Gyroscopic Investing

One of my GB portfolios just got an influx of cash as I made a 2017 IRA contribution. The current allocation is 17 stocks/41 bonds/20 cash/22 gold. With stocks supposedly overvalued I don't feel like I'm ready to hold my nose and buy stocks (the lagging asset) as many pundits say US equities will have low returns over the next decade. Most of my gold was purchased in 2013 at 1700-1800 levels, which means all my gold positions are in the red.

I feel stuck as I just don't know what to do. Do I drop the new money into short-term Treasuries and wait until the next correction gives me a chance to rebalance into stocks (finally)? Or do I split the new money between STTs and gold? Or maybe a total return bond fund would be a good temporary option?

Talking about stocks, I almost decided to buy some foreign small caps and/or EM SC as they are, shall we say, "less overvalued" compared to US stocks... but if we do see a market correction ALL equities will drop so I'm still reluctant.

I feel a bit embarrassed to ask these questions being a long-term PP follower and having read Craig and MT's book and all the great discussions on the forum. Any thoughts/suggestions are appreciated!

Perhaps I don't understand something, but given your current allocation, shouldn't you simply buy stocks and forget about what the pundits say?

Nobody can predict the future. That's why the PP was invented. Just stick to the strategy, it was designed so you don't have to make these decisions.

> Just stick to the strategy, it was designed so you don't have to make these decisions

What fun is that. We want to hand-wring. So! I'm debating

DBA - http://www.etf.com/DBA
Low correlation and beaten up

IBB: http://www.etf.com/IBB
Low correlation and I want to support biotech. But PE -72?

PXH: http://www.etf.com/PXH
PE 13

Foglifter, I'm confused...

Whether you're running a Golden Butterfly or a 25x4 PP, your portfolio needs to be rebalanced. It's not just about the new cash.

You don't know if the pundits are right or not. It could be that stocks are headed for decline, or this could be a great buying opportunity because they're on sale. It could also be that bonds are headed for a decline, which pundits are also saying. And they don't much like gold either. What's an investor to do? Answer: ignore the pundits because they don't know any more than you do what's going to happen.

I wonder if we'd all be better off just ignoring the financial news except for big events that might impact the PP or its variants. It's a lot of time sunk into reading junk that could just as well be spent reading novels or playing with your cats. Assuming you own a cat, of course.

If I were you, I'd be selling bonds and putting it into gold, bills, and stocks. If you're only at 17% now, you don't have much room for stocks to go down until you're selling at 15%.

If moving into the GB, pretty much just sell bonds and buy SCV.

foglifter, if the added cash doesn't put you over your rebalancing bands, why do anything? Just leave in cash until you do an annual rebalance or because of some asset going up or down through a band?

Everything right now looks crappy depending on your angle, except cash (my opinion)

I’m on the other side of the coin.
Raise your equity allocation to at least 25%.
Sometimes you need to be aggressive to be conservative.

boglerdude wrote:> Just stick to the strategy, it was designed so you don't have to make these decisions

What fun is that. We want to hand-wring. So! I'm debating

DBA - http://www.etf.com/DBA
Low correlation and beaten up

IBB: http://www.etf.com/IBB
Low correlation and I want to support biotech. But PE -72?

PXH: http://www.etf.com/PXH
PE 13

Thanks, but aren't these more appropriate for a VP? I'm talking about my PP.

sophie wrote:Foglifter, I'm confused...

Whether you're running a Golden Butterfly or a 25x4 PP, your portfolio needs to be rebalanced. It's not just about the new cash.

You don't know if the pundits are right or not. It could be that stocks are headed for decline, or this could be a great buying opportunity because they're on sale. It could also be that bonds are headed for a decline, which pundits are also saying. And they don't much like gold either. What's an investor to do? Answer: ignore the pundits because they don't know any more than you do what's going to happen.

I wonder if we'd all be better off just ignoring the financial news except for big events that might impact the PP or its variants. It's a lot of time sunk into reading junk that could just as well be spent reading novels or playing with your cats. Assuming you own a cat, of course.

I love hearing a voice of a sage. Sophie, thanks for telling the truth as it is. Well, it's very clear that the portfolio is way overdue for rebalancing. Maybe I should just buy small caps and feel good that I didn't pour that money into large caps.

Cortopassi wrote:foglifter, if the added cash doesn't put you over your rebalancing bands, why do anything? Just leave in cash until you do an annual rebalance or because of some asset going up or down through a band?

The thing is even with added cash I'm still looking at an oversized heap of LTTs.

Cortopassi wrote: Everything right now looks crappy depending on your angle, except cash (my opinion)

That's a pretty accurate description. Nowhere to hide.

buddtholomew wrote:I’m on the other side of the coin.
Raise your equity allocation to at least 25%.
Sometimes you need to be aggressive to be conservative.

This is a gem, thanks Budd. I may consider making it a signature.

foglifter wrote:

buddtholomew wrote:I’m on the other side of the coin.
Raise your equity allocation to at least 25%.
Sometimes you need to be aggressive to be conservative.

This is a gem, thanks Budd. I may consider making it a signature.

Glad it helps foglifter.
Everyone here has been a huge help to me.

My philosophy has changed so that I now root for stocks to rise knowing that I have the protection (or am positioned appropriately) when they fall.
It’s fun to be optimistic knowing that stocks historically have risen 70% of the time.

