If stocks dropped 30% next Monday, would you rebalance?

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
User avatar
Taylor Larimore
Posts: 32839
Joined: Tue Feb 27, 2007 7:09 pm
Location: Miami FL

The value of simplicity

Post by Taylor Larimore »

livesoft wrote:If stocks dropped 30% next Monday and closed there, would you rebalance?
Lifesoft:

My timeline is relatively short (age 91).

My bond/fixed income allocation contains money that I cannot afford to lose. The remainder of my portfolio is in stocks which I seldom think about (no rebalancing).

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
User avatar
abuss368
Posts: 27850
Joined: Mon Aug 03, 2009 2:33 pm
Location: Where the water is warm, the drinks are cold, and I don't know the names of the players!
Contact:

Re: If stocks dropped 30% next Monday, would you rebalance?

Post by abuss368 »

Since we are accumulating we would probably rebalance.
John C. Bogle: “Simplicity is the master key to financial success."
Topic Author
livesoft
Posts: 85971
Joined: Thu Mar 01, 2007 7:00 pm

Re: If stocks dropped 30% next Monday, would you rebalance?

Post by livesoft »

@Buddtholomew, Thanks for the clarification. Since Monday close VSMGX is up 2.74% and VASGX is up 3.85%.
Wiki This signature message sponsored by sscritic: Learn to fish.
jginseattle
Posts: 1121
Joined: Fri Jul 01, 2011 7:33 pm

Re: If stocks dropped 30% next Monday, would you rebalance?

Post by jginseattle »

Yes, I would rebalance. That is, if I could get anybody on the phone.
User avatar
SmileyFace
Posts: 9080
Joined: Wed Feb 19, 2014 9:11 am

Re: If stocks dropped 30% next Monday, would you rebalance?

Post by SmileyFace »

I'm on a plane toward the end of the day so only if my flight has wifi - otherwise my rebalanced won't occur until Tuesday.

It will be interesting if there is a 30% drop Monday and livesoft becomes our Advisor for what is coming ...
Topic Author
livesoft
Posts: 85971
Joined: Thu Mar 01, 2007 7:00 pm

Re: If stocks dropped 30% next Monday, would you rebalance?

Post by livesoft »

The original post did not have a timeline for rebalancing, so whether rebalancing Monday afternoon, Tuesday, or later would all count as rebalancing.
Wiki This signature message sponsored by sscritic: Learn to fish.
Rolyatroba
Posts: 249
Joined: Mon Apr 22, 2013 1:14 pm

Re: If stocks dropped 30% next Monday, would you rebalance?

Post by Rolyatroba »

I do considerably more than rebalance in situations like this. I'm sure this will be frowned upon, but I go so far as to change my AA. This goes largely to my inability to determine what the right AA is for me, being that an acceptable AA on this forum is a range, and the most influential factor appears to be self discipline (to, ostensibly, protect against selling equities low and locking in losses).

Prior to retiring (or perhaps within a year or two of that), I'm comfortable with bonds at 10%-30%. We are well above our glidepath to our number (actually, above our number), so I've been at 30% bonds. But to earn a few extra bucks (while staying within my range), a 10% drop in the market triggers a BND sale and VTI purchase that brings me to 20% bonds. A 15% drop triggers another 5% BND sale, and a 25% drop triggers the final 5% BND sale, bringing me to 10% bonds.

I suppose the risk here is that we enter a Japan style slump, and I'm stuck at 10% bonds at the beginning of retirement, but we have lots of levers to accommodate for that, and I also feel we will still be in the same wealth percentile we are now--so lots more folks will have it worse than us.

BTW, I did reallocate 10% from BND to VTI on Monday (at an 11% discount to VTI's 52 week high). After that I had a limit order for VTI around $94, but that didn't execute, and I'm happily ambivalent about that. :)
btenny
Posts: 5694
Joined: Sun Oct 07, 2007 6:47 pm

Re: If stocks dropped 30% next Monday, would you rebalance?

Post by btenny »

Well it depends. If the market dropped that much in one day I would expect something crazy happened in the world. Like a new war front or a major terrorist attack or some other bad natural disaster. Or it could just be some crazy computer and stock trading thing like happened last week and back in 1987. So then I would have to decide which event would be an investing opportunity and which was not.

