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  • #46








    Re-balancing isn’t a compelling argument either.  If you keep buying regardless of whether the market is up or down, you will also be taking advantage of market lows, when they occur. 
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    Rebalancing works by forcing you to buy what is down with the funds generated by selling those parts of your portfolio that have gained to return to symmetry.
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    Using precise terminology is important.  If by ‘symmetry’ you mean reversion to the mean, that’s figment of our imagination:

    http://merage.uci.edu/%7Ejorion/papers/risk.pdf

    So in fact, rebalancing and dollar cost averaging are not guaranteed to generate a positive alpha.  What’s more interesting, one can show that NOT rebalancing will not be worse than rebalancing depending on the time period and the only reason to rebalance is to maintain a risk-managed portfolio, not to generate excess return.
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    Anytime you have cash flows you have risk. DCA trades one type of risk for another, but in reality we dont really have a choice as we almost no one starts with a giant lump sum. I think one of Bernsteins quick books goes over that. I dont think anyone advises DCA for "alpha", for which there is very little left in the world, everything that used to be alpha has been parsed in great detail and we now call it beta. DCA is always sold as smoothing your contributions across values, and basically a necessity.

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    • #47






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      Hi PoF- thanks for the reply, sorry for the very delayed reply…kinda stopped monitoring this thread when the bond feuding started ?

       

      I’ve been on the fence funding the non-govt 457b…but I think I will start funding it in 2017 (working on building up my e-fund this year…this is my first yr out of residency). My hospital system is ginormous and I cant imagine it going bankrupt … but there’s the rub with non-govt 457b…. it is the largest health system in the area and expanding. Just that healthcare is so volatile. Also.. prolly won’t be at this gig forever, so would have to take a distribution (have a flexible one at least, can take it over several years). But they offer the same funds as my 403b with low cost vanguard funds so it makes sense in that regard.

       

      Thanks again.
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      No problem. Threadjacking happens. [The more you know... cue NBC star trail]

      Before finalizing your decision for next year, find out just how flexible the payout options are on the 457(b). I have heard there is a wide variation. If you have to take it all while you are still in the higher tax brackets, it may not be all that worthwhile, given the very small but non-zero risk of the money disappearing. But you might be able to choose in what year you start taking distributions and at what percentage. I'm pretty sure that's how mine is set up, but I'll look into it more closely as my early retirement date approaches.

      Best,

      -PoF

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