How often to purchase your assets

[lordmetroid]

I am uncertain what would be most beneficial. Either purchasing assets on a monthly basis to allow the capital to be invested in the market for as long time as possible. However, if one do invest on a monthly basis the purchasing overhead would be about 3%. If one instead saved the capital and waited purchased assets on a yearly basis. The overhead fees would become a mere 0,2% but then the money would have been sitting in a savings account instead of being invested.

What would you recommend?

[Kriegsspiel]

I would rather avoid a guaranteed 3%-hole to start in.

[dualstow]

I think this question is usually intertwined with what to buy. For example, I'm pretty sure PointedStick still buys every month, but only one asset per month instead of all four at once. One month gold, next month stocks, etc.

Some related threads:

How should contributions/withdrawals be treated for rebalancing?(Sam Brazil)
Adding new money and rebalancing? (D (Guest))
Where should new contributions go? (PointedStick)

[barrett]

lordmetroid, 3% in expenses means a return that is roughly that much lower. It's hard to reliably generate a 3% return so definitely don't go that route. Buying the lagging asset (think of it as shopping for stuff on sale) when you have a decent amount to invest seems a good route to go. You'll probably find that following that strategy will mean that you don't need to rebalance for a long time as well.

Most importantly though... 'lordmetroid' is an awesome handle!

[Pointedstick]

I buy assets on whatever schedule seems to make the most sense given the logistics of the account.

In my 401k, I buy a different asset (on a rotating schedule) with every bi-weekly pay period. I do this since my 401k is with Schwab, allowing me to purchase all the assets as commission-free ETFs.

In my taxable account, I buy a different asset (on a rotating schedule) once a month. Everything but gold is commission-free. I only end up buying gold three times a year, and the commission fees represent less than a quarter of a percent of my yearly contribution, so I don't worry about it.

If your situation dictates that commission fees represent a worryingly large percentage, it makes sense to work to minimize them, whether that means contributing to cash, using low-cost or commission-free ETFs that you can convert to more direct assets later, or another method.

[lordmetroid]

I did some research on the subject and crunched some numbers between purchasing of assets on a monthly vs a yearly basis. My conclusions are that it do matter but it isn't obvious which method would be most profitable. It really depends on how large the fee is.

In my case it is more profitable to purchase my assets on a monthly basis even with the 3% overhead rather stacking cash and making one big purchase a year.

[MachineGhost]

In my case it is more profitable to purchase my assets on a monthly basis even with the 3% overhead rather stacking cash and making one big purchase a year.

Another way to look at it is only buy when trend following suggests it is advantageous.  That wouldn't be gold the last three years, for instance.  Capital losses can easily dwarf the 3%.  I haven't bought any gold since 2011.

[rickb]

In my case it is more profitable to purchase my assets on a monthly basis even with the 3% overhead rather stacking cash and making one big purchase a year.

Another way to look at it is only buy when trend following suggests it is advantageous.  That wouldn't be gold the last three years, for instance.  Capital losses can easily dwarf the 3%.  I haven't bought any gold since 2011.

Another approach is to accumulate cash until you hit a rebalancing band, and then rebalance.  If you're just starting out, the rebalances will be fairly frequent, but they'll get less and less frequent over time.  This approach has the advantage of training you to follow a rebalancing discipline.  One of the major components of the PP is that you don't have to predict (Browne says you can't predict) where asset values are headed.  Giving up this notion is quite liberating. 

"Use the Force Luke, let go" - Obi-Wan

[sophie]

If commissions are high relative to your contributions, then it absolutely makes sense to make purchases less often.  You have lots of options and can get creative as you want, as long as you observe a few rules:

1. Don't attempt to time the markets.
2. Stay within the 15/35 bands at all times (i.e. no asset is less than 15% or more than 35% of your portfolio).

Probably you will do best with buying just one asset each month, or accumulating new contributions in cash and then distributing to the other assets when dictated by rebalance bands, or on a regular basis e.g. annually.  If you buy one asset a month, you can either rotate through them like PS does, or buy whichever asset is lowest.  I do kind of a hybrid solution, buying 50% cash/25% stocks/25% bonds monthly, then buying gold when enough cash has accumulated to do so.

However...you might want to investigate other investment options with fewer or no commissions.  You don't say which country you're based in, but you should able to find commission free options for the cash and stocks at least.  Gold tends to be the most expensive in terms of commissions, particularly if you are buying physical gold, so it makes sense to buy that less frequently.

[Reub]

Being retired, I never buy.

[MachineGhost]

Being retired, I never buy.

What do you mean?  What a novel strategy!

[Reub]

I am no longer in the accumulation phase so my PP is what it is. ...except for infrequent rebalancing.

[EdwardjK]

Why would investing in the Permanent Portfolio over several months cost 3% in transaction costs?  Either you have little to invest or you have the wrong broker.

2015 "may" be the year that the Fed finally increases interest rates.  I suspect we'll see some increased volatility in equities, at least.  My plan is to invest 1/12th of my target investment in the Permanent Portfolio throughout 2015.  Hopefully that will smooth out any volatility bumps.