Last week I saw the crazy stuff and did not issue any buy/sell orders so I guess I would not rebalance for that. But I only rebalance once every year or two so no reason to get excited about a short term move. I learned back in 1987 to not sell or buy under crazy computer trading stuff.

Similarly back in 2001 when the markets started to crash I did not do anything right away. For all the 2001 events I was low on stock allocation and did not change anything for 1.5 years. Then when I increased my stock allocation I only did it after the markets were down for a long LONG TIME. But then I had to fire my advisor because he did not want to buy more stocks in the summer of 2003. In the 2007-9 crash I did some rebalancing very late in the cycle in 2009. Mostly I did some buying and selling to change funds for lower costs and more index like but I did increase my stock allocation a little as well about1.5 years into the downturn.

So I guess if the losses continued for say 1-1.5 years I would likely rebalance when I thought necessary. But then only rebalance once and let that new allocation ride for a long term to see if it works. Don't chase returns. It has been my experience that real bad markets do not happen over night nor get cleaned out over night so patience is the key issue.

Just thinking.
User avatar
John151
Posts: 416
Joined: Fri Mar 02, 2007 5:03 pm

Re: If stocks dropped 30% next Monday, would you rebalance?

Post by John151 »

I rebalanced during the two previous bear markets, but I probably won’t do it again. I’m older now, I'm retired, and I have enough in bonds to see me through to the end of my days. I don’t need to put additional money at risk in stocks.
Last edited by John151 on Fri Aug 28, 2015 8:17 pm, edited 1 time in total.
gkaplan
Posts: 7034
Joined: Sat Mar 03, 2007 7:34 pm
Location: Portland, Oregon

Re: If stocks dropped 30% next Monday, would you rebalance?

Post by gkaplan »

Next Monday is Labor Day, so the American markets would be closed. Perhaps you meant this coming Monday.
Gordon
User avatar
retiredjg
Posts: 53989
Joined: Thu Jan 10, 2008 11:56 am

Re: If stocks dropped 30% next Monday, would you rebalance?

Post by retiredjg »

On what planet is next Monday different from this coming Monday?

Yeah, I know. Some people do use the terms differently, but remember that the original poster lives in Texas.
gkaplan
Posts: 7034
Joined: Sat Mar 03, 2007 7:34 pm
Location: Portland, Oregon

Re: If stocks dropped 30% next Monday, would you rebalance?

Post by gkaplan »

retiredjg wrote:On what planet is next Monday different from this coming Monday?

Yeah, I know. Some people do use the terms differently, but remember that the original poster lives in Texas.
That explains it.
Gordon
Buddtholomew
Posts: 1059
Joined: Thu Mar 01, 2007 2:29 pm

Re: If stocks dropped 30% next Monday, would you rebalance?

Post by Buddtholomew »

livesoft wrote:@Buddtholomew, Thanks for the clarification. Since Monday close VSMGX is up 2.74% and VASGX is up 3.85%.
Cool, so what exactly was the rebalancing bonus for these funds? Just using the data as a barometer to check my results :happy
"The first principle is that you must not fool yourself and you are the easiest person to fool" --Feynman.
ge1
Posts: 816
Joined: Sat Apr 28, 2012 8:15 pm

Re: If stocks dropped 30% next Monday, would you rebalance?

Post by ge1 »

I have a significant portion of my portfolio in cash for exactly this situation.
Topic Author
livesoft
Posts: 85971
Joined: Thu Mar 01, 2007 7:00 pm

Re: If stocks dropped 30% next Monday, would you rebalance?

Post by livesoft »

Buddtholomew wrote:
livesoft wrote:@Buddtholomew, Thanks for the clarification. Since Monday close VSMGX is up 2.74% and VASGX is up 3.85%.
Cool, so what exactly was the rebalancing bonus for these funds? Just using the data as a barometer to check my results :happy
I do not know what the rebalancing bonus is/was. Here is a thread asking that question: viewtopic.php?f=1&t=172500 but without an answer shown. Somebody has to do the work.

