Gyroscopic Investing

GLD was approximately 20% of the overall portfolio after the substantial decline last week. I recently completed a 401K rollover and decided (on a whim) to re-balance the portfolio to 4x25 by purchasing a sufficient amount of the gold ETF. Since that purchase, GLD has risen 5-6% and I am debating whether to sell back down to the 20% allocation. The funds would remain in cash until an official 15% re-balancing band is reached.

I'm curious to hear whether others would leave the gold allocation "as is" and consider yourself lucky for timing the market correctly, or sell the position now that its ahead and avoid timing the market in the future.

I just use the 15/35 bands and try to think about that as little as possible. So my advice is to leave everything as-is until an asset goes outside the bands.

There is a pandora's box of tinkering that once it is open is very hard to close (just look at MG's and Stefan's thread with a new idea every day). Idea generation is obviously a good thing for growing as an investor, but there can be a slippery slope of changing the plan that you are actually implementing so often that your investment plan becomes subconsciously dominated by speculation (is it a coincidence that you want to underweight the poor performing asset?).

Have you thought about opening a second brokerage account so that your market timing is explicitly separated and has no influence on your actual PP's bands? This is a way of physically and mentally compartmentalizing speculation, and it can be a good outlet. HB called this the variable portfolio and Benjamin Graham called the active portfolio the "enterprising portfolio." Something to chew on 

The points are valid and I don't dispute that my actions are considered market timing. The question is whether I should continue to hold the portion of GLD that has risen over the last couple of days?

What is your overall plan?  Are you planning to re-balance every month?  I doubt it.

My backtesting, and that of others I've read, indicates that wider re-balancing bands give better returns (up to a point of course), probably due to momentum.

Do you know which way gold is going from here?

I'd recommend considering yourself lucky and leave things alone until you hit the rebalancing bands that you've chosen ahead of time.

Nobody ever went broke taking profits, especially unexpected ones. But whatever you decide to do now, I'd stick to the rebalance bands in the future for your selling.

That said, I switched from SGOL to GTU in one of my tax-sheltered accounts when it was trading at a 5% discount and I fully intend to take a tax-free 10%+ profit the next time I see it trading at more than a 5% premium. So I am a dirty hypocrite who oughtn't be listened to! Do what makes you most comfortable.

buddtholomew wrote: I'm curious to hear whether others would leave the gold allocation "as is" and consider yourself lucky for timing the market correctly, or sell the position now that its ahead and avoid timing the market in the future.

Gold is clearly in a downtrend and has been for years, so I would watch to see what it does after filling the gap.  If it falters, you might want to consider booking a profit.  For now, the short-term trend is up.  Predicting these things is useless, all you can do is react to the trend in the now.

I have decided to consider this recent gold purchase as part of a 60/40 Boglehead portfolio. This combined with GDX (miners) will constitute the commodity portion (5%) of the AA. I previously held a position in VGPMX (VG Precious Metals and Mining) but exchanged to cash after the fund changed its internal composition. Im not pleased with making this many transactions in such a short period of time nor buying gold on speculation that it would recover after the short decline. Nevertheless, the net change is a small one, with an additional 2.5% commodity position taken from the FI portion of the allocation.

Decision Moose says gold is in a bear market with hard resistance at about 1260. That's when I'll buy more.