Almost time to rebalance, but how?

[DrD]

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End of the year approaches, and for some of us it is time for our annual or semi-annual rebalancing. What should the strategy for the first half of 2005 be?

70% S, 30% I was in hindsight almost the optimal strategy for 2004. Picked that because I thought the dollar would be weak and the economy strong.

For 2005, I don't see the dollar getting any better (fundamentals are against it still: high national debt, poor balance of trade....) so I think I'll keep a significant portion in I; probably 30% still.

Not sure how much money to take off the table and put into G, leaving the rest in S or C. When I started this a couple of years ago, my intention was to start 0% G and increase it 3% per year until I got to retirement, taking less risk the closer I got. Haven't done that yet. I guess the frequency of rebalancing will affect this decision.

I have noted that TSPTalk has done a great job of catch-up the second half of this year, so it appears that more frequent rebalancing has potential. Not sure how to balance the risk.

So, what are the other 'buy and hold' folks planning to do?

Best wishes
DrD

 

[grums]

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Well you wont find many buy and holders on this board, and I dont want to confuse rebalancing with trying to time the market which is what I think you mean?

But...basically if you have your asset allocation set up, the idea is to rebalance back to your goal %'s. IE: If you have set your asset allocationbased on your risk tolerance and time to retirement at70% stocks, 30% bonds, and after this good year, it is likely you are much higher in stocks. Lets say 80% stocks and 20% bonds, the true buy and hold strategy tells you tosell the best performing assets (stocks)and buy more of your worse performing assets (bonds) to reallocate back to 70/30.

It sounds more like you are trying to time the market and change your allocation based upon guesses as to what you think may happen in 2005. Which is fine (not my strategy, but hey ) but it isnt really true rebalancing.

Let me know if this is what you meant or if I am totally off in my response

 

[Spaf]

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DrD wrote:

End of the year approaches, and for some of us it is time for our annual or semi-annual rebalancing. What should the strategy for the first half of 2005 be?

So, what are the other 'buy and hold' folks planning to do?

Best wishes
DrD

DrD.... the strategy may be, to be invested during this bull market, primarily in the C, S, and I funds depending on how the funds are doing. Allocations within the funds are a personal choise of risks. C has the least, I the most. However, the point I would like to present is knowing when to exit and when to enter the market? The best investment strategy could turn sour if oil supplies disrupted the market. How will you recognize a change in the primary market movement? What conditions will alert you that a bull market has turned bearish?

Years prior, I bought and held. Things were good for a Loooooong time. And, then a lot of us got the rug pulled out from underneath. The market changed. Now investors have the market after 2000. Sometimes it can be friendly, and at times very unfriendly i.e., the mid year bearish cycles of this year.

The strategy should be one of sucessfully handling your own accounts. Taking responsibility to know the funds, the market, the risks, the options, and making changes to one's own advantage within the investment ststemthey have.

I hope, in someway I've helped.

Rgds Spaf

 

[Mike]

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For the whole year, I'd say you'd be best with more C, less S, and less I. Check out the article I posted in the "more on the I fund" area - it points out what has happened the last several times to the foreign markets after a major influx of cash (as we have been getting the past few months).

Interest rates will be rising. That favors C over S (even though the switch-over has yet to happen). It eventually favors a stronger dollar as well - probably after we pass 4%.

 

[pyriel]

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Mike wrote:

For the whole year, I'd say you'd be best with more C, less S, and less I. Check out the article I posted in the "more on the I fund" area - it points out what has happened the last several times to the foreign markets after a major influx of cash (as we have been getting the past few months).

Interest rates will be rising. That favors C over S (even though the switch-over has yet to happen). It eventually favors a stronger dollar as well - probably after we pass 4%.

Hmmmm... Mike, I thought that when interest rates go up ( which we know it will since the real estate market is starting to go up), C and S is the place to go? As for me, I have decided to stay C and S for 2005 unless of course I see another Enron or 9/11 happening again. This is the reason why I will be sticking with this site because I am sure that the day traders will be pointing that out and I will be able to get some indication to bail out and park my money to safer funds while I ride the crisis.

 

[Mike]

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For the sake of diversification and keeping your risk level in check, yes, both C and S are a good idea. However, asan economic expansionmatures and interest rates rise, the C fund is always favored over S at some point (S is basically the fund that starts off with a bang, then the C catches up). I'd venture a guess that C will begin outperforming the S fund fairly soon - especially if the fed continues raising rates at every meeting, which I think they will as long as the economy is still growing (likely 4% GDP growth this year).

