Monthly Additions to HBPP

[sk55]

hi guys,

new to HBPP. i have a few newbie questions.


i plan to deposit monthly to my HBPP portfolio.  whats the best way to do this? should i just split my deposit and buy equal portions of each sector?

or should i save up and do it every quarterly?

should i be buying on dips? does it matter?

i need to some good advice on how to add funds to the portfolio.


thanks
sk

[Xan]

As a new PPer myself, this is something I'm not sure what the orthodox viewpoint is.  My plan when adding money is to perform a pseudo-rebalance, that is, to basically buy whatever's got the lowest allocation at the time in order to bring it up towards 25%.  You could also do it by splitting additional money evenly and then rebalance on your normal schedule.  Sometimes one will work better than the other, maybe, but it shouldn't be by much, and it would be difficult/impossible to predict which.

Am I on the right track here, folks?

[rickb]

There are multiple ways to handle periodic contributions during an accumulation phase:

1) add only to cash, and rebalance to 4x25 whenever cash exceeds 35% of your total

2) add to most lagging asset

3) rebalance as much as possible with each contribution

Over the long term, which of these you do doesn't really make that much difference so don't agonize over this too much.  The best thing is probably to pick whichever of #1 or #2 minimizes your transaction fees (perhaps #2 at the very beginning, switching to #2 as your portfolio builds up).

[Tyler]

I personally started with a hybrid #3, saving until the fees are low percenage-wise and rebalancing on the fly.  But after doing that for several months, I still find myself playing mind games:

"Sure gold is the lowest asset, but it had a big up week - maybe I'll wait a few days to see if the price comes down. Let me keep tracking it every day and I'll buy on a dip." And then I keep checking the markets and driving myself a little crazier every day.

So now I'm discovering that a set schedule may be more important for my psyche than thinking too much about the optimum contribution method. That Harry Browne guy may have been onto something with his once-a-year checkup idea.  ;)

[craigr]

I would opt towards buying the lagging asset first. Buying assets on sale is usually the best long term decision.

[sk55]

Is there much difference investing quarterly vs. Monthly?

[craigr]

Is there much difference investing quarterly vs. Monthly?

The main difference is if you do monthly you could have higher transaction fees if you can't do the buying for free. In which case it may make more sense to pool money for quarterly purchases to reduce commissions as part of the purchase.

But if your account does not need to worry about commissions, then monthly is just as fine as any other way.

[clacy]

As Craig said, it will be to large extent dependent on commissions.  If you're not paying commissions, or in the case of Vanguard or TDA, you only pay commissions on gold, then you could just add to the lagging asset.

If you're paying commissions, I would strongly suggest just contributing to your cash portion in your free money market.  Or you could just save it up in your back account (still considering this as cash) and then quarterly or semi-yearly add to your actual brokerage account and choosing the most lagging asset, once again.

[cowboyhat]

My advice would be to think about the minimum number of times per year you are willing to look at your investments. Not looking and spending that saved mental and emotional energy doing other things that make you happy is one of the big benefits from being a PP investor. If you are accumulating, then puting new money into cash and buying the lagging assets once a year works well. You will find yourself becoming increasingly detached. With the detachment comes time to think about bigger questions.

How should you spend your time? Should you be working and saving, or should you be focused more on your family and friends?

[sk55]

just to make it clear in my mind guys.

say i was a light on gold and stocks...  but i could only add to one at  this time do to lack of funds.

gold was pullink back to 200ma.. while stocks were breaking new highs...

i would add to gold? is this correct?

seems like with PP you always want to add when a sector is pulling back not breaking new highs..

[shoestring]

I can only tell you what I do.  I'm going to make a lot of people here laugh at how childish and simplistic this is.

I wait until I feel like I have a "pile" big enough to mess with.  I generally follow the rule of thumb that if the cost to invest the pile isn't at least 2% of the "pile" it's not time yet.  Normally I want to be even less than 1% I hate paying fees.  This tends to work out to be roughly quarterly, but that's not on purpose it just happens this way.

I then have a little spreadsheet and I go look at where everything is at current market prices and where it would be depending on what I do.  In one column I put in the current market value of each "slice", so like if my gold is shares of GLD and IAU, I just add together the values of all those shares.  Similarly if you had some physical gold you could just look up what your 1 ounce bar or whatever is selling for and use that as the value.   You get the idea.  I do this because I don't have everything in one account.

The next column then shows the current percentage breakdown.  The third column shows what "should be" in each slice after the new money is put in.  The fourth shows the difference.  The total of the fourth column should be the amount I am about to invest into the portfolio.

In the fifth column I put in my actual transaction numbers, what I am thinking about doing.  I don't usually try to "fix" the portfolio except once a year, but when I add money I check on it and try to buy what's down, and if something's way up like in this example, I might sell some of it off.  Usually though I don't bother selling anything down, extreme scenarios like this don't seem to really happen.

A lot of this information is superfluous, I just like to display it a certain way is all.  I am a visual person, I like to see it.

You get the idea.  It looks kind of like this:

And that's it.  In this example Gold was really out of whack and Bonds were down, so I opted to sell off some gold and buy some bonds.  Technically I could do all sorts of analyses, but I don't see the point as I tend to outsmart myself and do stupid things when I think too hard about it.  This is all I really care about in the end.

I'm not sophisticated, so this works for me as dumb and unprofessional as it is.  I just look at it as it is in a moment in time and consider my plans every so often.

[sk55]

the screen shot really helps shoestring!

i assuming you happy with the gains so far with your PP using this method.

[hoost]

I developed a similar visual setup to Shoestring, but I went a little farther and put in graphs a colors because it makes my head hurt less than staring at plain numbers.

The problem is, I can't figure out how to insert a screenshot of it.  I'll do some research and if I figure it out, I'll post it.



Edit: Figured it out, but I'm not sure if I got the size right. Anyone have a recommendation for appropriate size for images? It's about 800x400 right now.

I have just been letting our contributions go to cash for now.  I intend to rebalance yearly (okay, maybe as often as quarterly but I'm trying to stay disciplined) or when we hit 15/35% rebalance bands.  If cash were to hit 35%, I'd probably go ahead and make purchases of whatever's lowest to get cash back to 25%, assuming the purchase is large enough to justify any transaction fees, and not necessarily sell off any assets.  If one of the other assets was to hit 35%, I would then sell that asset back down to 25% and distribute the proceeds appropriately, preferring to minimize transaction costs/taxes.  In November/December I would then do a full rebalance back to get close to 4x25%.  I've only been in the PermPort since February, so I can't say whether the results of this rebalancing strategy are good/bad, but I try to leave things be as much as possible so that I have the option of forgetting about it if I want to.

[metta2006]

I just finished putting half of my cash into a pp. Now I still have the other half. I'm thinking of doing DCA over 10 mo investing 10K a month but I can see that once a month, I would probably have to buy all three assets as one asset is unlikely to fall this much. That leads to at least 3 x 10 dollars for fees over 10 mo = 300 dollars to invest 100K. Is this reasonable? Or should I try to buy less often, every two months or so. How much is a reasonable percentage to pay fees? Once is set up, I would be adding about 2000 dollars a month. I'm thinking of buying lagging asset every month incurring 10 dollars per transaction fee. Is this also reasonable? Thanks!