When do YOU rebalance?

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Ron Scott
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When do YOU rebalance?

Post by Ron Scott » Thu Jun 02, 2016 5:44 am

Let's say the total market, both US and international, dropped 20% this summer and remained low for the next 6-8 months. Bonds remained unchanged.

Would you be buying into stocks this year?

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Re: When do YOU rebalance?

Post by GoldenFinch » Thu Jun 02, 2016 5:56 am

We invest automatically both weekly and monthly in different accounts (taxable, retirement). Auto invest would continue in a down market which is great because we would be "buying low." I would rebalance as soon as our asset allocation became out of whack by about 3%. I would feel pretty good about rebalancing in either a prolonged or short-lived down market.

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VirtualCuriosity
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Re: When do YOU rebalance?

Post by VirtualCuriosity » Thu Jun 02, 2016 6:03 am

Ron Scott wrote:Let's say the total market, both US and international, dropped 20% this summer and remained low for the next 6-8 months. Bonds remained unchanged.

Would you be buying into stocks this year?


Yes, I would, and will if it does. We have automatic deposits into our retirement accounts every two weeks. If bonds remained unchanged, we would readjust deposits to keep allocation correct as per the planned course.

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stevewolfe
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Re: When do YOU rebalance?

Post by stevewolfe » Thu Jun 02, 2016 6:41 am

I have laid out these details in my IPS. In the scenario described, we would direct all new investments to stocks until we achieved our target stock allocation. This may take a considerable amount of time despite new monies going into stocks in tax deferred and taxable accounts.

However, we don't lump sum rebalance based on a band into stocks. It's just a risk management choice we made in the event the 20% drop becomes 50%, 75%, etc. We rebalance with new monies into stocks only. If the opposite scenario occurs and stocks are up 20%, we will lump sum rebalance back to our allocation if we own sufficient stock in tax deferred otherwise we will allocate new monies to fixed income only as well as move stock dividends to fixed income.

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Re: When do YOU rebalance?

Post by azanon » Thu Jun 02, 2016 6:46 am

I recently started using 20% tolerance bands, with review of my portfolio every 5 days, after taking into consideration this very informative article (written 5/4/16) by Michael Kitces on the subject: https://www.kitces.com/blog/best-opport ... hresholds/

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Re: When do YOU rebalance?

Post by oldcomputerguy » Thu Jun 02, 2016 6:50 am

Ron Scott wrote:Let's say the total market, both US and international, dropped 20% this summer and remained low for the next 6-8 months. Bonds remained unchanged.

Would you be buying into stocks this year?


Absolutely.
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Re: When do YOU rebalance?

Post by livesoft » Thu Jun 02, 2016 6:51 am

Ron Scott wrote:Let's say the total market, both US and international, dropped 20% this summer and remained low for the next 6-8 months. Bonds remained unchanged.

Would you be buying into stocks this year?

Absolutely no doubt I would be buying into my equity funds then.

I would be buying even before then in an act of rebalancing. Something similar ALREADY HAPPENED earlier this year. Then I rebalanced by buying equities and when they went up I rebalanced by selling equities. See also: viewtopic.php?t=118815

What did YOU do in January - February 2016?

PS: Here is a follow-up chart to go with my earlier rebalancing link. Can you say "Rebalancing BONUS!"?

Image
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Ari
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Re: When do YOU rebalance?

Post by Ari » Thu Jun 02, 2016 6:54 am

I only rebalance with incoming money, so no. As of yet, my incoming money is enough to always rebalance my investments every month.

(Also I don't own bonds.)
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BeBH65
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Re: When do YOU rebalance?

Post by BeBH65 » Thu Jun 02, 2016 6:59 am

Ron Scott wrote:Let's say the total market, both US and international, dropped 20% this summer and remained low for the next 6-8 months. Bonds remained unchanged.

Would you be buying into stocks this year?

My IPS now tells me: rebalance when 1) 5/25 bands are surpassed, 2) on my birthday, and 3) with new money

My AA is 60%/40%
Assume 200k investment this is 120k/80k, assume no new money.
A 20% drop in equity brings this to 96k/80k or 55%/45% exacly hitting my 5% band.
Hence I need to sell 10k of bonds and buy 10k of equity to bring me back to 60%/40% = 106k/70k.
The 10k for additional equity will be split between domestic and international to reach the respective AA%

This said in the past my new money has been sufficient to keep me away from the rebalancing bands.

Regards,
BeBH65. (only an investment enthusiast, not a financial adviser, perform your due diligence).

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Re: When do YOU rebalance?

