds will be useful primarily to light cigars with.

If LTT rates rise gradually, then of course existing bond prices would fall, but wouldn't a bond ladder (say, 20-30 year maturities) benefit as the older bonds get rolled into new ones at the higher rate?

Those two effects counter each other, and I don't know which one would dominate. I'm guessing it depends on the rate, rate of increase in the rate, and how often bonds get rolled over in the ladder.

Would be interesting to run an analysis on different scenarios to see how quickly LTT rates would have to rise in order for an LTT ladder to take a big hit in overall return.

MangoMan wrote:Corto,

What does the last column "1 day" refer to?

Change. in basis points?

dualstow wrote:

MangoMan wrote:Corto,

What does the last column "1 day" refer to?

Change. in basis points?

Yes I believe so. Here is the link:

https://www.bloomberg.com/markets/rates-bonds

for Don:

Mr. Edwards believes yields will push higher over time but not too much, because if they rose enough to hurt equity markets, fearful investors would scoop the bonds right back.

“There’s almost a natural cap on government bond yields,” he added

{
https://www.wsj.com/articles/asia-stock ... 1515723926
}

We're in a little equity melt-up here. If you are somewhat close to rebalancing, I'd take my stocks back to policy percentages soon, before the opportunity is lost. Be fearful when others are greedy, be greedy when others are fearful.

ochotona wrote:We're in a little equity melt-up here. If you are somewhat close to rebalancing, I'd take my stocks back to policy percentages soon, before the opportunity is lost. Be fearful when others are greedy, be greedy when others are fearful.

The question I have to address is, are we looking at balances often with an eye to rebalancing, or willing to let them exceed limits for the short term?

I'm over 35% on stocks, but if they have a correction, I'm probably back under 35%. Not being a market timer, I won't try to guess the short term. But I will have to decide whether to do something now or kick the can down the road.

I suppose I should view the 35% as a hard limit, and once I know it's been topped, do something about it.

No alternative options available like offsetting gains/losses on select purchases or contributing to lagging assets to restore the balance.

Maybe we can put some figures together on a 100K gain taxed at 20% or not rebalancing and equities falling 10%.

200000 initial investment
100000 gain x .2 = 20000 taxes, 80000 net
Remaining investment 100000 loses .1 = 90000
80K + 90K = net 170K

200000 loses 10% = 20000, net 180K

Hardly seems worth the trouble to sell for 10K savings if I didn’t mess up something in the calc.

I Shrugged wrote:

ochotona wrote:We're in a little equity melt-up here. If you are somewhat close to rebalancing, I'd take my stocks back to policy percentages soon, before the opportunity is lost. Be fearful when others are greedy, be greedy when others are fearful.

The question I have to address is, are we looking at balances often with an eye to rebalancing, or willing to let them exceed limits for the short term?

I'm over 35% on stocks, but if they have a correction, I'm probably back under 35%. Not being a market timer, I won't try to guess the short term. But I will have to decide whether to do something now or kick the can down the road.

I suppose I should view the 35% as a hard limit, and once I know it's been topped, do something about it.

Several active market timing strategies only check once a month (Faber's Ivy, GEM, AlphaArchitect). Choose the same day of the month every time, or maybe every 4th week, like Saturday morning with your cup of coffee. Continuous checking would wear you down.

If I hit the 35% band I would re-balance.

buddtholomew wrote:No alternative options available like offsetting gains/losses on select purchases or contributing to lagging assets to restore the balance.

Maybe we can put some figures together on a 100K gain taxed at 20% or not rebalancing and equities falling 10%.

200000 initial investment
100000 gain x .2 = 20000 taxes, 80000 net
Remaining investment 100000 loses .1 = 90000
80K + 90K = net 170K

200000 loses 10% = 20000, net 180K

Hardly seems worth the trouble to sell for 10K savings if I didn’t mess up something in the calc.

Anyone have a different perspective? Calc wrong?

I don't have any new money going in. I have high unrealized gains. My non-US stock fund is about 50% gains, my SP500 is 70% gains. (I tax-loss-harvested big time in 2009.)

On one hand, Budd, I'm inclined to let it ride because as you say, the tax hit is just about as bad as what would likely happen in a bear market. But on the other, it's already grown its way out of the PP , and into GB territory. And my plan is to be PP, not GB.


I think I'll sell enough to get back down to 35%. After I do some research on tax rates and phaseouts and all that crap.

MangoMan wrote:

buddtholomew wrote:

buddtholomew wrote:No alternative options available like offsetting gains/losses on select purchases or contributing to lagging assets to restore the balance.

Maybe we can put some figures together on a 100K gain taxed at 20% or not rebalancing and equities falling 10%.

200000 initial investment
100000 gain x .2 = 20000 taxes, 80000 net
Remaining investment 100000 loses .1 = 90000
80K + 90K = net 170K

200000 loses 10% = 20000, net 180K

Hardly seems worth the trouble to sell for 10K savings if I didn’t mess up something in the calc.

Anyone have a different perspective? Calc wrong?

The math looks good, but I'm not sure about the logic. You only actually come out ahead in the above scenario if you NEVER actually pay taxes on the shares you decided not to sell.

Weren't you also giving someone a hard time in another thread for quoting themselves?

The point is to defer taxes in taxable and not sell to rebalance. My goal is to only sell if I can offset gains with losses. I realize this is not always possible but a 20%+ Tax hit seems like something to avoid.

Yes, I did mention quoting yourself and I was wrong so I deleted the post. Let me know if you still see it.

Budd,

Calculating the tax impact is perfectly fine. Ok, now that is done where is your tax adjusted rebalance line?

If you adjust based on tax impact great, if it’s an excuse not to have a disciplined approach/no actual rules in execution not great.

Kbg, my views will most likely change as I get closer to retirement. Selling stocks now in taxable and paying the taxes isn’t as appealing when you expect stocks to be much higher in 10-15 years.

Personally I stay within rebalance bands and contribute to cash then add to lagging asset to maintain AA. I haven’t had to sell in taxable to rebalance yet.

My lagging asset is bonds, and I'm having real difficulty doing the hold your nose and buy thing. Especially with the flat yield curve and promised 3 interest rate boosts this year by the Fed.

I'm doing the annual Roth & HSA contributions/conversions/etc, and that means I have a slug of new cash but not quite up to 35%. I'm thinking of just leaving well enough alone, and not buy anything until I hit a band and need to rebalance. If something drops like a rock, that cash will be put to very good use.