Benefits of timing market / trading in pre-tax accounts

[YoungStache]

***EDIT*** - So I have already long-ago read the Jlcollinsnh stock series. This post was more about the benefits of timing trades or asset allocation rebalances in a tax-deferred account since the trades (taxable events) would be tax-deferred.

I have some money in a Vanguard rollover account that consists of the pre-tax retirement account money I rolled over from my previous employers' plans.

Since it is in a tax-deferred / pre-tax account, any trades are tax-deferred until distribution/withdrawal, correct?

An example I am thinking of is exchanging my VTSAX in that account to a bond or money market fund if the market goes to a new all-time-high without first having a major correct/crash.

Do you guys have any strategies regarding taxes and tax-deferred accounts?

[EvenSteven]

I have some money in a Vanguard rollover account that consists of the pre-tax retirement account money I rolled over from my previous employers' plans.

Since it is in a tax-deferred / pre-tax account, any trades are tax-deferred until distribution/withdrawal, correct?

An example I am thinking of is exchanging my VTSAX in that account to a bond or money market fund if the market goes to a new all-time-high without first having a major correct/crash.

Do you guys have any strategies regarding taxes and tax-deferred accounts?

Yep. I set an asset allocation that I am comfortable with, and make a regular contribution with each pay check at my chosen asset allocation percentages. I follow the investment order sticky to decide which accounts the funds go to.

[dandarc]

You need to read the stock series.

[RWD]

You need to read the stock series.

Link for the lazy:
https://jlcollinsnh.com/stock-series/

Don't try to time the market.

[MustacheAndaHalf]

An example I am thinking of is exchanging my VTSAX in that account to a bond or money market fund if the market goes to a new all-time-high without first having a major correct/crash.

Have you sold off your savings account?  Savings accounts reach all time highs every month.  Which is an exaggeration, but highlights the flaw with your idea: the market tends to go up over time, so it hits a "new high" very frequently.  In a long bull market, do you sell off in the first year?  In year 2?  In which case, you miss most of the bull market, and the correction won't make up for it.

A better approach is to watch your asset allocation.  When stocks rise from 90% to 95%, then you might want to sell 5% stocks and buy 5% bonds to keep a 90/10 allocation.

Here's SPIVA data comparing the S&P 500 versus active funds.  The 15 year performance comparison (page 4) includes the 2008 crisis - the biggest correction in 70+ years.  And yet the S&P 500 beat 92% of active funds over 15 years.  Also notice the trend: the longer the time period, the more active funds the S&P 500 beats.
https://us.spindices.com/documents/spiva/spiva-us-mid-year-2018.pdf

[YoungStache]

Thanks for all the responses.

So I have already long-ago read the Jlcollinsnh stock series. This post was more about the benefits of timing trades or asset allocation rebalances in a tax-deferred account since the trades (taxable events) would be tax-deferred.

I'm definitely in the buy and hold camp, but am thinking of rebalancing more often with some of the tax-deferred account money especially at new all time-highs in 10+ year bull markets.

If I rebalance or exchange from one Vanguard fund to another, how is the tax treatment? Would I get taxed on the taxable events if I ever withdraw? Or just regular income tax on the pre-tax money?

[CorpRaider]

Yeah if you're going to be undertaking transactions that result in the recognition of gain it is better to do them in the tax advantaged accounts (all other things being equal). 

In the taxable accounts, I believe some recommend rebalancing via allocations of new contributions (if you're in accumulation phase) versus selling and recognizing gains (i.e., you would allocate all new $$$ to the fund/asset that you wanted to increase).

[EvenSteven]

Buying and selling in traditional or Roth tax advantaged accounts will not have any tax consequences for you. Tax drag isn't the biggest reason people suggest that you not attempt to time the market, but best of luck on your predictions.

[Indexer]

Rebalance in the IRA so you can avoid tax implication. For asset location reasons, your bonds should be in your tax deferred accounts anyway.

The only tax planning related rebalancing I can think of in a taxable account would be tax loss harvesting... or gain harvesting(if in 0% LTCG bracket).

[insufFIcientfunds]

Not very exciting but AT&T for me. Bought 200 shares mid-last year, now I have 204ish shares lol.

[ericbonabike]

I thought JLCollins advocated something like this:

Buy 90% stocks, 10% bonds if you're young.  It has been proven to slightly outperform 100% stocks.

Every year on his wife's birthday he rebalances to maintain 90/10 ratio. 
OR
If market moves more than amount in a short period of time (thought he said 20% in a week or so).  So, if market soars by 20% in a fixed week, rebalance.  If market plunges (like it did in December), rebalance. 

I'm considering implementing a strategy like this. Does anybody have any insight if that actually outperforms the market?

[MustacheAndaHalf]

Over the past 12 months, the U.S. total stock market beat AT&T by +17%.  And by an average of over +9%/year for the past 10 years.  A total stock market fund is probably a better investment than putting thousands in a single company's stock.  But if you disagree, at least keep tracking AT&T stock against the S&P 500 or total stock market.
https://www.morningstar.com/stocks/xnys/t/quote.html

[OurTown]

There are no tax consequences to rebalancing inside your tax-deferred accounts. 

As to market timing, what I think you are looking for is the fabled rebalancing bonus.  In fact, I just did this inside of my wife's 403(b).  At the end of December 2018, I transferred about $7k from the bond fund into VINIX to get the total asset allocation corrected.  YESTERDAY, I transferred about $8k from VINIX back into the bond fund, again to get the total allocation to my pre-selected set point.   So for that little portion I bought around 216 and sold around 259, give or take. 

So yes you do get little moments like this where you get a little benefit from rebalancing, but because the object is to maintain your desired asset allocation the adjustments are relatively small in comparison to your entire portfolio. IOW, you are moving a percentage point or two here and there, your are not going "all in" at the bottom and jumping out at just the right time at the top.   

[flipboard]

There are no tax consequences to rebalancing inside your tax-deferred accounts. 

There are. Wash sales.

[TheAnonOne]

I thought JLCollins advocated something like this:

Buy 90% stocks, 10% bonds if you're young.  It has been proven to slightly outperform 100% stocks.

Every year on his wife's birthday he rebalances to maintain 90/10 ratio. 
OR
If market moves more than amount in a short period of time (thought he said 20% in a week or so).  So, if market soars by 20% in a fixed week, rebalance.  If market plunges (like it did in December), rebalance. 

I'm considering implementing a strategy like this. Does anybody have any insight if that actually outperforms the market?

Just to be nitpicky here, I think this is somewhat inaccurate. 90/10 and 100/0 are nearly the same beast, but all things being equal 100/0 will outperform 90/10. Especially in the long haul.

[MustacheAndaHalf]

I thought JLCollins advocated something like this:
Buy 90% stocks, 10% bonds if you're young.  It has been proven to slightly outperform 100% stocks.

Just to be nitpicky here, I think this is somewhat inaccurate. 90/10 and 100/0 are nearly the same beast, but all things being equal 100/0 will outperform 90/10. Especially in the long haul.

That might ignore people in retirement, where 100/0 doesn't actually do better:
Over 30 years, 90/10 is 88% successful (not broke) vs 87% with 100/0.
Over 40 years, 90/10 succeeds 83% vs 82% for 100/0.
https://www.vanguard.com/nesteggcalculator

But rather than trust what I think, take a look at what Vanguard and Fidelity think:
Vanguard Target Retirement 2060 Fund holds 10% bonds / 90% stocks.
Fidelity Freedom Index 2060 Fund holds 10% bonds / 90% stocks.