It's January 2, and I just finished my "build" and am having fun exploring the tools. But I'm wondering if and how I should update my account balances through the year. Here's my conundrum:
On the one hand, if a major account has a significant increase by, say, March 31 because stocks performed well, then updating the relevant account balances would seemingly improve the fidelity of the model.
But on the other hand, if the reason for the account increase was because I earned 3 months of income and added some of that income into the account (as predicted by the model), then I'm not sure if it improves the fidelity of the model by "bringing it up to date," or degrades the fidelity because it already assumed the account would grow and now it thinks that "extra" money has been added to the system.
More generally: If I update my investment balances periodically through the year, will that help the model, hurt the model, or perhaps won't really matter?
@ccoleman99 You should not diddle with account balances through the year; you should always specify starting-year balances because that's what the tool assumes when applying growth, etc. There are so many moving parts to the model that, otherwise, you never know what caused the balance to change, as you've suggested.
Stuart
For your March 31 example, if your expected returns were 8%/year, you would expect only a 2% change in the 1st quarter, with 6% more returns expected later in the year. Deviations from that expectation could be done pretty easily.
But as Stuart said, it gets complicated real fast. Was your spending on track or did you have a big expenditure you need to correct your account balance for? Were your earnings on track, did you get a bonus or windfall, change allocations, do a Roth Conversion, take an RMD? If the market did great, do you expect it to go up even more or if it is going poorly, will it turn around this year?
I actually do update during the year when there is a big market move as I only do Roth Conversions towards the end of the year since my income varies; I don't like doing Roth Conversion calculations based on 11.5 month old market data that could be off by 15-20%. But I spend time thinking through all the changes during the year and how best to tell Pralana about them and do some trial and error to try to make our real lives understandable by the program.
For those that can't resist doing an update, I think December is easiest as your income and spending and other moves have mostly already occurred, you can assume the portfolio won't change much more, you have a feel for the total year's dividends, etc. So you can wash away a lot of details and just reverse engineer some values that would get you the December portfolio, spending, income, etc.
Also note that Pralana doesn't have the 2025 tax factors loaded yet, so it's the time to get your input in, but not the time to take action for another 2-3 weeks when Stuart and Charlie release the updates.
