Hello, I am a month into Mustachianism and am starting with the investing side of things as my process until now has been irregular and unfocused. So I did some research here and at canadiancouchpotato and here is my tentative plan:
Pertinent Details: My pay is sporadic so my investing new money happens in $2,000 to $3,000 chunks, 6-8 times a year.
My Investment Rules:
1. Keep Investing Simple, Stoopid
2. “Be balanced most of the time, take the long view all of the time and be contrarian at the extremes.” - ?not sure who said this?
3. Don’t get greedy
Base Allocation: 10% bonds / 90% stocks _ 30% Canadian / 30% US / 30% International
Rebalancing Methods*:
A. by calendar: annually in January
B. by threshold: when an asset class drifts off target by an absolute 5%
C. with cash flow: always rebalance as much as possible when investing new money, i.e. by buying, not selling
Changing the Base Allocation*:
The base allocation is not to be changed for at least 2 years however there are two times when it can be temporarily disregarded in favour of tactical asset allocation.
I. If stocks are priced high:
At 50% over my average price per unit, rebalance if needed per method B + all new money to bonds (to max 15% bond allocation).
At 70% over my average p/u, sell an absolute 5% (rebalancing equities) + all new money to bonds (to max 20% bond allocation).
At 80% over my average p/u, sell an absolute 5% (rebalancing equities) + all new money to bonds (to max 30% bond allocation).
Rinse and repeat to a maximum 40% bond allocation.
II. If stocks are priced low:
At 10% below my average price per unit (from at least 25% up), sell 1/3rd of bond holdings (rebalancing equities) + all new money to stocks.
At 20% below my average p/u, sell remaining bond holdings (rebalancing equities) + all new money to stocks (to 0% bond allocation).
At 30% below my average p/u, borrow double the final bond sale amount from HELOC** (rebalancing equities) + all new money to stocks.
Rinse and repeat to a maximum 60% of HELOC balance (and obviously a 100% stock allocation).
*Before any rebalancing or allocation changes, review the 5 & 10 year graphs of each index, keeping the rules in mind, and use your discretion.
** There may be no bond allocation & HELOC balance at the same time. Also until non-taxable retirement accounts are maxed, the HELOC is only to be used in times of extreme discount. Once stock prices rise to above new average price per unit, new money is to be divided 50/50 to payoff HELOC and buy new stock. Once prices reach original ap/u, all new money goes to payoff HELOC.
So I guess my main question is what do you think?
I feel like maybe I'm breaking rule number 1 but on the other hand I would only be checking my allocations (and prices) every couple months when I add new money so it wouldn't be that bad. Can I make it simpler with out losing the extra emphasis on selling high & buying low?
Do you think this plan will give me a better result than if I stuck with my base allocation above and only rebalanced to that and never did the extra buying low or selling high?
Thank you.