Retiring a 60/40 portfolio

[gizmo_rat]

I hold a mix of PP, 60/40 (stock / bond) and cash.

60/40  should go, it was put together by a advisor in 2007, attracts management fees of 2.5% + per year, essentially tracks TSM and has given me many sleepless nights.

I'm not sure if I should PP it, replicate it myself (CHP'ish), or mostly PP plus a long term VP of stocks.

Clearly all of these options are at least 2.5% better so I'm not going to make a wrong choice.

However is there some rational way of evaluation or is it really a case of personal preference / crystal ball gazing ?

[MediumTex]

I would put 50% in a PP immediately and give it a few months and see how the ride feels to you.

If you like it, put a little more in it and maybe keep 20% for speculation in a VP.

Even though you haven't been sleeping well, I'll bet your advisor has been sleeping like a baby.

[moda0306]

If you have any debt, depending on your circumstances you could pay that down.

Also, careful with selling that much stock... the capital gains could take quite a bite out of your gains (if you have any).  Depending on what kind of fund it is and whether you have some tax-deferred stock you could sell instead (since bringing 60/40 into a PP is sure to leave you selling some stocks.)

Personally... I'd PP it.

And MT is right... your advisor is sleeping just fine.

[gizmo_rat]

Thanks guys,

Yes, I'm certainly glad to have contributed to my advisor's peace of mind during the financial services melt down.

I've been running a PP alongside the 60/40 for a few months so I'm comfortable with how it performs and would quite happily PP the lot.

However there is still a part of me that would like to try for some extra reward for a little more risk and the recognition that my "proper" investment experience is limited to the PP.

Given that I've no appetite for proper speculation, is there a reasonable small steps way to try to boost total returns without incurring a big hit in terms of complexity ?  

Or am I just looking for a way of replacing a big PITA with a slightly smaller one.

[MediumTex]

I would say buy a more volatile stock index than TSM, but I personally believe the stock market is about to roll over, in which case more volatile stocks will likely fall farther than the overall market, so I don't know what to tell you.

The best approach is probably to do a conventional PP with a large percentage of your assets and keep a bit for VP speculation, which you might use in a PP-like non-correlated asset speculation such as GDX/EDV or something like that.

[gizmo_rat]

Good point, well made - I'll confine any risk taking to off-road cycling until we're on a prosperity roll.

Thanks.

[clacy]

I would say buy a more volatile stock index than TSM, but I personally believe the stock market is about to roll over, in which case more volatile stocks will likely fall farther than the overall market, so I don't know what to tell you.

I tend to agree.  Of course predictions are rarely correct, but I feel like the data (housing, employment, gdp) has been softer than all the experts who were predicting roses for the economy had expected to see at this point.  With gas and food prices setting up almost exactly like we saw in 2007.  We all know where that lead.

This economic recovery is just too fragile to shrug off higher energy prices, so I see consumer spending shifting dramatically.

[gizmo_rat]

Sorry to bump this back up,but...

I'm finding it hard to retire the 60/40 PITA, mostly I think because I'm looking at a 10% loss, which is a bitter pill to swallow on a 4 year investment.

It's very volatile, +/- 2% swings and I think I'm trying to market time it which is silly as it'll take a day to liquidate it.

Is there some orderly way to plan an exit, possibly asset class by class ?
Or am I better just pulling the plug on an arbitrary date ?

[AdamA]

Or am I better just pulling the plug on an arbitrary date ?

IMO, it's all just guesses. 

If you're going to sell, just do it.  You won't look back once you start to see your PP consistently churn out gains.

[Pkg Man]

I would just sell it all, but I can understand the decision process.  If you think you would give yourself a hard time if the portfolio suddenly took off right after liquidating it (unlikely), then sell 1/3 or so now and the other thirds at a predetermined date in the future.

[Lone Wolf]

I'd say just control what you can predict: tax consequences.  Minimize those in whatever way makes sense for your situation, then just do it.

Forgive yourself in advance if you miss a little upswing.  Don't waste any time worrying about it.

If, however, you miss a downswing, congratulate yourself ceaselessly for your genius and foresight.    (That's what I'd do.)

[gizmo_rat]

Thanks guys, took it outside and shot it today. I suspect my ex adviser shed a tear, but I didnt.

[Pkg Man]

Thanks guys, took it outside and shot it today. I suspect my ex adviser shed a tear, but I didnt.

Good for you.  While I have no idea what will happen in the markets, I think you made a good decision to just rid yourself of it all at once.

[gizmo_rat]

It's taken me 6 weeks to transfer the tax shielded portion of my ex 60/40, but it's all in cash ready to expand my PP.
(Currently 50% PP / 50% Cash).

However even in a year of crazy events, it seems like a time of exceptional market silliness, possibly pushing LTs and gold sky high.

Can anybody think of a historical precedent that would help me decide if I should sit in cash until things calm down a little or just PP regardless of my perception of the current climate ? 

[AdamA]

Can anybody think of a historical precedent that would help me decide if I should sit in cash until things calm down a little or just PP regardless of my perception of the current climate ? 

The PP gradually goes up, historically, no matter when you buy.  I know there's a lot going on right now, but I'll bet now is a good a time as any to get started.

[Storm]

Now is probably a great time to start a PP.  Stocks are way down, gold and LT bonds are up.  In any case, the assets of the PP are inversely correlated to an extreme degree, so you can pretty much count on the fact that if the market tanks again tomorrow, LT bonds will probably rise.  On the other side, if the market rallies tomorrow, bonds will fall.

A lot of people would have thought you would have been crazy to start a PP on August 1st, on the eve of a possible US default, but look at how well it has done in the last couple days.  I just started a $100K PP test portfolio on Smartmoney, buying VTI, SHY, IAU, and TLT at the 8/1/11 price and it is up 1.2% overall in just 2 days.

[Pkg Man]

If already in cash I would have no qualms whatsoever about starting a PP now. 

If, on the other hand, I was mostly in stocks I would be more hesitant.  While I freely admit that I can't predict the future, I would feel much better if it were stocks that were up double-digits while moving into other asset classes, rather than the reverse that we see now.  If I was mostly in stocks I think I'd ease into a PP over time. 

While anytime may be a good time to begin a PP, March of 2009 (for example) would not have been the ideal time to start one.  But of course only with hindsight can you know this.

[MediumTex]

While anytime may be a good time to begin a PP, March of 2009 (for example) would not have been the ideal time to start one.  But of course only with hindsight can you know this.

A quick look at PRPFX shows that March of 2009 would have been a near perfect time to buy it.

Why are you saying March of 2009 would have been a bad time to start a PP?

[Pkg Man]

While anytime may be a good time to begin a PP, March of 2009 (for example) would not have been the ideal time to start one.  But of course only with hindsight can you know this.

A quick look at PRPFX shows that March of 2009 would have been a near perfect time to buy it.

Why are you saying March of 2009 would have been a bad time to start a PP?

It really depends on the exact dates chosen.  Even a week or two can make a big difference. 

If a PP was started at the beginning of April, due to the recent drop in the S&P and the rise in PRPFX, it seems that both would have had about the same return (at least according to my Google Finance chart).  If, however, I look at a chart from the beginning of March 2009 to today, PRPFX would still be lagging the S&P by about 10%.  Two weeks ago that difference would have been greater.

Of course all of this is an academic exercise in that we still don't know if one or the other was the better investment to make at that moment in time unless we have some "end" date by which to call the race over.  Kind of like the old quote about the significance of the French Revolution -- "it is too soon to tell".