Regarding the bolded paragraph above, does that mean that you adjust your AA based on market valuations? And if so, do you have a systematic way of making that adjustment? And, in practice, does that mean you adjust AA more frequently than someone who is rebalancing to a static allocation target to take into account market performance?I believe you're a proponent of a static allocation target -- or allocation based on portfolio size / multiple of spend, informed by historical analysis (per your other thread and 80/20 above). That's one way to do it. I believe it mostly ignores valuations (except indirectly as it impacts portfolio size) and ERP, which personally makes me uncomfortable.It reads as if you are holding TIPS for the long term but are actually rebalancing them based on valuations without checking if you are gaining or losing anything from this timing. Someone is already rebalancing back into stocks in early 2009 regardless of ERP, so it's not clear from your statements if you are actually benefitting or if ERP vs TIPS rate is predictive for you in an actionable manner. You could check this but it sounds like it has not occurred to you to do so.Any TIPS I've bought are long-term investments. Not clear what this line of inquiry would illuminate.
If you think CAPE has some long-term predictive power, which I do, it makes sense to consider estimates of ERP and not just TIPS rates in isolation.
I recognize I have more appetite than many to occasionally rebalance, moderately, into or out of TIPS. I think the ERP has useful information for informing rebalance decisions. It's not all or nothing, so not about "eliminating the idea" of a ladder. Yes, marginal utility is also important to consider when rebalancing (or not).
If it's early 2009 and TIPS are above 2%, but CAPE is 13 ...
Yes I do some rebalancing above a floor. Yes pretty much everyone is rebalancing in a 2009 scenario -- but to different targets based on philosophy.
I will check my long-term benefits in 20 years when results are in.
Statistics: Posted by CloseEnough — Thu Apr 18, 2024 5:53 am — Replies 3175 — Views 689068