Great example of PP in action today...Look at TLT soar!

[timerscraw]

With the Fed's announcement, and VTI/Gold suffering a little, TLT is at 52-week highs now. Up 2.86% right now.

This is a great example of how one aspect can still return an overall positive result for the portfolio.

[Reub]

EDV up 6.14%!

[buddtholomew]

Avoid looking at assets in isolation. The portfolio is down overall.

[moda0306]

It's still a great example of the PP in action.

Almost every other portfolio strategy I can think of is very light on assets that will zig hard when stocks zag.

That means that a loss for the PP is hardly a "failure" of the PP, because most other portfolios built with stocks and a milquetoast bond fund are really in the crapper, and when taken in context the PP held pretty strong.

In fact, 2008, one of the PP's worst years, is probably one of if not the most amazing years of PP performance, as it really put LTT's to test, as well as tested gold during deflation vs other monetary metals (not to mention the test of a treasury MM fund vs some of the ones that failed in the market).

[steve]

The last time I rebalanced was the end of Jan 2011. From then to the close today my portfolio increased appox. 14.42%. My gain today was +0.35% with stocks down -3.25%.  It is great example of the PP in action! Especially when you compare it to the alternatives in the lazy portfolio investment strategies. I know everyones results are slightly different depending on when they last rebalanced and the exact mix.

[Khisanth]

Sigh I guess I suck at math. But the 15%/35% rebalancing bands are way larger than what I had originally expected. Here I'm sitting on a 9% TLT gain in a week, and I was thinking about doing some rebalancing today.

But of course, TLT has not reached a 35% band -- it's still just a normal 27% of my portfolio now, even with the S&P and Gold down a few %.

For it to reach the high limit of the whole portfolio would mean it has to gain 40% (or something like that, depending on the declines in other assets)!

So just to ask -- are you folks really hitting the 15/35 watermarks of the whole portfolio before rebalancing?

[moda0306]

Khisanth,

I was surprised at how hard/long it was watching these things approach the 15/35 bands.  I think for most investors that are (or should be) mostly trading in tax-deferred accounts that tighter bands are more appropriate if it feels "right" to them.

20/30 bands represent a 20% change in the relative value of an assets, which I don't think is inappropriate to rebalance at.

Keep in mind, I don't think LTT's have ever resulted in a rebalance in the form of selling them to buy something else.  It's almost always gold & stocks moving big enough to trigger them.  Just some historical context there.

The PP is about sleeping at night above all else.  By all means, if taxes aren't an issue, switch to 30/20 and don't worry about having to watch one asset dwindle or grow to proposterous (or seemingly-so in real time) levels.

[Lone Wolf]

So just to ask -- are you folks really hitting the 15/35 watermarks of the whole portfolio before rebalancing?

Hi Khisanth.  People use a variety of approaches.  Here are three that all work very well in practice:

• Rebalance annually on a chosen date.  Take everything to 4x25 and then wait another year to fiddle with it.
• Rebalance when any single asset becomes less than 15% or more than 35% of the total portfolio.  (The method you mentioned.)
• Try to keep cash at or around 25%.  Once you have enough "extra" cash to make a purchase for which fees will be minimal, buy one of the lagging assets.  In this way, everything stays fairly close to 25% or so at all times.  You're trying to never have to sell.

These are all great options.  I use the third one since I love staying close to 4x25 and rarely having taxable events.  This is one of those approaches that applies well in the "accumulation phase" when you're earning a decent amount relative to your total savings.  Obviously, it wouldn't be a practical approach for a retiree.

[Storm]

Sigh I guess I suck at math. But the 15%/35% rebalancing bands are way larger than what I had originally expected. Here I'm sitting on a 9% TLT gain in a week, and I was thinking about doing some rebalancing today.

But of course, TLT has not reached a 35% band -- it's still just a normal 27% of my portfolio now, even with the S&P and Gold down a few %.

For it to reach the high limit of the whole portfolio would mean it has to gain 40% (or something like that, depending on the declines in other assets)!

So just to ask -- are you folks really hitting the 15/35 watermarks of the whole portfolio before rebalancing?

