How often to do re-allocate for drift?

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bobsmith
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How often to do re-allocate for drift?

Post by bobsmith »

Just wondering how often folks here at the forum re-allocate? Every few years? Annually? Or do you monitor your drift and base it on that, say whenever allocation moves 5% out of line or something like that?
livesoft
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Re: How often to do re-allocate for drift?

Post by livesoft »

Are you asking about rebalancing?

Or are you asking about where one put new contributions to the portfolio which is a kind of rebalancing?

Or are you asking about changing one's asset allocation for any reason?

If you search the forum for "rebalancing" there are lots of polls and lots of discussions to read.
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cheese_breath
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Re: How often to do re-allocate for drift?

Post by cheese_breath »

I take a checkpoint at the end of each month and decide what to do based on the results. Very seldom do these results indicate a need to rebalance.
The surest way to know the future is when it becomes the past.
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bobsmith
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Re: How often to do re-allocate for drift?

Post by bobsmith »

livesoft wrote:Are you asking about rebalancing?

Or are you asking about where one put new contributions to the portfolio which is a kind of rebalancing?

Or are you asking about changing one's asset allocation for any reason?

If you search the forum for "rebalancing" there are lots of polls and lots of discussions to read.

I thought I mentioned I was reallocating for DRIFT, but perhaps my terms are wrong. By drift I mean the natural change in allocation caused by real market gains and losses. So if I have an 85/15 stock to bond ratio, I may find by years end the ratio is 89/11. Same for US stocks vs. International, etc. As you point out the term rebalancing covers a much greater area but I was only asking about drift. I imagine there are a number of different approaches depending upon how hands on/off someone wanted to be.
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bobsmith
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Re: How often to do re-allocate for drift?

Post by bobsmith »

cheese_breath wrote:I take a checkpoint at the end of each month and decide what to do based on the results. Very seldom do these results indicate a need to rebalance.
Do you base it on percentage or are you looking at real dollar amounts to make your decision?
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BolderBoy
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Re: How often to do re-allocate for drift?

Post by BolderBoy »

bobsmith wrote:Just wondering how often folks here at the forum re-allocate? Every few years? Annually? Or do you monitor your drift and base it on that, say whenever allocation moves 5% out of line or something like that?
Using percentage, when it gets 5% out of kilter with the AA I've chosen. So if stocks go up by 2.5% and bonds down by 2.5%, the spread is 5% and I rebalance.
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cheese_breath
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Re: How often to do re-allocate for drift?

Post by cheese_breath »

bobsmith wrote:
cheese_breath wrote:I take a checkpoint at the end of each month and decide what to do based on the results. Very seldom do these results indicate a need to rebalance.
Do you base it on percentage or are you looking at real dollar amounts to make your decision?
Percentage. At age 72 I like to stay somewhere is the range of 28% - 35% in equities. As long as it stays within that range I leave it alone. Otherwise I rebalance to around 31%.
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The Wizard
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Re: How often to do re-allocate for drift?

Post by The Wizard »

We just call this rebalancing.
The word "drift" isn't commonly used in this context.
Another reason to rebalance might be that you are adjusting your equity target percentage down 1% per year.
Working folks might be able to control their AA by adjusting where new contribs get invested.
Us retired folks need to make discrete sell/buy changes every so often.
Dozens of threads on this topic; I use percentage bands...
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BuckyBadger
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Re: How often to do re-allocate for drift?

Post by BuckyBadger »

bobsmith wrote:I thought I mentioned I was reallocating for DRIFT, but perhaps my terms are wrong. By drift I mean the natural change in allocation caused by real market gains and losses. So if I have an 85/15 stock to bond ratio, I may find by years end the ratio is 89/11. Same for US stocks vs. International, etc. As you point out the term rebalancing covers a much greater area but I was only asking about drift. I imagine there are a number of different approaches depending upon how hands on/off someone wanted to be.
Your terminology is wrong.

You would reALLOCATE if something changed in your life to make you more or less willing or able to take risk. People generally reallocate as they near retirement age to a more conservative portfolio, or if you had a large windfall, or perhaps some significant family event.

You reBALANCE to get back to your desired allocation after, say, a run up in stock prices leaves you too heavy in stocks.

People have many different rebalancing strategies. My IPS says that I rebalance if my allocation gets more than 5% out of whack, assuming that I can't bring it back into spec using a few months of redirecting my new contributions. In general, though, my yearly contributions are large enough that I'm able to naturally balance my portfolio by directing my contributions thoughtfully.
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xyz12
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Re: How often to do re-allocate for drift?

Post by xyz12 »

bobsmith wrote:Just wondering how often folks here at the forum re-allocate? Every few years? Annually? Or do you monitor your drift and base it on that, say whenever allocation moves 5% out of line or something like that?
I'm still in accumulation mode. I use both new contributions to bring underweighted asset classes back up to target. In the event large market swings, I will also manually rebalance if any asset class goes +/-5% outside of my target asset allocation.
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tadamsmar
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Re: How often to do re-allocate for drift?

Post by tadamsmar »

I re-balance once per year on or around my birthday. I do this because I have read the re-balancing more often tends to run against a tendency toward short-term "momentum" in the market. I think re-balancing every 2 or even 5 years is probably sufficient.
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bobsmith
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Re: How often to do re-allocate for drift?

Post by bobsmith »

For those who go by percentage, 5% seems to be a common choice. I'm wondering if any research has been on on the benefits of rebalancing sooner rather than later, sooner meaning perhaps annually instead of every 4-5 years. I suppose the answer is this would have to do with the peaks and valleys of the market which are predictable enough to provide a credible answer.

I apologize for my misuse of terms and the confusion it caused. Thanks for the feedback.
The Wizard
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Re: How often to do re-allocate for drift?

Post by The Wizard »

bobsmith wrote:For those who go by percentage, 5% seems to be a common choice. I'm wondering if any research has been on on the benefits of rebalancing sooner rather than later, sooner meaning perhaps annually instead of every 4-5 years. I suppose the answer is this would have to do with the peaks and valleys of the market which are predictable enough to provide a credible answer.
Rebalancing is intended to control risk rather than being a tactic for improving your gains by another 5%.
How often depends on the ratio of new contributions to old money already invested. Retired folks may have to rebalance more frequently, depending on what method they use for withdrawing funds for expenses...
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desertbandit442
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Re: How often to do re-allocate for drift?

Post by desertbandit442 »

I look to see if in need to re-balance once a year, around the end of January/beginning of February.
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artthomp
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Re: How often to do re-allocate for drift?

Post by artthomp »

I try to limit re-balancing to once a year but if equities exceed or are under 10% of my target 30% I plan to rebalance the excess 3% into fixed income or the deficience 3% from fixed income into equities.

Since I am 73 years old I try to roughly duplicate the Vanguard Retirement Income Allocations. These are approximately:

Vanguard Total Bond Index Fund 39%
Vanguard Short-term Inflation-indexed Index Fund 17%
Vanguard Total International Bond Fund 14%
Vanguard Total Stock Market Index Fund 20%
Vanguard TotaL International Stock Market Index Fund 10%
Art
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