Tuesday, December 3, 2019

Am I Fixing a Mistake or Making an Active Decision?

I recently discovered a mistake in my spreadsheet related to my fixed-income allocation during retirement. Fixing it will involve selling off a sizable chunk of stocks. But I think this may be more of an active portfolio decision than just fixing a mistake.

For years I’ve been striving to come up with mechanical decisions about how to handle my portfolio rather than making active decisions that amount to a form of market timing. One of my rules now that I’m retired is to maintain 5 years of after-tax spending money in fixed-incomes investments, including short-term government bonds, GICs, and savings accounts.

Poking through the spreadsheet that holds my mechanical rules, I noticed a problem with the 5 years of fixed income calculation. I didn’t factor in CPP and OAS pensions properly. I treated these pensions as though I’m receiving them spread out over my whole retirement instead of just getting them later in life. So, my 5 years figure is too low now and will be too high once I get into my 70s.

Fixing this on my spreadsheet immediately triggered a rule demanding that I sell off a big chunk of my stocks to boost my fixed income. So far, it just seems like simply correcting a mistake.

However, the reason I was looking at this part of my spreadsheet at all is because very high stock prices are starting to make me nervous. Because my fixed-income allocation amounts to a percentage of my portfolio size, the growth of my overall portfolio this year has triggered some shifts from stocks to fixed income, but I’ve been feeling like I want to shift even more out of stocks to protect against a possible stock market crash.

Ordinarily, I have these feelings and just ignore them with the help of my mechanical rules. But this time I have the perfect excuse to give in to my fears: an apparent spreadsheet error. However, it would be easy enough to defend the original calculation as sensible enough. I’m probably viewing this as an error because I really want to sell off some stocks.

In the end, I’ve decided to make the spreadsheet change and sell some stocks. But if I’m being honest with myself, I’m mainly doing it because of my possibly mistaken belief that the probability of a stock market crash has been increasing.


  1. Sounds like fixing a mistake to me...

    Unless you thought it through the first time and made the "mistake" intentionally, then I think it just worked out that it results in you selling at a high.

    1. @Anonymous: It will be interesting if it does turn out to be a market high.

    2. Do keep us posted, Michael.

      I do not know when the next crash will come, but let's see if your timing works out in your favour!