I'm starting to get the idea that the next few years could be an easier time period in which to invest new money in the PP.

1. cash is actually earning something again
2. bonds are actually earning something again; prices are depressed; buying opportunity
3. eventually, stocks will have another real bear market; buying opportunity
4. gold hasn't really taken off yet

The pivotal moment would be bond yields spike (bond dream room - 4.5% on the 20 year?) which tightens financial conditions, tanks the stock market, and pressures zero-yielding gold back towards $1050.

""When E. F. Hutton talks, people listen"

"When Budd is screaming, PP investors listen"

Not to hijack the thread, but for someone who is making regular contributions to the PP, in my case bi-weekly, are there any thoughts as to when or how to invest those funds? Am I better off just buying 25% of each asset bi-weekly? Or should I buy only cash and then rebalance at a set time or when an asset has had a drop? Opinions??

Jeffreyalan wrote: ↑Tue May 22, 2018 11:19 am Not to hijack the thread, but for someone who is making regular contributions to the PP, in my case bi-weekly, are there any thoughts as to when or how to invest those funds? Am I better off just buying 25% of each asset bi-weekly? Or should I buy only cash and then rebalance at a set time or when an asset has had a drop? Opinions??

I buy only cash and only rebalance if something hits the bands, or annually.

I have to date done it annually, but like will change to bands.

I just want to minimize trading. Resultant returns with peak to trough are different based on style, but also different based on the timeframe you look at so I am guessing it is a wash.

I think bands may be best because you are buying severely discounted assets, vs. potentially buying assets all the way down if doing it constantly.

I invest the stock portion of my portfolio along the lines of Paul Merriman's suggestions - worldwide diversity in large, small and value. That seems to help me buy in all market conditions because I'm not focused solely on US investments. I understand this not a pure HB approach, but it works for me.

Desert wrote: ↑Tue May 22, 2018 3:16 pm

MangoMan wrote: ↑Tue May 22, 2018 12:11 pm I buy the lagging asset, with the same idea that it usually happens to be whatever has been discounted by poor recent performance.

This has always been my approach as well. It drives a healthy contrarian buying behavior.

So how do you measure the lagging asset? In my case since I am investing in the portfolio every other week, not enough time has passed since the last deposit for any one asset to have moved enough to reach any sort of bands.

Jeffreyalan wrote: ↑Tue May 22, 2018 11:19 am Not to hijack the thread, but for someone who is making regular contributions to the PP, in my case bi-weekly, are there any thoughts as to when or how to invest those funds? Am I better off just buying 25% of each asset bi-weekly? Or should I buy only cash and then rebalance at a set time or when an asset has had a drop? Opinions??

Let's cut to the chase...you can not know the answer (performance wise) in advance. Therefore, it doesn't really matter. I would add a small caveat...unless there are clearly identifiable tax or cost consequences and if so, go with the option that minimizes both.

If you have chosen the classic 4x25% allocation, stay close to it as that is what will keep you closest to the risk/return profile of the portfolio.

We've had past threads on this, including some simulations that a few of us ran...

The approach that maximizes returns is to contribute equally to all 4 assets. Contributing to the lagging asset is a close second, and may be superior after-tax as it reduces the frequency of rebalancing. I like it also because you end up making fewer purchases and minimizing commissions.

Harry Brown's approach of adding new money to cash is easiest, but resulted in a CAGR around 0.5% less than equal contributions.

I also compared annual rebalancing vs different rebalance bands. Tight bands (e.g. 20-30%) resulted in poorer performance than wider bands (15-35%). Annual rebalancing had the worst performance.

I use kind of a hybrid approach: fixed monthly auto-investments, small extra contributions to cash, and large amounts (e.g. the annual Roth contribution) to the lagging asset(s).

Sophie’s observation is widely backed by research. It pretty much never pays to wait on deploying cash. Of course, all these studies presume the future will be like the past ( past data upon which they are built).

I use M1 Finance as my broker. So it is commission free and I can contribute a lump sum of cash and they will automatically purchase the ETFs in the amounts to get me to my preselected percentages. It seems to be a brokerage tailor made for PP (and other fixed asset allocation) investing.

Jeffreyalan wrote: ↑Thu May 24, 2018 1:23 pm I use M1 Finance as my broker. So it is commission free and I can contribute a lump sum of cash and they will automatically purchase the ETFs in the amounts to get me to my preselected percentages. It seems to be a brokerage tailor made for PP (and other fixed asset allocation) investing.

Wow, that really does sound perfect. There's no catch? It looks like they make money (among other things) by lending out securities. I suppose every broker does that though.

Xan wrote: ↑Thu May 24, 2018 3:23 pm

Jeffreyalan wrote: ↑Thu May 24, 2018 1:23 pm I use M1 Finance as my broker. So it is commission free and I can contribute a lump sum of cash and they will automatically purchase the ETFs in the amounts to get me to my preselected percentages. It seems to be a brokerage tailor made for PP (and other fixed asset allocation) investing.

Wow, that really does sound perfect. There's no catch? It looks like they make money (among other things) by lending out securities. I suppose every broker does that though.

They make money from lending securities, earning interest on the cash in your account and also margin lending.

https://www.m1finance.com/