Post by BuckyBadger » Thu Jun 02, 2016 7:57 am

I've rarely had to "actively" rebalance. Up to this point, changing the directions of my contributions to the under performing asset has been enough to keep everything within 5%.

However my total account balance has been growing, so my contributions are becoming a smaller fraction of those assets and I recently had to actively rebalance. In January of this year I sold approximately $30k in Total US Bonds from within my 403b and bought Total US Stock. I did this because by bonds were up just about 5%, which is my action level.

This is what my IPS says, so this is what I do.

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Re: When do YOU rebalance?

Post by hikeandbike » Thu Jun 02, 2016 8:45 am

Ron Scott wrote:Let's say the total market, both US and international, dropped 20% this summer and remained low for the next 6-8 months. Bonds remained unchanged.

Would you be buying into stocks this year?


Yes. I use both LifeStrategy and Target Retirement funds in my tax-advantaged accounts so those would automatically rebalance.

Additionally, I buy VTI and VXUS in taxable on at least a quarterly schedule so that would add to the stock purchasing. At the same time as the taxable purchases are made LifeStrategy funds (moderate growth and growth) are rebalanced to get to my target AA which is age - 20 in bonds.

This won't change until I get closer to retirement.

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Re: When do YOU rebalance?

Post by HomerJ » Thu Jun 02, 2016 8:48 am

Ron Scott wrote:Let's say the total market, both US and international, dropped 20% this summer and remained low for the next 6-8 months. Bonds remained unchanged.

Would you be buying into stocks this year?


I no longer rebalance into down markets by selling bonds and buying stocks. All new money would go 100% into stocks, however, in an attempt to slowly rebalance back to my desired AA.

If the total market went up 20% this summer, I would indeed rebalance the other direction, selling stocks and buying bonds.
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Re: When do YOU rebalance?

Post by mhc » Thu Jun 02, 2016 9:16 am

Yes.

I would focus all new contributions on equities. I would see it as a buying opportunity for stocks.

A 20% drop may not trigger a rebalance where I sell bonds and by stocks.

AA 80/20 (start)
AA 64/20 (after 20% drop) (AA 76%/24%)

A 20% drop doesn't really upset the AA very much.

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Re: When do YOU rebalance?

Post by goingup » Thu Jun 02, 2016 9:25 am

Ron Scott wrote:Would you be buying into stocks this year?

Of course. We buy equity funds automatically every 2 weeks, every month and every quarter. In your scenario I would definitely be tax loss harvesting, and would probably need to rebalance.

A 20% drop isn't unthinkable. It happens. There was a 15% drop recently, as livesoft noted.

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Re: When do YOU rebalance?

Post by livesoft » Thu Jun 02, 2016 9:43 am

goingup wrote:A 20% drop isn't unthinkable. It happens. There was a 15% drop recently, as livesoft noted.

Actually, the chart shows a larger than 20% drop for small-cap value and foreign equities. It also looks like small-cap value has done worse than total stock market over the past year, but that doesn't have to be the full story.

People who buy-and-hold will be worse off if they had bought small-cap value a year ago. However, people who did buy-hold-and-rebalance of small-cap value will be doing better than the folks who did buy-and-hold with the 3-fund portfolio.
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Re: When do YOU rebalance?

Post by Sbashore » Thu Jun 02, 2016 10:05 am

I went and did a simulation using my spreadsheet. It implements my IPS. A 20% drop would have me doing minor rebalancing among my equity classes, but no action to add to my overall equity position. That is what I would do.
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Re: When do YOU rebalance?

Post by livesoft » Thu Jun 02, 2016 10:07 am

I think something is wrong with a rebalancing algorithm that does not trigger any rebalancing if equities drop 20%.
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Re: When do YOU rebalance?

Post by Sbashore » Thu Jun 02, 2016 10:09 am

livesoft wrote:I think something is wrong with a rebalancing algorithm that does not trigger any rebalancing if equities drop 20%.


How could you know that without reading my IPS? Maybe wrong for you. Not me.
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Re: When do YOU rebalance?

Post by livesoft » Thu Jun 02, 2016 10:14 am

Sbashore wrote:
livesoft wrote:I think something is wrong with a rebalancing algorithm that does not trigger any rebalancing if equities drop 20%.


How could you know that without reading my IPS? Maybe wrong for you. Not me.

Because I am me and I wrote "I think ...." I absolutely know what I think. Your IPS has nothing to do with what I think.
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Re: When do YOU rebalance?

