Yesterday's New Contribution Tanking Today

[Plumbline]

Need some words of encouragement this morning.  I did not re-balance yesterday, but I did place some 15k of new cash into VTI.  Where else would you have put it?  TLT & Gold are rising and I'm already overweight in Cash.   Now the market tanks the day after.  I hate that feeling.  Maybe I already know everything you guys could console me with but let's hear it anyway.  I need reprogramming.  ;D

Ok, I'll start off:  

"Hello Plumbline, Don't fret so much: at least you won't need it for 20 more years.  Its bound to go up by then."

[AdamA]

Need some words of encouragement this morning.  I did not re-balance yesterday, but I did place some 15k of new cash into VTI.  Where else would you have put it?  TLT & Gold are rising and I'm already overweight in Cash.   Now the market tanks the day after.  I hate that feeling.  Maybe I already know everything you guys could console me with but let's hear it anyway.  I need reprogramming.  ;D

Ok, I'll start off:  

"Hello Plumbline, Don't fret so much: at least you won't need it for 20 more years.  Its bound to go up by then."

Plumbline--I would honestly not worry about this at all. Just maintain your balance between 15-35% for each asset class, and I think you'll be surprised how little the rest matters. 

You should be happy to have squeezed another $15k into your PP.  Don't worry about the asset class.  In the long run it won't matter at all.

[Jan Van]

Well, if it makes you feel better, I bought some TransOcean (RIG) yesterday... 

[MediumTex]

Does a tree grow better if you dig it up to inspect its roots?

That's my Yoda comment for the day.

[Liz L.]

Plumbline, you put the new cash into VTI because it was your lowest-percentage holding, or because it was the element of the PP not going up in price lately?

If it makes you feel any better, I have not yet reached the state of perfect calm about short-term performance that veterans here have perfected.

Because of regular 401k contributions, my decisions are also currently about new-money disposition, not rebalancing. I'm feeling queasy about adding to the stock allocation, but I've been holding my nose and doing it.

Veterans, just checking: the "correct" thing to do with new money would be to add to the part of the portfolio that is lowest in percentage value, right?

[AdamA]

Veterans, just checking: the "correct" thing to do with new money would be to add to the part of the portfolio that is lowest in percentage value, right?

I think if you're really worried about it, you can just add it to whatever you think is going to do the best in the near future.  Just don't let anything get under 15% or over 35%. 

I think Clive or Moda looked at this a while back, and found that as long you stayed within the 15-35% range you're returns would be close to a 25% x 4 PP. 

[Storm]

I always put it into the lowest asset class.  This actually prevents me from hitting rebalancing bands during a time of growing my portfolio, but in a way I'm constantly rebalancing by buying an asset that is lower than others (buying low).

If it makes you feel any better, just look at the inverse correlation of stocks and bonds.  If you are equally balanced between them, any loss in VTI should have almost equal gains in TLT.

[Plumbline]

Well thank you Ladies and Gentlemen for your thoughts. It's just that I'm learning the lesson all over again that it is foolish to time the market.  Not that primary intention was to try to slide in on the bottom of a correction, but after waiting for a reasonable correction for the better part of 4 months, I figured after 8 straight days of negative it would have been a kinder validation today.  If today's plunge were to happen 2 or 3 weeks after my buy, then I'd feel a lot better, but the day after really stinks.

If VTI corrects in Bear Mkt territory, then I'll just have to buy some more.

OK MT I'm done inspecting the roots.  GO TLT !

[buddtholomew]

As outlined in another thread, I too was in the same position as the OP. However; I decided to contribute to each of the asset classes (VTI - 55%, GLD, TLT and CASH - 45%) and restore the portfolio AA to 4x25%. At the end of the afternoon, I was down .085% more than if I had not invested any new money.

Others may have approached this differently, but for me it solidified the need to have nearly equal holdings in ALL of the assets at all times.

[6 Iron]

Plumbline, this bit of suboptimal market timing will one day be as nothing to you. In the mean time, congratulations for not doing it two weeks ago! The glass is half full, my man.

[TripleB]

My recommendation for you is to put all new contributions into cash. *All* contributions.

If this contribution into cash triggers a rebalancing event, then perform it as scheduled. You stated you are overweight in cash, but not whether this new $15k would push you past the 35% rebalancing band.

By doing this, you avoid the loss of what just happened. Then again, what if the stock market gained 5% in one day? Would we having this conversation? Or would you have posted about how amazing the PP is, because you invested in your lowest held asset, and it went up 5% in one day, so the PP rewarded you?

If you are really loss-averse, put all new money into cash first, then rebalance. That's the only solution.

[craigr]

Don't look at assets in isolation. The new contributions are a tiny amount of most people's overall portfolio value.

[Pkg Man]

My recommendation for you is to put all new contributions into cash. *All* contributions.

If this contribution into cash triggers a rebalancing event, then perform it as scheduled. You stated you are overweight in cash, but not whether this new $15k would push you past the 35% rebalancing band.

By doing this, you avoid the loss of what just happened. Then again, what if the stock market gained 5% in one day? Would we having this conversation? Or would you have posted about how amazing the PP is, because you invested in your lowest held asset, and it went up 5% in one day, so the PP rewarded you?

If you are really loss-averse, put all new money into cash first, then rebalance. That's the only solution.

While I agree with Craigr that you shouldn't look at assets in isolation, I do think that I agree with TripleB's view of putting it all in cash AND to have a pre-determined rebalance point (which is the advice I was given early on).  The best way to avoid the agony of making choices is to remove choice from the equation and substitute rules that you will adhere to.

But again, it's not likely to make much difference in the long run anyway so I wouldn't worry about it.