Gyroscopic Investing

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Great point Clive.  I remember reading this when going through the Bogleheads thread.  Personally I set my limit closer to 50%.  I try to keep a rough 50/50 balance of gold coins and GTU.  I will never sell my gold coins for rebalancing.  The coins will only ever be sold during the withdrawal phase, or will be passed on to my family when I die.

Extreme situations require the use of good judgment. An extreme currency emergency could be a case where rebalancing is a bad idea. The only way to know the best action is to assess the situatuion as it unfolds. The only saving grace then is at least a Perm Port user has options to respond that others just in bonds or stocks may not get.

Another option is to have a VP that holds no bonds backed by paper currency. This would allow one to simply follow their normal investment protocol for both portfolios and still be protected.

For example, I am considering a VP consisting of small cap US stocks, emerging markets, and international developed markets.

Another approach to avoid excessive rebalancing would be to combine an infrequent checking approach, like using a once a year rule (which as a bonus has a positive effect on your emotional state), with a long moving average filter rule when it comes time to buy a loser that has broached the 15% lower bound. Buying a lower 15% loser is historically a rare event and may warrant a little extra thought compared with profit taking from a 35% winner.

So, for example, if it is rebalancing time and you note that the loser asset you need to buy is below some long term moving average, like the 200 SMA for stocks or gold, which are historically the big losers, then you wait until the end of the next month and check again. If at the end of the next month you find the asset of interest is still below it's 200 SMA then you check back at the end of the next month, and so on until the asset gains some positive momentum and gets back above the moving average you have chosen.

Not a perfect approach but it would keep you from buying and rebuying something that by bad luck happened to be plunging into an abyss at your once a year rebalance point. Downsides are that you will give up some return, but if it is at a 15% lower bound loser then there is plenty of mean reversion upside in the asset class. You also you may be checking asset prices more frequently than is healthy (at the end of each month), but you may be doing this anyway just rubber-necking an asset in collapse.

And of course the loser asset in question may poke its head above its 200 day SMA at the end of the month only to return to immediately return to plunge mode, but you pay your money and take your chances no matter what you do.

melveyr wrote: Another option is to have a VP that holds no bonds backed by paper currency.

Took me 30 seconds to realize what you meant 

I use buddtholemew's freak-out posts as rebalancing points, but not in the traditional sense... I immediately sell my VP and buy up more PP.  Then I wait for a new ETF to come out based on the PP, and sell out of the PP whatever I had put in from my VP, and put it back.

It's worked out pretty well so far.



JK, bud, if you're out there.

moda0306 wrote: I use buddtholemew's freak-out posts as rebalancing points, but not in the traditional sense... I immediately sell my VP and buy up more PP.  Then I wait for a new ETF to come out based on the PP, and sell out of the PP whatever I had put in from my VP, and put it back.

It's worked out pretty well so far.



JK, bud, if you're out there.

Always glad to be of service I freak out and do nothing...seems to work for me as well.