I know that my asset allocation is similar to VSMGX, but I over-rebalanced before close Monday and rebalanced back on Thursday. So instead of 2.74%, I was 3.51% for after close Monday through Friday.

So are/did you need to rebalance back?
Wiki This signature message sponsored by sscritic: Learn to fish.
User avatar
Toons
Posts: 14459
Joined: Fri Nov 21, 2008 9:20 am
Location: Hills of Tennessee

Re: If stocks dropped 30% next Monday, would you rebalance?

Post by Toons »

If it happens next Monday,,,,,
I think I will pass,,I'm going camping anyway 8-)
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee
Buddtholomew
Posts: 1059
Joined: Thu Mar 01, 2007 2:29 pm

Re: If stocks dropped 30% next Monday, would you rebalance?

Post by Buddtholomew »

livesoft wrote:
Buddtholomew wrote:
livesoft wrote:@Buddtholomew, Thanks for the clarification. Since Monday close VSMGX is up 2.74% and VASGX is up 3.85%.
Cool, so what exactly was the rebalancing bonus for these funds? Just using the data as a barometer to check my results :happy
I do not know what the rebalancing bonus is/was. Here is a thread asking that question: viewtopic.php?f=1&t=172500 but without an answer shown. Somebody has to do the work.

I know that my asset allocation is similar to VSMGX, but I over-rebalanced before close Monday and rebalanced back on Thursday. So instead of 2.74%, I was 3.51% for after close Monday through Friday.

So are/did you need to rebalance back?
Thanks for the link. I'm 72/28 now and plan to redirect contributions to fixed income and restore 70/30. I really don't want to be this active.
"The first principle is that you must not fool yourself and you are the easiest person to fool" --Feynman.
User avatar
joe8d
Posts: 4544
Joined: Tue Feb 20, 2007 7:27 pm
Location: Buffalo,NY

Re: If stocks dropped 30% next Monday, would you rebalance?

Post by joe8d »

It couldn't,wouldn't the circuit breakers would kick in and shut it down?
All the Best, | Joe
keystone
Posts: 733
Joined: Tue Aug 28, 2012 12:34 pm

Re: If stocks dropped 30% next Monday, would you rebalance?

Post by keystone »

On Tuesday morning I would log everything into my spreadsheet before the market opens and tentatively plan to rebalance. I would first take a look at the Dow futures to see where the market was headed, then follow the market a few times during the day and if necessary enter my rebalance order towards the end of day, factoring in Tuesday's expected close. If the markets were headed up 30% on Tuesday, then no rebalance for me. :happy
User avatar
vitaflo
Posts: 1905
Joined: Sat Sep 03, 2011 3:02 pm

Re: If stocks dropped 30% next Monday, would you rebalance?

Post by vitaflo »

Monday isn't the first of the month so I wouldn't be looking at my balance to even know if it needed rebalancing. So no.
LeisureLee
Posts: 164
Joined: Mon Jan 05, 2015 5:52 pm

Re: If stocks dropped 30% next Monday, would you rebalance?

Post by LeisureLee »

I would definitely rebalance on a -30% day, and be pretty excited about getting 50% more dividends for my money (at least, once any period of suspended dividends settled). I wouldn't go beyond my planned allocation though. [I did rebalance a bit to stock on Monday, but not much.]

On the other hand, it's hard to imagine the news that would come with a 30% one day decline. Zombie attack? What was the news like on Black Monday?
User avatar
zaboomafoozarg
Posts: 2430
Joined: Sun Jun 12, 2011 12:34 pm

Re: If stocks dropped 30% next Monday, would you rebalance?

Post by zaboomafoozarg »

gkaplan wrote:Next Monday is Labor Day, so the American markets would be closed. Perhaps you meant this coming Monday.
Next Monday and this coming Monday are both 8/31. Labor Day is the Monday after next.

Oh and I would definitely rebalance on a 30% drop next Monday (8/31), because my 30-day wash sale waiting period will be finally be up for VTSAX and VTIAX.
User avatar
tarheel
Posts: 452
Joined: Fri Sep 17, 2010 8:33 am

Re: If stocks dropped 30% next Monday, would you rebalance?

Post by tarheel »

If it took me outside of my rebalancing bands, which I wouldn't know until funds reconstituted overnight.