Post by ruralavalon » Thu Jun 02, 2016 11:23 am

Ron Scott wrote:Let's say the total market, both US and international, dropped 20% this summer and remained low for the next 6-8 months. Bonds remained unchanged.

Would you be buying into stocks this year?

Yes, I would sell bonds to buy stocks and would not wait 6 -8 months to do that.

More generally I rebalance in the last two months of the year when our Treasury bonds mature, distributing the cash so as to put our asset allocation on the 50/50 target.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

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Re: When do YOU rebalance?

Post by otinkyad » Fri Jun 03, 2016 3:56 am

azanon wrote:..., with review of my portfolio every 5 days, ...


Every 5 days? I sometimes read my quarterly statements. I noticed this past weekend that I hadn't checked my AA in 15 months, so I did that. The drifts were all under 2%, and I generally follow the 5/25 rule, so I did nothing but update my spreadsheet.

As for the OP, when something you want as much of as you can get is 20% off, do you buy extra?

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Re: When do YOU rebalance?

Post by magneto » Fri Jun 03, 2016 4:17 am

We seem to be going over old ground here :!:

Perhaps a poll in needed :?:
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Re: When do YOU rebalance?

Post by bargainhuntingking » Fri Jun 03, 2016 5:50 am

I do exactly what BeBH65 does:

BeBH65 wrote: My IPS now tells me: rebalance when 1) 5/25 bands are surpassed, 2) on my birthday, and 3) with new money

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Re: When do YOU rebalance?

Post by azanon » Fri Jun 03, 2016 7:44 am

jl1615 wrote:
azanon wrote:..., with review of my portfolio every 5 days, ...


Every 5 days? I sometimes read my quarterly statements. I noticed this past weekend that I hadn't checked my AA in 15 months, so I did that. The drifts were all under 2%, and I generally follow the 5/25 rule, so I did nothing but update my spreadsheet.


> I check the drift by looking at the "per security" in Quicken. It maybe takes 2 minutes to do this, provided I've imported prices and have transactions up-to-date. Typically, I won't have to rebalance so that leaves nothing else to do.
> the 5/25 should give decent results, but per the Kitces article I linked above, it appears research is showing 20% as the sweet spot (as opposed to 25%).
> So for a look interval of 250 days at 25% (you're really a year), Kitces chart shows a 0.14% benefit, vs. 0.39% for looking every 5 days at 20% band. Dunno about you, but I'll take an extra 0.25% on my return. That's enough to completely pay my portfolio expense ratio with some left over.

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Re: When do YOU rebalance?

Post by Lafder » Fri Jun 03, 2016 7:55 am

If my AA is off by more than 5% theoretically I would rebalance by sales and purchases. But it almost never gets off by that much.

The effects of a 20% drop in value of stocks depends on the % of your portfolio that are stocks!

In my case, my stocks are desired to be 65% of total.

It does not matter that the bonds did not drop in cash value, what matters is your asset allocation or the % of stocks to bonds.

If a stock market drop caused a greater than 5% shift in my AA I would mostly rebalance with new money. But I would also look to see if I needed to make any sales/purchases if it was significantly off from my 5% bands. A few % off and I just rebalance with incoming purchases.

lafder

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Re: When do YOU rebalance?

Post by magneto » Fri Jun 03, 2016 11:18 am

Extract from Investment Plan/IPS :-

"Method for Rebalancing Asset Allocations (AA)
Buying as a market falls feels like throwing good money after bad, watching with dismay as ever more money goes down the drain. On the other hand selling as the market rises leads to regret as the investor is left on the side-lines watching helplessly as the market grinds relentlessly ever upwards. The aim of the method is to avoid excessive actions and retain psychological and system balance.

Rebalancing is commonly based on time or deviation bands. This method attempts to use both in a progressive manner and borrows from classical control theory (integral action), to seek system stability.

At regular intervals, say every month, look at the deviation from the desired AA and rebalance 10% of the way to the desired AA. This response restrains the rate of approach to the desired AA, captures some momentum effect, and is a calming influence. The investor is always moving in the right direction, towards, but seldom reaching the desired AA, and thus not making large changes which could lead to regret. The method could be sub-optimal, but suit those of a cautious nature.

For Stocks the desired AA could be either a fixed target or a dynamic target based on valuations, we choose a dynamic target responding to valuations as outlined below.

............... "

Suggest seeking "sweet spots" by time or bands alone, is like trying to aim for a moving target.
History may not be predictive?


Would still like to see a poll, if someone can construct sensible options :!:
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Re: When do YOU rebalance?

