Gyroscopic Investing

To put it succinctly, I have 40K in new cash and I am reluctant to buy equal shares of the four assets because I feel I will dilute the overall stock allocation when it could very well pop into 35% this season.

Would it make sense to put $10,000 into each asset class in a separate portfolio? That way, I would
(a) avoid tinkering with what I have -- I'm not going to tinker, no matter what.
(b) continue to apply the pp strategy to new funds
(c) avoid hoarding cash / paralysis.

What is the difference, you might ask. After all, I'm still putting 10K into stocks, bonds, cash and gold either way. The difference is that if my current portfolio hits 35% in stocks, I will rebalance that, leaving the new 40K as is until it matures and hits its own rebalance points.

Does this make any sense?
I may have asked this a long time ago, not sure. It's absolutely relevant and real today.

If that new 40k was just a big bonus or inheritance or you found it in an envelope in Ciudad Juarez or something, you could put half in your PP and put the remaining half in a stock-heavy VP. That seems like the simplest solution to me.

I'll mull it over some more.
Thank you both!

Congratulations, dualstow!

Are you worried about putting it into the PP and then having to rebalance in a taxable account almost right away?  If you're that close, why not just consider it part of cash and rebalance now.

dualstow wrote: Would it make sense to put $10,000 into each asset class in a separate portfolio?

Nope.  That increases your future costs and solves nothing.

If you are worried about nearing the rebalance point, and "dilution" away from that point caused by adding $10k evenly into the each class, you could scale the $40k into each to preserve their present ratios.

E.g. if stock is currently 31%, then put 0.31 * $40000 = $12,400 into stock.  Same with the other classes.  That way the percentages won't change.

Personally I'd probably scale the other way so as to bring the 4 classes more into balance.  Even treasuries are starting to look more attractive...

Edit:  Solves nothing you cannot solve another, cheaper, way.

Hi,

me too have this doubt, what to do with NEW money ?

I am thinking to divide it 4x25%.

How do you reforce your PP?


Thanks!

I'm either confused as to the question or am not understanding the OP's strategy, but why not just apply a lump sum investment into rebalancing all 4 asset classes back to 25% each? 

frugal wrote: me too have this doubt, what to do with NEW money ?

I am thinking to divide it 4x25%.

Dividing it evenly works.

Dividing it unevenly to bring existing assets all to 25% (or as close as you can get) works.

Dumping it into the cash allocation works.  (and then rebalance following your normal rules)

Or if like the O.P. you do not want to change the current asset allocation then you can divide it unevenly to preserve the existing allocations.

It's not an exact science.  Just about anything you can think of that fits within the normal behavior of a PP will work fine.  And there is no way to know in advance what if anything is going to work better.

AgAuMoney wrote: It's not an exact science.  Just about anything you can think of that fits within the normal behavior of a PP will work fine.  And there is no way to know in advance what if anything is going to work better.

That's the best point, really.

AgAuMoney wrote:

frugal wrote: me too have this doubt, what to do with NEW money ?

I am thinking to divide it 4x25%.

Dividing it evenly works.

Dividing it unevenly to bring existing assets all to 25% (or as close as you can get) works.

Dumping it into the cash allocation works.  (and then rebalance following your normal rules)

Or if like the O.P. you do not want to change the current asset allocation then you can divide it unevenly to preserve the existing allocations.

It's not an exact science.  Just about anything you can think of that fits within the normal behavior of a PP will work fine.  And there is no way to know in advance what if anything is going to work better.

Wow, lots of new replies while I was away.

sophie wrote: Congratulations, dualstow!

Are you worried about putting it into the PP and then having to rebalance in a taxable account almost right away?  If you're that close, why not just consider it part of cash and rebalance now.

@Sophie, this may sound counter-intuitive, but I "worry" more about missing a chance to finally rebalance. My taxes are never very high and I don't worry about them. I realize that some of us buy the lagging asset and never sell. I do get that, even though I don't apply that strategy myself.

When I see the VBR portion (that's a small-cap value etf from Vanguard) cross 50% in gains and the overall stock portion get near 35%, I'm kind of eager to rebalance. I can't accept that this is market timing, because I'm sticking to Harry's rebalancing bands. HB even said that we could rebalance at 30% if it made us more comfortable, and I've already crossed 30%.

As I write earlier, I feel that putting this new cash into the pp will hinder the stock portion's chance to pop. Of course, if it does pop and I sell it down to 25%, I'm still going to have to do something with this cash that's sitting on the sidelines.

Seems to me that the question of what to do with $40k of investment cash has no generic one-size fits all answer. It would all depend on your overall situation. If you currently have $5k in the PP and $40k to invest with a long term investment horizon I would say by all means invest equally in all four sectors and quit thinking about it.