So I guess I would be rebalancing for the close on Tuesday.

This is actually a fairly interesting question......if there was a huge 1987-like drop (20%) that you knew would take you way outside of your rebalancing bands, would you guesstimate fund values using their ETF cousins so that you could have orders in before the market close for the day (and get your order to clear that evening)?

This is more a thought experiment than anything else (I hope!) but I think my instinct would be to just stay calm and wait until Tuesday.

In my opinion this is one of the only real flaws in a 5%/25% rebalancing band approach - crazy situations like if the market whipsaws violently over a few days.....
Topic Author
livesoft
Posts: 85971
Joined: Thu Mar 01, 2007 7:00 pm

Re: If stocks dropped 30% next Monday, would you rebalance?

Post by livesoft »

tarheel wrote:In my opinion this is one of the only real flaws in a 5%/25% rebalancing band approach - crazy situations like if the market whipsaws violently over a few days.....
Four years ago, the market did whipsaw over a few days. Here is a thread from that time (there were many TLH threads, a Larry Swedroe thread of "how to react", a livesoft thread on "Did you rebalance?", etc.): viewtopic.php?f=1&t=80093

And here is a chart:
Image
Wiki This signature message sponsored by sscritic: Learn to fish.
dc81584
Posts: 581
Joined: Sat Apr 04, 2015 7:47 am

Re: If stocks dropped 30% next Monday, would you rebalance?

Post by dc81584 »

I'm 31 years old, so yes, if stocks dropped 30% on any given day, I'd pick up shares. Having said that, I'd only do so if I had extra cash to invest. If not, I'd just continue doing what I'm doing.
mikem
Posts: 186
Joined: Fri Jun 01, 2012 6:28 pm

Re: If stocks dropped 30% next Monday, would you rebalance?

Post by mikem »

I wrap myself in a "security blanket" that VG will re-balance my Target Retirement and Life-Cycle funds. But Livesoft's question now makes me wonder exactly what triggers VG to re-balance these type funds. Is it done daily,monthly or when a band is broached ?

On a different note, I would try to re-balance on a 30% one day drop in my "play money" which is less than 5% of my portfolio. It would be a good excuse to pick up a deal on some discounted energy stocks.
JW-Retired
Posts: 7189
Joined: Sun Dec 16, 2007 11:25 am

Re: If stocks dropped 30% next Monday, would you rebalance?

Post by JW-Retired »

Buddtholomew wrote:
livesoft wrote:
Buddtholomew wrote:I calculated the gain with and without re-balancing my portfolio this week and was astonished to see that the difference was only around .5%
That's very good to know, but let me ask some clarifying questions:

Is that the one-week difference?
A benchmark fund VSMGX (60/40 LifeStrategy) was up this week 0.34% and VASGX (80/20) was up 0.61%, plus we are not sure how/if Vanguard did any rebalancing. Are you saying if you had rebalanced your portfollio would have been 0.5% higher? Or did you mean lower?
Did you portfolio lose money this week?
My portfolio value is up 2.97% since Monday as I re-balanced that evening. I would be up 2.47% (2.97 - .5) had I not re-balanced 5% of my portfolio from bonds to equities. Hope that clarifies. I'm 55/45 international.
One rebalancing event doesn't tell the tale. Your next rebalance could lose you money. Agree it would be a good exercise to compare VSMGX to an un-rebalanced 60/40 portfolio for several years over a bull/bear cycle and see if there was any bonus long term. Has someone who rebalances already done that?

However, that might not work because Vanguard keeps messing with the composition of the fund. I believe they added international bonds not too long ago.
JW
Retired at Last
User avatar
Artsdoctor
Posts: 6017
Joined: Thu Jun 28, 2012 3:09 pm
Location: Los Angeles, CA

Re: The value of simplicity

Post by Artsdoctor »

Taylor Larimore wrote:
livesoft wrote:If stocks dropped 30% next Monday and closed there, would you rebalance?
Lifesoft:

My timeline is relatively short (age 91).

My bond/fixed income allocation contains money that I cannot afford to lose. The remainder of my portfolio is in stocks which I seldom think about (no rebalancing).

