Adding new money to PP
Moderator: Global Moderator
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D
Adding new money to PP
What's the best way to add new money from regular income to PP? Add to cash and move once cash above 35% or divide new contribution into 4 equal parts and add to each component or something else? Does value averaging make sense for PP?
Re: Adding new money to PP
I had the same question a while back. The orthodox answer is to add to cash until you hit the 35% band. While this was counterintuitive to me, it has some advantages: It is simpler and minimizes transaction costs. You don't want to be buying just a few shares or one gold coin at a time. Due to the low correlations of the four assets, dollar cost averaging is not too important for the PP.
If you are concerned about too large a pile of cash stacking up earning next to nothing, you could always rebalance at 30% instead.
If you are concerned about too large a pile of cash stacking up earning next to nothing, you could always rebalance at 30% instead.
"Machines are gonna fail...and the system's gonna fail"
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MiniB
Re: Adding new money to PP
When I eventually set up my PP, I plan on contributing to whichever holding is the lowest percentage between stocks, bonds, and cash.
I can buy any of those without any transaction fees. I plan on using VUSTX/EDV through Vanguard for free trades into the long bond section. I plan to hold about 90% physical bonds themselves, but it should be OK to contribute to VUSTX/EDV for "free" until that portion gets to around 30% of my bond section, then I'll sell (also for free) and buy new issue bonds at auction.
Cash I can add into a MMF
Stocks I can add into a mutual fund or ETF at VG.
Gold is the only kind I cant add electronically without a fee, however once I eventually have enough money to max tax-shelter and still invest more in "taxable" then I'll just show up to a coin shop with $1400 cash or so and buy a one ounce gold coin if that's my lowest holding at that time.
I guess I could argue that driving to the coin shop costs a few dollars in gas and 30 minutes of my time, which is more expensive than a $8 ETF trade to buy $1400 worth of GLD. However if I get to the point of needing to add gold and I have extra cash, might as well just add a gold coin!
I can buy any of those without any transaction fees. I plan on using VUSTX/EDV through Vanguard for free trades into the long bond section. I plan to hold about 90% physical bonds themselves, but it should be OK to contribute to VUSTX/EDV for "free" until that portion gets to around 30% of my bond section, then I'll sell (also for free) and buy new issue bonds at auction.
Cash I can add into a MMF
Stocks I can add into a mutual fund or ETF at VG.
Gold is the only kind I cant add electronically without a fee, however once I eventually have enough money to max tax-shelter and still invest more in "taxable" then I'll just show up to a coin shop with $1400 cash or so and buy a one ounce gold coin if that's my lowest holding at that time.
I guess I could argue that driving to the coin shop costs a few dollars in gas and 30 minutes of my time, which is more expensive than a $8 ETF trade to buy $1400 worth of GLD. However if I get to the point of needing to add gold and I have extra cash, might as well just add a gold coin!
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pplooker
Re: Adding new money to PP
It depends on how you hold it. I usually buy into whichever slice(s) is(are) lagging the most, trying to "correct" the portfolio as much as I can with each purchase.