If you currently have $1m then I would say it also doesn't matter that much but you have some room to play around and I might think of throwing that money to whatever I think are the prevailing winds and see what happens, as long I stayed within the re balancing bands.

dualstow wrote: Wow, lots of new replies while I was away.
I "worry" more about missing a chance to finally rebalance.
...

When I see the VBR portion (that's a small-cap value etf from Vanguard) cross 50% in gains and the overall stock portion get near 35%, I'm kind of eager to rebalance.

Agreed that pretty much anything you decide to do is right.  In fact this new cash is sort of beside the point.  Am I right in guessing that the real question is whether to follow your gut instinct to rebalance now and not wait to cross a 35% band, vs using a buy-the-lagging asset strategy and not selling to capture gains, vs not doing anything and keeping the proportions exactly as they are.

No matter which of these you pick, it'll be the right answer.  Of note, the best performance long term comes from waiting to cross 35% bands and distributing new contributions equally into all four assets, if you trust my back-testing and Matlab skills.  But if this makes you too nervous, understandably since the stock market has ascended to places it never should have gone, then rebalancing now and then distributing the new cash equally might be best for your peace of mind.

I came upon an elegant solution. I am going to hang on and not rebalance until 35%. And, I am going to spend the new 40K.

dualstow wrote: I came upon an elegant solution. I am going to hang on and not rebalance until 35%. And, I am going to spend the new 40K.

I like that solution. 

dualstow wrote: I came upon an elegant solution. I am going to hang on and not rebalance until 35%. And, I am going to spend the new 40K.

eheheh

any suggestion to keep the money until rebalance day?


Regards

dualstow wrote: I came upon an elegant solution. I am going to hang on and not rebalance until 35%. And, I am going to spend the new 40K.

Congratulations again!!  Sounds perfect.  I had been tempted in my last post to suggest that you take the money and go spend a few weeks in Patagonia or something, but I thought that would be terribly contrary to our collective ERE principles. Or, put half the money into the mortgage which is what I probably would have done.

frugal wrote: any suggestion to keep the money until rebalance day?

No, not that I've seen. ;-) Actually, I think there was one.

sophie wrote:
I had been tempted in my last post to suggest that you take the money and go spend a few weeks in Patagonia or something, but I thought that would be terribly contrary to our collective ERE principles. Or, put half the money into the mortgage which is what I probably would have done.

It's going into long overdue home renovation.

@AdamA: Thanks, I think I'm going to like it too. :-)

Along the same thought process of this thread:

If you got 10k new cash and bonds are down but everything else in your PP is above 25% would you just put that cash in I Bonds with the rates being so close and the savings bonds having none of the long bond risk?

Also, would you just keep dumping money into I Bonds until long bonds offer a significant rate advantage over savings bonds?

Bean wrote: Along the same thought process of this thread:

If you got 10k new cash and bonds are down but everything else in your PP is above 25% would you just put that cash in I Bonds with the rates being so close and the savings bonds having none of the long bond risk?

Also, would you just keep dumping money into I Bonds until long bonds offer a significant rate advantage over savings bonds?

How about, until long bonds drop to 15% of your total?
I'm glad I didn't have such paralysis when I first began a pp. Things worked out really well with the long bond portion. For those who would think, "That's easy for you to say." No, it was quite difficult. Everyone outside of this forum said, in so many words, that it was stupid to buy 30-year bonds. "Why would you want to buy long-term treasuries? You've got risk with no reward! The yield is only 4%! Yield has nowhere to go but up!"

The minimum NEW money to increase PP for me is 40k = 10k x 4 assets

Less then this the commissions will be high relatively to the investment.

Where shall I mantain the money during the saving process ?


Regards

frugal wrote: Where shall I mantain the money during the saving process ?

50% cash, 50% gold?

frugal wrote: The minimum NEW money to increase PP for me is 40k = 10k x 4 assets

Less then this the commissions will be high relatively to the investment.

You don't have any commission-free ETFs or mutual funds in Portugal? That's a shame.

Pointedstick wrote:

frugal wrote: The minimum NEW money to increase PP for me is 40k = 10k x 4 assets

Less then this the commissions will be high relatively to the investment.

You don't have any commission-free ETFs or mutual funds in Portugal? That's a shame.

No 

what would you doo with the savings inbetween

frugal wrote:

Pointedstick wrote:

frugal wrote: The minimum NEW money to increase PP for me is 40k = 10k x 4 assets

Less then this the commissions will be high relatively to the investment.

You don't have any commission-free ETFs or mutual funds in Portugal? That's a shame.

No 

what would you doo with the savings inbetween

Probably keep new contributions in cash and then buy the other PP assets all at once only every few months. I do this with gold.