Post by asif408 » Fri Jun 03, 2016 11:28 am

From mid-June 2015 to January 2016 US Stocks dropped about 15%, Int'l about 20%, and Emerging about 30%. I bought some international in January and February 2016. Since February they are all up 10 to 15%. In fact, international and emerging markets stocks are still down 15-20% since mid-2014 even with the recent jump.

FWIW, I don't rebalance too often (every 2 years or so) but typically buy whatever has been performing most poorly when I have new money to add. Only wish I had bought a precious metals fund earlier this year, they are going bananas right now.

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Re: When do YOU rebalance?

Post by midareff » Fri Jun 03, 2016 11:38 am

Ron Scott wrote:Let's say the total market, both US and international, dropped 20% this summer and remained low for the next 6-8 months. Bonds remained unchanged.

Would you be buying into stocks this year?


I would not be Ron. In this case the dividends from both funds would not change much and I take them to bank from taxable accounts being retired. @ age 68 my rebalancing from bonds to stocks would take a much larger drop, perhaps 40% and maybe not even then. I have enough "safe" money to match my life's liabilities so the lure of trying to make more than the market would normally give is not very tempting, but you never know.

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Re: When do YOU rebalance?

Post by abuss368 » Fri Jun 03, 2016 12:00 pm

I direct new cash contributions to the underweight investment each time. This has worked very well. An alternative is to sell and rebalance.

Best.
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Re: When do YOU rebalance?

Post by crit » Fri Jun 03, 2016 1:02 pm

Ron Scott wrote:Let's say the total market, both US and international, dropped 20% this summer and remained low for the next 6-8 months. Bonds remained unchanged.
Would you be buying into stocks this year?


Yes. And TLHing as I could.

I check AA monthly by design (you can't rebalance if you don't know you need to).
I log in to check my cost-basis views when I see market fluctuations (in news, or by frequency of TLH threads here) that might be a TLH opportunity.

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Re: When do YOU rebalance?

Post by Dandy » Fri Jun 03, 2016 6:00 pm

In retirement with likely enough to fund it fully. 42% equities and enough in short term bonds, FDIC products to last until age 90. So, a 20% drop or even much less would prompt me to buy. We are currently near or at historic highs so not interested in increasing equity allocation. I can afford to take more equity risk and would do so when the market dips.

Normally, I look at the end of February to reassess my need to rebalance. I hate to move large amounts of money. So when the market soars I might take some profits and when it dips I might invest a bit more. I don't necessary wait until my official rebalance date. In retirement I think of it more as a reassessment date e.g. should I take more risk, should I simplify more, are my "residual expenses" growing so I need to adjust my "safe" portfolio, etc.

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Re: When do YOU rebalance?

Post by William4u » Fri Jun 03, 2016 6:02 pm

I have auto-rebalance through my 403b and other tax advantaged accounts. I check it every year or so to make sure all is well with it and my IPS.

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Re: When do YOU rebalance?

Post by sambb » Fri Jun 03, 2016 6:39 pm

I rebalance constantly
I have life strategy funds
and some individual funds
I also invest extra money every month to maintain asset allocation when i have extra money
i just look at my allocation and invest accordingly to bring it closer to my preferred allocation

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Re: When do YOU rebalance?

Post by supersecretname » Fri Jun 03, 2016 6:40 pm

Every two weeks when I contribute. I keep balances pretty close to the target.

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Re: When do YOU rebalance?

Post by APB » Fri Jun 03, 2016 7:00 pm

Ari wrote:I only rebalance with incoming money, so no. As of yet, my incoming money is enough to always rebalance my investments every month.

(Also I don't own bonds.)


+1. Taxable account dividends and salary represent my incoming money. For me, this is the easiest way to do it, as there are no capital gains, and I already need to take buying action.

2nd option would be buying and selling in tax deferred accounts.

3rd option is a rebalance of taxable assets. For me, this would probably not occur unless something catastrophic happens.
My posts represent my own opinion and do not constitute financial advice. I am simply a hobbyist. :)

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Re: When do YOU rebalance?

Post by TXJuice » Fri Jun 03, 2016 8:09 pm

I follow the 5/25 rule, so anytime I am plugging in my info to my Excel sheet and I notice the bands have been "breached," I change it.
Right now most of my excess income (after maxing Roth IRA and 403B) is going into my ALLY account for an eventual downpayment - 2-4 years away. I put a little into VTI and VXUS in my taxable. If we tanked 20%, I would put my savings on hold and dump it into VTI/VXUS instead.

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Re: When do YOU rebalance?

Post by grabiner » Fri Jun 03, 2016 9:15 pm

Ron Scott wrote:Let's say the total market, both US and international, dropped 20% this summer and remained low for the next 6-8 months. Bonds remained unchanged.

