Does anyone have a strategy that utilizes the cash/short term treasury component of PP to buy one of the other assets when there is a significant decline but has not yet reached a volatility band? Seem to me this would be a great way to utilize the cash, and then replenish the amount with a dedicated savings plan.
For instance, I bought some additional TLT when it was in its low 90's (uncomfortable buy because it was trending lower) with the cash component even though it had not reached a -10% volatility band. But it did throw the other components out of balance because of the increased weighting, and skews the correlation factor. To be a pure PP follower, should I have purchased equal amounts of the other assets? I do plan to balance the other assets out, as they dip - basically a more active volatility band strategy.
For instance I am considering putting the same amount of cash/ SHY money into VTI. And then I will do the same for gold. Seems to me this is a great way to build up equity with assets that are on sale and utilize a component of PP that offers liquidity.
Anyone else have a similar strategy?
Market Timing (buying lower) assets with cash component of PP
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gonetowindsurf
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Re: Market Timing (buying lower) assets with cash component of PP
I'm starting to use something like this in moderation. I admit it's risky but not too risky.
For example, if I know I am going to invest $10k over the next few months, and I notice that stocks have taken a huge hit, like they have recently, I'll shift the $10k from my cash portion, into stocks, with the theory that the $10k I invest will just replenish the cash portion.
Essentially what I am doing is this. If the market does nothing, then when I have the $10k in a few months to invest, my stock position will still be low due to the decline, and I'll wind up putting all $10k into stocks since it's my lowest asset. However, I'm worried that the opportunity to buy stocks cheap is now, and the market may recover in a few months, so I'll borrow against the cash portion to put into stocks now, and then pay back into the cash portion with the new investment later.
In theory, this strategy should work, over the long run, because stocks must go up, over the long run. Thus, if I execute this strategy every year, for 30 years, then maybe 10 of the times I do it, the stock market will wind up going down further, and I would have been better off waiting to put the $10k into stocks. However, 20 of the 30 times, the market will have gone up, and I was better off investing in stocks earlier.
Note, that I will only do this if the market is down significantly. If the market is going up at a ridiculous pace, then I won't "pre-buy" stocks, worrying that I will have to "pay too much" for them when my next $10k comes.
An interesting short-term observation of this method is on Friday of this past week. My portfolio had shifted stocks down to about 19% of total holdings. I decided to "pre-buy" stocks, and push them up to 34% of my total holdings. (still remaining under the 35% band, and with the idea that if stocks rallied on Friday, I would slowly sell down, and keep stocks at just under 35% until my next $10k to invest came in and I would put that into cash).
I did this Thursday afternoon when the market was down around 3% or so. The market wound up closing 1% lower than I bought in at, and then dropped another 1 or 2% on Friday.
However, my total PP actually gained slightly, because even though I was "overweight" on stocks at 34%, the gold and bond portion did well enough to offset the losses in my stock portion. That was really impressive to me. I think my "bet" will pay off and if not, my PP will still be secure, because in a couple months I'll be adding another $10k directly into cash, regardless of what the stock market does.
For example, if I know I am going to invest $10k over the next few months, and I notice that stocks have taken a huge hit, like they have recently, I'll shift the $10k from my cash portion, into stocks, with the theory that the $10k I invest will just replenish the cash portion.
Essentially what I am doing is this. If the market does nothing, then when I have the $10k in a few months to invest, my stock position will still be low due to the decline, and I'll wind up putting all $10k into stocks since it's my lowest asset. However, I'm worried that the opportunity to buy stocks cheap is now, and the market may recover in a few months, so I'll borrow against the cash portion to put into stocks now, and then pay back into the cash portion with the new investment later.
In theory, this strategy should work, over the long run, because stocks must go up, over the long run. Thus, if I execute this strategy every year, for 30 years, then maybe 10 of the times I do it, the stock market will wind up going down further, and I would have been better off waiting to put the $10k into stocks. However, 20 of the 30 times, the market will have gone up, and I was better off investing in stocks earlier.
Note, that I will only do this if the market is down significantly. If the market is going up at a ridiculous pace, then I won't "pre-buy" stocks, worrying that I will have to "pay too much" for them when my next $10k comes.
An interesting short-term observation of this method is on Friday of this past week. My portfolio had shifted stocks down to about 19% of total holdings. I decided to "pre-buy" stocks, and push them up to 34% of my total holdings. (still remaining under the 35% band, and with the idea that if stocks rallied on Friday, I would slowly sell down, and keep stocks at just under 35% until my next $10k to invest came in and I would put that into cash).
I did this Thursday afternoon when the market was down around 3% or so. The market wound up closing 1% lower than I bought in at, and then dropped another 1 or 2% on Friday.
However, my total PP actually gained slightly, because even though I was "overweight" on stocks at 34%, the gold and bond portion did well enough to offset the losses in my stock portion. That was really impressive to me. I think my "bet" will pay off and if not, my PP will still be secure, because in a couple months I'll be adding another $10k directly into cash, regardless of what the stock market does.