Yeah, I know others will disagree and say I should just jump in, but I never just jump into anything.  That's my personality.

[lordmetroid]

Why would investing in the Permanent Portfolio over several months cost 3% in transaction costs?  Either you have little to invest or you have the wrong broker.

2015 "may" be the year that the Fed finally increases interest rates.  I suspect we'll see some increased volatility in equities, at least.  My plan is to invest 1/12th of my target investment in the Permanent Portfolio throughout 2015.  Hopefully that will smooth out any volatility bumps.

Yeah, I know others will disagree and say I should just jump in, but I never just jump into anything.  That's my personality.

I do not have any fees for purchasing stocks nor cash but the broker's fee for purchasing the TLT ETF is 12 USD which at today's rates are equivalent to about 100 SEK and purchasing gold costs me 200 SEK in shipping.

I invest about 12000 SEK a month and I divide my purchases in 4 equal parts 3000 SEK will not actually buy me any gold so I am forced to save for a few month before I can, so lets say I purchase gold 3 times a year.

(12*100 + 3*200) / (12*12000) equals 1,25%. Not as bad as 3% as I first thought but still a rather significant overhead.

[sophie]

What country are you in?  I confess I don't know what SEK stands for.

If you are not in the US, you probably want to buy your own country's long bonds not those of the US.  What long term government bonds are available in your country, and what funds are available for them?

Similarly, you want to make sure your stock allocation reflects your country's business climate, not that of the US.  A global stock fund is probably OK, or a European fund if you are in Europe etc.

[dualstow]

sophie wrote: What country are you in?  I confess I don't know what SEK stands for.

Lord M is in Sweden, I think, and SEK is the Swedish krona. (I read those Dragon Tattoo novels).

[Pointedstick]

12,000 SEK/month = $723/month = way too little for it to be efficient to divide your money among the four assets for each monthly contribution with the kinds of fees you're talking about. I would strongly recommend that you purchase a single asset each month, not all four.

[sophie]

Ah, thanks!  I missed that Swedish bond thread.

Given the small contribution amounts and high fees for bonds and gold, I'd suggest just adding it all to cash.  Then either wait for a rebalance band or buy assets with excess cash no more often than once a year.  Optionally, you could put 25% of the amount in stocks every month and stash the remaining 75% in cash.

One advantage of this method is that the money will quickly build into a good sized emergency fund.  Brokers may say "cash is trash", but having a year's worth of expenses somewhere ready to hand does wonders for peace of mind.

[lordmetroid]

Let me show you the purchasing research. In the left column I make a yearly purchase, in the right column I make a monthly purchase. As one can clearly see, even with the higher fees that a monthly purchase infers, I would benefit in the long run as the interest builds up.

I am not really keen on purchasing one asset a time, it feels like a big gamble to try to time the market.

[Pointedstick]

Unfortunately that picture is too small to make out any of the numbers.

I am not really keen on purchasing one asset a time, it feels like a big gamble to try to time the market.

Not if you make it mechanical by sticking to a fixed schedule.

It's easy to over-optimize small portfolios and chase a few dollars (or Kroners!), but really, until you reach the point where your monthly contributions are large and when your portfolio itself is so big that monthly contributions don't make much of an impact, these kinds of issues will always crop up. I would be wary of dismissing alternatives because they are projected to have lower market returns. You can't count on market returns, but you can count on transaction costs. I think it makes sense to try to minimize the latter before exposing yourself the the possibility of gaining more of the former.

Of course, if none of these options are appealing to you, you always have another one: contribute more per month! That way, the transaction costs will be a smaller percentage.

[barrett]

I am not really keen on purchasing one asset a time, it feels like a big gamble to try to time the market.

Yeah, as PS says, the picture came out really small.

With a smaller PP, buying only one asset might tilt you a bit out of balance so that you are not exactly at 4X25 but that's OK. Just buy whatever asset is the lowest (and don't forget to contribute to cash) and be done with it for the month. In a few years, assuming the same monthly addition, you won't be tilting yourself toward one asset or the other, you'll just be bringing the worst performing asset back closer to 25%. The PP still works even if you are not exactly at 4X25. You are just striving to be close to that. You are only breaking with the basic PP philosophy if you are way out of whack and intentionally only holding, say, 5%-10% of an asset because you are betting on a certain future.

[sophie]

I think I see where you're going with this:  over a relatively short period of time TLT's dividend will exceed the interest you would get from cash by more than the commission costs.  Is that right?

Instead of that table why don't you calculate the time it takes for TLT dividends to exceed cash interest+commission.  If it's only 1-2 months, then by all means swallow the cost and buy monthly.  If it's longer than that you might want to buy bonds less often, using one of the strategies we've outlined.  And be aware that with the recent drop in interest rates, TLT's dividend is likely to fall - you'll need to keep an eye on that.

[lordmetroid]

I did some more number crunching and it seems like the interval between purchasing of assets whether it is on a monthly, quarterly, trice or once a year will influence the outcome very much.

So I have decided to make a purchases once a year. My plan is to purchase assets on Midsommar and then half a year later rebalance my portfolio on Jul. Tying the management of my portfolio to these celebratory festivities feels very homely and joyous.