Best wishes.
Taylor
I think this is an excellent point, Taylor. There comes a point when rebalancing does not/should not occur (unless there's a huge legacy component to a plan). I chimed in earlier that I wouldn't hesitant to rebalance if I needed to. However, I would not rebalance out of fixed income into stocks for my mom for the reasons that Taylor succinctly mentioned.
Buddtholomew
Posts: 1059
Joined: Thu Mar 01, 2007 2:29 pm

Re: If stocks dropped 30% next Monday, would you rebalance?

Post by Buddtholomew »

duplicate
Last edited by Buddtholomew on Sat Aug 29, 2015 11:52 am, edited 1 time in total.
"The first principle is that you must not fool yourself and you are the easiest person to fool" --Feynman.
Buddtholomew
Posts: 1059
Joined: Thu Mar 01, 2007 2:29 pm

Re: If stocks dropped 30% next Monday, would you rebalance?

Post by Buddtholomew »

JW Nearly Retired wrote:
Buddtholomew wrote:
livesoft wrote:
Buddtholomew wrote:I calculated the gain with and without re-balancing my portfolio this week and was astonished to see that the difference was only around .5%
That's very good to know, but let me ask some clarifying questions:

Is that the one-week difference?
A benchmark fund VSMGX (60/40 LifeStrategy) was up this week 0.34% and VASGX (80/20) was up 0.61%, plus we are not sure how/if Vanguard did any rebalancing. Are you saying if you had rebalanced your portfollio would have been 0.5% higher? Or did you mean lower?
Did you portfolio lose money this week?
My portfolio value is up 2.97% since Monday as I re-balanced that evening. I would be up 2.47% (2.97 - .5) had I not re-balanced 5% of my portfolio from bonds to equities. Hope that clarifies. I'm 55/45 international.
One rebalancing event doesn't tell the tale. Your next rebalance could lose you money. Agree it would be a good exercise to compare VSMGX to an un-rebalanced 60/40 portfolio for several years over a bull/bear cycle and see if there was any bonus long term. Has someone who rebalances already done that?

However, that might not work because Vanguard keeps messing with the composition of the fund. I believe they added international bonds not too long ago.
JW
I am actually trying to demonstrate that re-balancing 5% of your portfolio even with a strong recovery may not have been worth the effort. I breached an upper fixed income band and rebalanced accordingly.
"The first principle is that you must not fool yourself and you are the easiest person to fool" --Feynman.
btenny
Posts: 5694
Joined: Sun Oct 07, 2007 6:47 pm

Re: If stocks dropped 30% next Monday, would you rebalance?

Post by btenny »

See here for two different papers on how often and when to rebalance. One by Vanguard and one by Rick Ferri. Both say only occasional rebalancing to a set rule like once a year or once a year if percentages are exceeded in the best approach. The key is too often a rebalance costs taxes and may reduce returns. See the various tables in Rick Ferri's report.

http://www.forbes.com/sites/rickferri/2 ... balancing/
http://www.vanguard.com/pdf/icrpr.pdf
User avatar
triceratop
Posts: 5838
Joined: Tue Aug 04, 2015 8:20 pm
Location: la la land

Re: If stocks dropped 30% next Monday, would you rebalance?

Post by triceratop »

livesoft wrote:A follow-on question to respond to (but please keep responding to the original questions, too):

If there was a 10% drop on Monday, 10% drop on Tuesday, and 10% drop on Wednesday, then would you rebalance from equities to bonds?
Trick question, this only represents a 27% drop in one's equity allocation.

And yes, I would rebalance in both scenarios.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."
Topic Author
livesoft
Posts: 85971
Joined: Thu Mar 01, 2007 7:00 pm

Re: If stocks dropped 30% next Monday, would you rebalance?

Post by livesoft »

Buddtholomew wrote:I am actually trying to demonstrate that re-balancing 5% of your portfolio even with a strong recovery may not have been worth the effort. I breached an upper fixed income band and rebalanced accordingly.
I used about 14% of total portfolio value this time. It made a significant difference for me.

