Fellow board members,
This is FYI because I said that I would do it. I changed my asset allocation last Thursday from 100% G to the following: 12% G, 44% F, 14 % C, 7% S, 23% I. I planned to post it on Friday but we had a local weather disaster and we lost internet until last night. So there it is.
There is "method to the madness" above and I will write it up. It involves the following issues:
(1) I moved from C to G in late December, which was a "trading mistake" since stocks continued up after that.
(2) The P/Es of our domestic stocks are near historic highs and other contrarian signals are flashing red as well. They will turn out to be correct, but no one knows when. So trading them is often very frustrating and, based on some data from Yardeni.com, might be a bad idea. Meanwhile FOMO (fear of missing out) can cause much consternation to people who went to cash and are watching the stock market go up.
(3) In the long term (20 years), buy and hold on stocks is the easy winning play. I came to realize recently that these stock index funds (at least C and probably S) are somewhat optimal, in that the worst performers are replaced by recent top performers that are not in the index. For example, this happens with C for sure apparently several times per year. So holding these funds makes sense as solid assets and as statistical winners because losers are periodically replaced with recent better performers. That is, the funds are not purely unmanaged funds.
(4) Retired people have a shorter horizon, so what do they do if they have been chased out the market by fear (e.g., pandemic, obvious extreme stock valuation)? Hanging tough requires nerves of steel for good reasons. Also it can lead to severe under-performance.
My philosophy underlying the new allocation involves the above issues and is specifically for retired or risk averse people who wish to have some stock holdings, of which I am one. To do this, I estimated the relative earnings yield of the various funds and allocated them according to the estimated earnings yield. I am not willing to go through 5000 stocks (C + S) to estimate these numbers nor will I do so for fixed income. However, enough information is available publicly and in our quarterly TSP reports to compute estimates for the funds. My plan is to lay these out in a document (text or PDF) and attach them to a future message. However, I am unfortunately busy with some other things that have a short time fuse.
Again, this is just FYI. I suggest that people should use their own judgements as to the best allocations and policies should be.
Good luck,
Tex
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This is FYI because I said that I would do it. I changed my asset allocation last Thursday from 100% G to the following: 12% G, 44% F, 14 % C, 7% S, 23% I. I planned to post it on Friday but we had a local weather disaster and we lost internet until last night. So there it is.
There is "method to the madness" above and I will write it up. It involves the following issues:
(1) I moved from C to G in late December, which was a "trading mistake" since stocks continued up after that.
(2) The P/Es of our domestic stocks are near historic highs and other contrarian signals are flashing red as well. They will turn out to be correct, but no one knows when. So trading them is often very frustrating and, based on some data from Yardeni.com, might be a bad idea. Meanwhile FOMO (fear of missing out) can cause much consternation to people who went to cash and are watching the stock market go up.
(3) In the long term (20 years), buy and hold on stocks is the easy winning play. I came to realize recently that these stock index funds (at least C and probably S) are somewhat optimal, in that the worst performers are replaced by recent top performers that are not in the index. For example, this happens with C for sure apparently several times per year. So holding these funds makes sense as solid assets and as statistical winners because losers are periodically replaced with recent better performers. That is, the funds are not purely unmanaged funds.
(4) Retired people have a shorter horizon, so what do they do if they have been chased out the market by fear (e.g., pandemic, obvious extreme stock valuation)? Hanging tough requires nerves of steel for good reasons. Also it can lead to severe under-performance.
My philosophy underlying the new allocation involves the above issues and is specifically for retired or risk averse people who wish to have some stock holdings, of which I am one. To do this, I estimated the relative earnings yield of the various funds and allocated them according to the estimated earnings yield. I am not willing to go through 5000 stocks (C + S) to estimate these numbers nor will I do so for fixed income. However, enough information is available publicly and in our quarterly TSP reports to compute estimates for the funds. My plan is to lay these out in a document (text or PDF) and attach them to a future message. However, I am unfortunately busy with some other things that have a short time fuse.
Again, this is just FYI. I suggest that people should use their own judgements as to the best allocations and policies should be.
Good luck,
Tex
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