Khisanth, I know you might be new to the PP, but the PP is not meant to be an actively traded portfolio.  It is meant to be a portfolio that allows you to go on a vacation for a few months, not check it, and still have your money be fine.  It is actually fairly rare to have rebalancing events, which is good for tax purposes.

I try to do the same thing as Lone Wolf does in option 3.  Even if you don't hit a rebalancing band, buying more stocks now with cash is effectively rebalancing because you're buying low.

[Khisanth]

Thanks for the reassurances. As you've probably noticed I'm a recovering stock picker, and the itch is always there ;-|

Yes, the PP allocations definitely allow me to sleep much more comfortably, but I suppose I still check the tickers during the day to see how I'm doing.

I will let it coast and go take a much-needed vacation ;-)

[craigr]

Keep in mind, I don't think LTT's have ever resulted in a rebalance in the form of selling them to buy something else.  It's almost always gold & stocks moving big enough to trigger them.  Just some historical context there.

Not true. In 2008 it is likely that some selling of LT bonds happened to buy stocks. It all depends on where an investor is on their own individual portfolio timeline (i.e. when they initially set it up in time and amounts added over that period).

The PP is about sleeping at night above all else.  By all means, if taxes aren't an issue, switch to 30/20 and don't worry about having to watch one asset dwindle or grow to proposterous (or seemingly-so in real time) levels.

I recommend watching the portfolio less!

If you rebalance too much you can lose out on some momentum aspects of the assets and incur additional costs. Someone posted an analysis recently showing the sweet spot to be around the 15/35 band.

But yes I think that 20/30 is fine if you are getting jittery. Just recognize the additional costs may be there. But 15/35 works fine. For taxable investors I recommend waiting longer for certain because of tax impacts. But never let an asset get over 35% or less than 15%. That will likely break things for certain and make the portfolio riskier.

[travelingheelfan]

Thanks for the reassurances. As you've probably noticed I'm a recovering stock picker, and the itch is always there ;-|

Yes, the PP allocations definitely allow me to sleep much more comfortably, but I suppose I still check the tickers during the day to see how I'm doing.

I will let it coast and go take a much-needed vacation ;-)

I was a stockpicker myself so I know what you mean.  It takes a little time to get use to.  It took me about three months to get to where I didn't check my portfolio a couple of times a day.  Now I only check it about once a month.

[moda0306]

The recent treasury actions have repeatedly been beating a lesson into me to not try to tinker.  I tend to be a deflationist, but even at these rates I keep thinking "They can't go lower, or at least stocks are a good deal.  I should rebalance now."

I keep being proven wrong.

The rule not to tinker is becoming more apparent as a psychological sanity tool than a wealth building one, IMO.  If you set a "rule" for yourself, and you come to terms with that rule, it is so much easier than constantly rebalancing and monday-morning quarterbacking when things do the opposite of what you expected.

[Lone Wolf]

The rule not to tinker is becoming more apparent as a psychological sanity tool than a wealth building one, IMO.  If you set a "rule" for yourself, and you come to terms with that rule, it is so much easier than constantly rebalancing and monday-morning quarterbacking when things do the opposite of what you expected.

Absolutely.  A framework like what you describe is the only effective way to resist the urge to panic, run, and ultimately stampede with the herd.

[craigr]

The rule not to tinker is becoming more apparent as a psychological sanity tool than a wealth building one, IMO.  If you set a "rule" for yourself, and you come to terms with that rule, it is so much easier than constantly rebalancing and monday-morning quarterbacking when things do the opposite of what you expected.

Emotional control is just as important for portfolio performance than ultimate hot returns. It may even be more important. Investors chasing hot returns often do poorly because they get burned and miss out on more conservative gains they could have had if they just let things alone.

[moda0306]

Days like today make me feel like whatever your opinions are of the PP as it is, that gold and long-term treasury bonds are vastly underused in portfolio management today.

Maybe the Bogleheads don't like 4x25, but 5-15% each of gold and long-term treasuries seem to be very reasonable additions to an otherwise stock-heavy portfolio.

Even Warren Buffet should have some of these on the side for when P/E compression and fear take over his otherwise "diversification-crushing" stock picks.