This expectation of a "changing of the guard" as it were is manifested in many people's allocations right now. Tom is heavily in S, but he has a noticeable amount in C. I'm also biased toward S, I still have 15% sitting in I, with 20% in C. As I've said before - I'm paying very close attention to what C and S are doing, and as soon as I see evidence that C is taking the lead, I'll move my S holdings into that fund and ride the large cap wave.

Lastly, if I was a buy-and-holder still, I'd reallocate quarterly rather than yearly - this would allow you to spot the leading fund(s) earlier and adjust accordingly.


Performance of TSP stock funds in December '04: C fund up $0.32, S fund up $0.30, I fund up $0.15. Of course, both S and I took a big hit yesterday, otherwise S would still be leading this month (more volatility there).

 

[fedex]

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Mike, I agree with your assessments. I am currently at 40% C; 40% S; 20% I. Because I have almost as much as my S fund in a midcap value IRA, the C fund is my hedge. If not for that, I'd be 25% C; 55% S; 20% I.

However, I am watching the dollar and the international market. I read your article you posted with great interest. Another concern is our apparent economic recovery, but a lack of corresponding jobs. It could mean a soft dollar into next year and, as another poster observed, continuing trade imbalances. The small cap segment was so hot up until recently and it has softened a little. I agree with you thatthe large cap market should be stronger this next year as larger companieshistorically trail small companies in the market.

I have been a buy-and-hold investor for many years, but the past bear market cycles have forced me to watch MUCH closer.I plan to watch this website and try to reallocate as I get the information.

Fedex :^

 

[DrD]

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I just went 30%C, 30% S, 40% I for my 2005 rebalance. I expect the dollar to continue to weaken, so I went heavier into I. I also listened to those who said that the C fund will be stronger in the late part of a bull market, and weighted it more heavily, hoping to buy those shares now while they are relatively cheaper.

I don't plan to make any changes for the first couple of months, but I may run to bonds if it looks like the market turns south dramatically.

Thanks for all the helpful comments.

Best wishes

DrD

 

[jgpalmerdds]

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Exactly my allocation since 10/20/04 and doing well. I agree with you on the watch, though. I think next year will be a huge year for the I fund, especially if the dollar continues to weaken. Out.

 

[tsptalk]

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DrD wrote:

I just went 30%C, 30% S, 40% I for my 2005 rebalance.

Good luck DrD! If the market does as well as it has for the last 2 years, that allocation will be a big winner again. If it doesn't you will obviously get hit hard. I hope it works out.

FundSurfer: Are you going to add DrD's allocation to the TALLY? Thanks! :^

 

[Mike]

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Long-term prospects for the dollar aren't good, so I think he'll come out ahead on that- but he may take a hit in the short-to-intermediate term as the I fund corrects (it's bound to happen after the major upswing in price over there).

 

[Spaf]

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You can't predict the market! You have to follow the primary movements!

Rgds Spaf

 

[Mike]

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Yes, and primary movements have corrections.

 

[FundSurfer]

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I usually don't add anyone the first month, but after a track record I will. Seen too many people start an account and then drop it to get too excited right away.

 

[FundSurfer]

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Nevermind, I'll add him right away. I didn't catch the buy & hold till the second read.

 

[tsptalk]

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Thanks!

 

[DrD]

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FundSurfer wrote:

Nevermind, I'll add him right away. I didn't catch the buy & hold till the second read.

Cool. What am I added to?



Best wishes

DrD

 

[tsptalk]

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DrD wrote:

Cool. What am I added to?

FundSurfer tracks the returns of some of the members posting their account allocations so we can see how various strategies perform.

 

[DrD]

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tsptalk wrote:

FundSurfer tracks the returns of some of the members posting their account allocations so we can see how various strategies perform.

FundSurfer: Can you tell me how to look at this? Thanks!:^ Off ot a bit of a rocky start today....

 

[FundSurfer]

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http://www.tsptalk.com/mb/forum21/971.html

Here is the post at the beginning of January. Basically I keep a table from a bunch of spreadsheets. I track severaldifferent members returns based on their posted moves. Yours would be easy since you don't move often. You can use Tom's spreadsheet to track your gains/losses. The spreadsheet makes it easy to figure your percentage gain for the year.

http://www.tsptalk.com/utilities.html

There is one other buy and holder on the list

Zbwmy(80%c 20%s long), you can tell because I list the number of moves and he has 0.