OTOH, I would guess that folks would hate to move more than 10% of their portfolio in any single day rebalancing moves. So if one did not want to move more than 5% at a time, what would the rebalancing bands be restricted to? I suppose that one could convince those folks with "5% play money" to rebalance with 5% of their portfolio. After all, one could say, "You only have to use your play money to rebalance."

And @btenny, just because Vanguard and Rick Ferri write things, does not mean they have tested all things that are possible. For instance, I would state that the best time to rebalance into an asset class is when that asset class has its low for the year and the best time to rebalance out of an asset class is when that asset class has its high for the year. One could probably replace "year" with "6-months" or "18-months" for data mining and testing purposes, too.
Wiki This signature message sponsored by sscritic: Learn to fish.
User avatar
Kevin M
Posts: 15750
Joined: Mon Jun 29, 2009 3:24 pm
Contact:

Re: If stocks dropped 30% next Monday, would you rebalance?

Post by Kevin M »

tarheel wrote:This is actually a fairly interesting question......if there was a huge 1987-like drop (20%) that you knew would take you way outside of your rebalancing bands, would you guesstimate fund values using their ETF cousins so that you could have orders in before the market close for the day (and get your order to clear that evening)?
Yes, this actually is what I do. My portfolio spreadsheets have a set of columns for doing trades during market hours. For mutual funds, the most similar ETF is used to estimate % change for the mutual fund that day (using GoogleFinance function with the ETF), and the estimated end of day mutual fund value is shown before and after planned trades.

The closer to market close, the more accurate, but I believe some say that ETF prices can be a less reliable reflection of NAV closer to market open and market close. Still, my preference is to enter mutual fund buy/sell/exchange orders fairly close to market close, and factor in the estimated % change based on the similar ETF.

For Vanguard index mutual funds, I use the ETF for the ETF share class of the same fund, which is as close as you can get, but premium/discount and quick moves near market close still introduce uncertainty into the mutual fund value estimates. Still, it tends to work out pretty well and make a difference for big down or up days.

Also, as mentioned in earlier reply, there are only so many accounts you can do this in if you want to do things near market close, so I couldn't do this in all the accounts I own or manage.

Finally, I don't expect that most people would want to or be able to do something like this, so I don't necessarily encourage people to do it.

Kevin
If I make a calculation error, #Cruncher probably will let me know.
wander
Posts: 4419
Joined: Sat Oct 04, 2008 9:10 am

Re: If stocks dropped 30% next Monday, would you rebalance?

Post by wander »

livesoft wrote:A follow-on question to respond to (but please keep responding to the original questions, too):
If there was a 10% drop on Monday, 10% drop on Tuesday, and 10% drop on Wednesday, then would you rebalance from equities to bonds?
I would do nothing and re-balance with new money.
john94549
Posts: 4638
Joined: Tue Jul 26, 2011 8:50 pm

Re: If stocks dropped 30% next Monday, would you rebalance?

Post by john94549 »

Would I sell some of my IRA CDs? I don't think so. As for bond funds, I might think about it, but probably not.
rixer
Posts: 758
Joined: Tue Sep 11, 2012 4:18 pm

Re: If stocks dropped 30% next Monday, would you rebalance?

Post by rixer »

Since I'm in Lifestrategy, it would rebalance itself. I guess it could be a bad thing if we're in a long downturn. I hope not.
johnny847
Posts: 423
Joined: Thu Apr 10, 2014 12:08 am

Re: If stocks dropped 30% next Monday, would you rebalance?

Post by johnny847 »

Stocks can't drop 30% in one day

But to answer the spirit of your question, no, because I am 100% stocks.
ralph124cf
Posts: 2985
Joined: Tue Apr 01, 2014 11:41 am

Re: If stocks dropped 30% next Monday, would you rebalance?

Post by ralph124cf »

As somebody above mentioned, check first for real world events that may have a macroeconomic effect.

Did China invade Japan, or did Russia invade China?

I think Greece defaulting has been mostly baked into assumptions by now, but suppose that Germany decided to leave the Euro and the Common Market?

In the absence of real world events driving the market, yes I would rebalance.

Ralph
User avatar
tarheel
Posts: 452
Joined: Fri Sep 17, 2010 8:33 am

Re: If stocks dropped 30% next Monday, would you rebalance?

