July 1st, 2022 paycheck

Created:

The extended market fund is down more than 30 percent from its 52 week high, so, not putting any money toward that at the moment. Instead, I put as much as I could toward the multi-factor fund and the remaining to the total market fund. Due to rebalancing the 401k, small-cap equities represents the highest proportion of the portfolio, even with a decline of over 30 percent in the extended market fund.

This is one of those double paycheck moments. I was paid on the 16th and again on the 1st. I did go ahead and pay my credit cards from the major hospital bills, which is why debt is at 0 instead of being over the maximum.It also brings my cash down to a more reasonable level.

Adjusting tolerances

Section titled Adjusting tolerances

I look at my portfolio mainly from the macro-allocation level listed above. Each macro-allocation has a target, or optimal, percent it should be in the overall portfolio; as of this writing:

  1. Debt a target of 0 percent.
  2. Cash should be 6.
  3. Alternatives 0.
  4. Negative correlation 0.
  5. Small- and mid-cap equities should be 32.
  6. Large-cap should be 31.

I’m in accumulation mode, therefore, the portfolio is as close as it can be to a 100 percent equities portfolio. Each macro-allocation is then given a tolerance; a tolerable deviation from that target, which gives us the minimum and maximum for that macro-allocation (listed above).

Debt and cash can’t go lower than 0 and can’t be avoided given the way I pay bills and track this sorta thing, so, I use a static number to set the tolerance bands for debt and cash; same with alternatives and negative correlation.

For equities, I use 20 percent from the target, which was the optimal percent, relative to a target, identified by an article on rebalancing and tolerance bands, which I believe I first heard referenced by Risk Parity Radio.

The target is the guideline, and the tolerance bands are the guardrails.

I’m starting to play with the idea of inner bands as well.

These inner bands are set above and below the target but not above or below the minimum and maximum. The more volatile something is, the narrower the inner bands.

For example, small-cap stocks tend to fluctuate in value more than large-cap, therefore, the inner bands would be narrower for small-cap. Here’s roughly what that looks like:

The idea here is a volatile asset may fall to the floor or shoot the moon at any moment, we don’t want to miss out when it’s down or stick around too long while it’s up; see Bitcoin in 2021.

Note: Having the bands be narrower for the more volatile assets is counter to the suggestion of Frank Vasquez in episode 181 of Risk Parity Radio where he suggests having the bands wider on the more volatile assets; if you have them be different at all compared to the 20 percent mark. The wider approach for more volatile assets would result in less rebalancing than the narrower approach; in theory.

Anyway, here’s how I plan on using these inner tolerance bands.

For the most part, I want to be riding close to the target and will be using deposits and withdrawals to do so. The inner bands will be used to acquire rebalancing tokens in accordance with my personal investment policy. The outer bands will be used for out of cycle rebalancing—opportunistic rebalancing—that wouldn’t require the rebalancing tokens.

The result should be the equities don’t require rebalancing much, if ever, and the contributions or withdrawals will be enough to keep equities in line. I won’t speculate what will happen as the portfolio allocation shifts from the Mark 0 to something like the Mark 1 and I actually start introducing negative correlation and alternative assets.

The plateau

Section titled The plateau

The plateau is still doing the plateau thing. From a learning experience perspective I’m appreciating it.

The bull market from 2021 was great at building my confidence to feel like I might be able to do something with investments. 2022 is letting me check my tolerance for volatility. As the joke goes, everyone is a genius in a bull market. The additional logic is that you hope the markets will be down when you start investing; so, I’m getting that out of the way early as well.

Part of the rationale on hoping the markets are down when you start is that, on average, the United States has a bear market two of every 10 years. Therefore, you are getting shares when they are cheap (presuming the market will continue to go up later) and you’ll have a longer period of steady growth; at least until the next bear market, correction, recession, or depression.

Surgery

Section titled Surgery

The bills continue coming in and I’m not appreciating the healthcare industry at the moment.

I live in the United States, so, complaining about the healthcare system shouldn’t be much of a surprise.

My insurance provider has an app. I can pay my portion through the app, which they forward to the provider. A lot of times, in American hospitals, the hospital is a facilitator of different service providers; the doctors and other staff aren’t actually employees. So, my one visit has about a dozen different bills.

When I received the first bill I looked at the claim in the app. There are three numbers to pay attention to:

  1. What my insurance was billed.
  2. What my insurance paid.
  3. How much I owe.

All the numbers on the bill matched the claim, so, I paid the bill through the app and didn’t think much about it.

The second bill came in and it was two pages. I was able to match two of the three numbers from the first page to a claim in the app. I wasn’t able to match any of the numbers on the second page to a single claim in the app.

Instead, the second page has three line items and a single amount owed. If I took the total of two of the line items the amount owed matched one claim from the app. Further, if I took the third line item it matched a different claim in the app. When I added the two claims in the app together, I got the single amount owed from page two.

The kicker? As if that wasn’t enough. The breakdown of services didn’t match from the details of the claim in the app compared to the bill.

When I went back to look at the details for page one? None of those service descriptions matched either.

It’s the twenty-first century and this is the best we can do?

I can’t reconcile these bills in a definitive way. I called the insurance provider and they couldn’t explain why this was the case and basically had the same level of confidence I did that the items on page two of the second bill were for the claims in the app.

A better experience…

The hospital bills the insurance company. The insurance company negotiates the price, pays the total amount, and bills me what I owe. I pay extra to the insurance company.

Like a credit card.

A full payment service. My contract is with the insurance provider, not the hospital. My financial interactions are with the insurance provider, not the hospital.

When I got in a car accident, my insurance company paid the bill and I paid them any extra. I did not pay the mechanic.

FI experiments

Section titled FI experiments

Details are in the January 15th, 2022 paycheck.

The hypothesis is when the Mark 0.0 mix is down, it’ll be down more than the others. Further, when the Mark 0.0 is up, the others will be up and not too far behind the Mark 0.0. We will track the change since the previous paycheck as well as the change since we started tracking January 2022.