Rebalancing and/or taking money off the table

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
minskbelarus47
Posts: 162
Joined: Tue Nov 09, 2010 7:02 pm

Rebalancing and/or taking money off the table

Post by minskbelarus47 »

First, Any comments on....

AAII article in April 2013 on rebalancing and that author of the article rebalances either in November or May, since historically the highest rises in the market have been from November to May. Gotta rebalance some time I guess.

Also, he, the author, rebalances when allocations are more than 5% off target.

Next article says, why rebalance at all. When would that strategy be helpful (or not).

I am in the process of moving funds to Rick Ferree Core 4 or a similar type of model portfolio as is in the "backtested portfolios" with a list of 20 model portfolios (Rick Ferree, Coffeehouse, Bernstein, etc). When I get there, just wondering about yearly moves to rebalance.

With that in mind, is it better to take your yearly distributions in May as opposed to spread out thru the year. Does dollar cost averaging apply here?

Appreciate any thoughts on the AAII articles on rebalancing, and then taking your distributions.
red5
Posts: 798
Joined: Sun Apr 01, 2012 4:42 pm

Re: Rebalancing and/or taking money off the table

Post by red5 »

minskbelarus47 wrote:First, Any comments on....

AAII article in April 2013 on rebalancing and that author of the article rebalances either in November or May, since historically the highest rises in the market have been from November to May. Gotta rebalance some time I guess.

Are you certain that will be true going forward? I am not. But if you want to stay within your risk tolerance then some rebalancing is better than no rebalancing. If you choose that route, stay the course.

Also, he, the author, rebalances when allocations are more than 5% off target.

That is basically what I do. I don't rebalance based on dates.

Next article says, why rebalance at all. When would that strategy be helpful (or not).

To keep your portfolio at a risk level you are comfortable with.

I am in the process of moving funds to Rick Ferree Core 4 or a similar type of model portfolio as is in the "backtested portfolios" with a list of 20 model portfolios (Rick Ferree, Coffeehouse, Bernstein, etc). When I get there, just wondering about yearly moves to rebalance.

Well the article discussed two possibilities, based on a date and based on a rebalancing band. Pick a method you are comfortable with and that you will maintain and go with it. I personally rebalance based on rebalancing bands (such as 5%) as that seems a more natural way to rebalance (in my humble opinion). So far though, my contributions have done all the rebalancing I need to do (i.e. I contribute my money to assets that are below %)

With that in mind, is it better to take your yearly distributions in May as opposed to spread out thru the year. Does dollar cost averaging apply here?

Appreciate any thoughts on the AAII articles on rebalancing, and then taking your distributions.
rkhusky
Posts: 17765
Joined: Thu Aug 18, 2011 8:09 pm

Re: Rebalancing and/or taking money off the table

Post by rkhusky »

If you rebalance according to bands, than you have to decide how often you look at/compute your current AA (i.e. daily, weekly, monthly, yearly) to see if it is out of whack.
User avatar
Peter Foley
Posts: 5533
Joined: Fri Nov 23, 2007 9:34 am
Location: Lake Wobegon

Re: Rebalancing and/or taking money off the table

Post by Peter Foley »

I too rebalance by bands. I check every time the S&P 500 moves 100 points in either direction. I will check next at 1500 or at 1400. There have been a lot of threads regarding rebalancing with diverse opinions that are equally well reasoned. At a minumun, IMHO, rebalancing should be done to help control risk more than anything else. This would be important for someone who has an established risk tolerance and is in the accumulation phase over a long time period. It is perhaps less important for someone in the withdrawal phase.
pkcrafter
Posts: 15461
Joined: Sun Mar 04, 2007 11:19 am
Location: CA
Contact:

Re: Rebalancing and/or taking money off the table

Post by pkcrafter »

With that in mind, is it better to take your yearly distributions in May as opposed to spread out thru the year. Does dollar cost averaging apply here?
I learned this from Taylor Larimore--Take distributions near the end of the year, that way the IRS holds taxes for a minimum amount of time. Also, use rebalancing bands and rebalance if necessary by taking distributions from those funds/asset classes that are above target range. If necessary, rebalance during the year if bands are exceeded, but I've found that a rare event because I have a pretty low equity allocation.

Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.
User avatar
grabiner
Advisory Board
Posts: 35307
Joined: Tue Feb 20, 2007 10:58 pm
Location: Columbia, MD

Re: Rebalancing and/or taking money off the table

Post by grabiner »

minskbelarus47 wrote:With that in mind, is it better to take your yearly distributions in May as opposed to spread out thru the year. Does dollar cost averaging apply here?
Taking distributions doesn't have to represent a change in your asset allocation. If you have an RMD which you don't need to spend, you can withdraw from a stock fund in an IRA and use the money to buy a taxable stock fund. You lose the benefit of tax deferral when you make this move, so you might as well wait until December (in fact, until the fund you are buying pays its December distribution) to take the money out.

If you need to spend the money, you should take the distribution as it is needed; withdrawing an equal amount every month from an IRA to meet your living expenses is a natural strategy.

You can rebalance independently of when you take your distributions, using your normal rebalancing principles.
Wiki David Grabiner
Post Reply