Post by tarheel »

Kevin M wrote:
tarheel wrote:This is actually a fairly interesting question......if there was a huge 1987-like drop (20%) that you knew would take you way outside of your rebalancing bands, would you guesstimate fund values using their ETF cousins so that you could have orders in before the market close for the day (and get your order to clear that evening)?
Yes, this actually is what I do. My portfolio spreadsheets have a set of columns for doing trades during market hours. For mutual funds, the most similar ETF is used to estimate % change for the mutual fund that day (using GoogleFinance function with the ETF), and the estimated end of day mutual fund value is shown before and after planned trades.

The closer to market close, the more accurate, but I believe some say that ETF prices can be a less reliable reflection of NAV closer to market open and market close. Still, my preference is to enter mutual fund buy/sell/exchange orders fairly close to market close, and factor in the estimated % change based on the similar ETF.

For Vanguard index mutual funds, I use the ETF for the ETF share class of the same fund, which is as close as you can get, but premium/discount and quick moves near market close still introduce uncertainty into the mutual fund value estimates. Still, it tends to work out pretty well and make a difference for big down or up days.

Also, as mentioned in earlier reply, there are only so many accounts you can do this in if you want to do things near market close, so I couldn't do this in all the accounts I own or manage.

Finally, I don't expect that most people would want to or be able to do something like this, so I don't necessarily encourage people to do it.

Kevin
Nice. I hope we don't have a day like this anytime soon. This technique could pay off though. I'd be in a bit of a quandary because AQR funds have no ETFs! I'd probably just use a Vanguard ETF as a proxy for a AQR multifactor.....I wouldn't be off by a ton (I hope?)
User avatar
siamond
Posts: 6003
Joined: Mon May 28, 2012 5:50 am

Re: If stocks dropped 30% next Monday, would you rebalance?

Post by siamond »

Sitting in front of my keyboard, on a quiet Monday morning, I would definitely say YES to the OP's primary questions (well, except the last one). Now, put in such real situation, I am less sure, this would be a rather emotional time, and it is hard to predict. I have a suspicion that I would at least want to read the news, sleep on it, and only make a decision the day after, even if this is likely to be suboptimal.

Running some numbers to get an idea... Say $1M with a 75/25 allocation. Taking an extreme view that ALL equities fall 30% (including International) that day, and that bonds are stable (they probably should go up, but let's simplify). This would bring the portfolio to $525k of stocks, and $250k of bonds. Rebalancing would then move $56k from bonds to equities. Yes, on a quiet Monday morning, I think that I should not hesitate to rebalance. Would I? Don't know. Probably the day after, while cursing myself.

PS. you made me check the stock futures this morning... Very mild! :wink:

PS2. Tarheel and Kevin, you have a really interesting point about MF vs ETF-equivalent. Good room for thought. Livesoft, do you do the same thing as Kevin?
User avatar
tarheel
Posts: 452
Joined: Fri Sep 17, 2010 8:33 am

Re: If stocks dropped 30% next Monday, would you rebalance?

Post by tarheel »

siamond wrote: PS2. Tarheel and Kevin, you have a really interesting point about MF vs ETF-equivalent. Good room for thought. Livesoft, do you do the same thing as Kevin?
It would not be fun to execute that strategy though. Let's say you made a huge rebalancing move using the ETF equivalents.....then the market whipsaws back the next day.....do you do the same thing again?

Hopefully this is just a thought experiment and such a violent whipsaw never comes to pass.

I honestly think I would probably just wait until the next day and do the boring rebalance - at least I'd see two days worth of data first.
Topic Author
livesoft
Posts: 85971
Joined: Thu Mar 01, 2007 7:00 pm

Re: If stocks dropped 30% next Monday, would you rebalance?

Post by livesoft »

siamond wrote:PS2. Tarheel and Kevin, you have a really interesting point about MF vs ETF-equivalent. Good room for thought. Livesoft, do you do the same thing as Kevin?
If you mean, do I use the changes in prices of ETFs to estimate before the market close the changes in NAVs that mutual funds might have, then the answer is definitely Yes. If you mean, do I have a spreadsheet to keep track of things like this, the answer is definitely No.
Wiki This signature message sponsored by sscritic: Learn to fish.
Dandy
Posts: 6701
Joined: Sun Apr 25, 2010 7:42 pm

Re: If stocks dropped 30% next Monday, would you rebalance?

Post by Dandy »

TIRA - earlier this year all equities were converted into Balanced Index and Wellesley - I assume the funds are rebalancing and I would
take no action on Monday. I would consider a move from short term bond funds to equities if it didn't affect my "safe" funding of
retirement until age 90 - and only if the total portfolio allocation fell below 40%
Taxable - Mostly in equity funds - If my overall equity allocation fell below 40% I would rebalance some from LTD term tax exempt to Total
Stock Market or Total Int'l Stock market. I would have a goal to bring my equity allocation up to 40% in the intermediate time
frame.

Highest priority is having "safe" funding to age 90. Secondary retirement is to have 40% equities. 2.5 years from age 70 and full SS. That
will lower withdrawal rate needed to less than 2% - that should free up significant monies in portfolio for maintaining desired allocation.

When my equity allocation falls below my target I consider that a wake up call. I know that I need to address it but don't feel I need to do it all immediately. It sets the direction of current and future actions - I know the course correction that is needed.
john94549
Posts: 4638
Joined: Tue Jul 26, 2011 8:50 pm

Re: If stocks dropped 30% next Monday, would you rebalance?

Post by john94549 »

OK, it's Tuesday, and the market is in tank mode. My initial inclination is to do nothing. My secondary inclination is also to do nothing. My wife has finally gotten the system down; as the market tanks, she gets more shares with her 401K bi-weekly contribution. She actually asked me today if her contrib would "fund" today. Too funny.
MnD
Posts: 5184
Joined: Mon Jan 14, 2008 11:41 am

Re: If stocks dropped 30% next Monday, would you rebalance?

Post by MnD »

i check AA weekly and my rebalancing bands were not even close to being exceeded.
I suspect they would be with another 30% drop so yes i would, but per the bands trigger to restore AA, not the drop of any given size.
70/30 AA for life, Global market cap equity. Rebalance if fixed income <25% or >35%. Weighted ER< .10%. 5% of annual portfolio balance SWR, Proportional (to AA) withdrawals.
User avatar
Marmot
Posts: 592
Joined: Sun Oct 10, 2010 1:44 pm
Location: Phoenix, AZ

I would wait 30 days to see what happens

Post by Marmot »

These days it goes up as well as down. Retired, not paying too much attention. I guess I am not too reactionary these days. Wish I had extra $ to put in though, great opportunity to buy in low....I would consider Rothing if that was a need.
Marty....don't go to the year 2020....Dr. Emmett Brown
john94549
Posts: 4638
Joined: Tue Jul 26, 2011 8:50 pm

Re: If stocks dropped 30% next Monday, would you rebalance?

Post by john94549 »

I did pick up 10 shares of VTI today at $99.50. Contrarian that I am. Brought me back to 50/50 in my trading account.

I suspect I'll be buying when the opportunity avails, and selling when Mr. Market decides to turn.

Ironically enough, my trading account is faring ever so much better than anything else this year*. Maybe I should open a hedge fund?

I must admit, however, that I grimace on days like today. Takes a bit of fortitude to buy when the bottom is falling out. Boy howdy, everybody threw in the towel today? As I joked to the wife, another good day to be in cash.

*Aside from my IRA CD ladder.
larmewar
Posts: 372
Joined: Sat Mar 03, 2007 6:45 pm

Re: If stocks dropped 30% next Monday, would you rebalance?

Post by larmewar »

No. Because by the time I knew the market closed down 30%, the market would be closed such that I couldn't rebalance.

Lar
Topic Author
livesoft
Posts: 85971
Joined: Thu Mar 01, 2007 7:00 pm

Re: If stocks dropped 30% next Monday, would you rebalance?

Post by livesoft »

larmewar wrote:No. Because by the time I knew the market closed down 30%, the market would be closed such that I couldn't rebalance.

Lar
You could rebalance the next day. The original post did not specify a time frame for rebalancing.
Wiki This signature message sponsored by sscritic: Learn to fish.
Post Reply