Would you be buying into stocks this year?


I wouldn't be buying any more that usual (my new investments go into stocks anyway), but that's because I wouldn't reach my rebalancing threshold. I hold 96% stocks and 4% bonds (net, counting my mortgage as a negative bond); a market crash would change that to 95% stocks and 5% bonds. I would do my regular rebalance in January 2017 when my target bond allocation will become 6%.

I did rebalance in 2008 when the market crash took me past my band. At that time, my target was 90% stock and 10% bonds with a rebalancing band of 7.5%-12.5%, and when the market had dropped by 30% in October 2008, I was 86% stock and 14% bonds, and sold bonds to get back to 10%.
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Re: When do YOU rebalance?

Post by j0nnyg1984 » Sat Jun 04, 2016 1:58 pm

January 1st, unless there's a significant market change and I deem it necessary to take action. I don't use a silly statement or "bands" or any of that.

There hasn't been market activity significant enough for me to do a mid-year rebalance yet, btw.

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Re: When do YOU rebalance?

Post by JeepDaze » Sat Jun 04, 2016 3:36 pm

Ron Scott wrote:Let's say the total market, both US and international, dropped 20% this summer and remained low for the next 6-8 months. Bonds remained unchanged.

Would you be buying into stocks this year?


I use relative bands. +/- 5 to 20% depending on the asset class.

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Re: When do YOU rebalance?

Post by Leif » Sun Jun 05, 2016 1:11 pm

azanon wrote:I recently started using 20% tolerance bands, with review of my portfolio every 5 days, after taking into consideration this very informative article (written 5/4/16) by Michael Kitces on the subject: https://www.kitces.com/blog/best-opport ... hresholds/

Its interesting that the recent discussion of a new book, Living off Your Money, the book also suggests sell equities (20%) when they reach 120% of their inflation adjusted value. Probably not a coincidence. I'm currently using bands suggested by Larry Swedroe, 5%/25%. If the asset class is > 20% then use 5% absolute band. If <= 20% then use relative 25% band. Since I S&D my asset classes are < 20% so I use 25% from the target allocation to rebalance.
Investors should diversify across many asset-classes so that whatever happens, we will not have all our investments in underperforming asset classes and thereby fail to meet our goals-Taylor Larimore

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Re: When do YOU rebalance?

Post by livesoft » Sun Jun 05, 2016 1:28 pm

azanon wrote:I recently started using 20% tolerance bands, with review of my portfolio every 5 days, after taking into consideration this very informative article (written 5/4/16) by Michael Kitces on the subject: https://www.kitces.com/blog/best-opport ... hresholds/

Thanks pointing out the Kitces article which basically covers the articles linked and covered in the Bogleheads wiki and discussed many times on the forum. I like his phrase "snap back."

He gives a good summary of those articles, but he still doesn't approach Rebalancing from another angle which is: What would be the PERFECT timing of Rebalancing and could one hope to achieve that? And even if one could not achieve perfection, could one get 50% or 80% or 90% of perfection?
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Re: When do YOU rebalance?

Post by azanon » Sun Jun 05, 2016 9:10 pm

livesoft wrote:
azanon wrote:I recently started using 20% tolerance bands, with review of my portfolio every 5 days, after taking into consideration this very informative article (written 5/4/16) by Michael Kitces on the subject: https://www.kitces.com/blog/best-opport ... hresholds/

Thanks pointing out the Kitces article which basically covers the articles linked and covered in the Bogleheads wiki and discussed many times on the forum. I like his phrase "snap back."

He gives a good summary of those articles, but he still doesn't approach Rebalancing from another angle which is: What would be the PERFECT timing of Rebalancing and could one hope to achieve that? And even if one could not achieve perfection, could one get 50% or 80% or 90% of perfection?


If the article is corroborated by the boglehead wiki, all the better. I chose to link the article because I knew it to be recently written, and knew it was relevant to this topic.

Speaking only for myself, I'm certainly not on some quest for rebalancing perfection. But if one has done the legwork and found what seemed most effective in the past, I'm certainly interested in hearing about it. As is commonly stated, past performance is no guarantee of future returns, but I'm quick to add what the heck else are you going to use?

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Re: When do YOU rebalance?

Post by azanon » Sun Jun 05, 2016 9:12 pm

Leif wrote:
azanon wrote:I recently started using 20% tolerance bands, with review of my portfolio every 5 days, after taking into consideration this very informative article (written 5/4/16) by Michael Kitces on the subject: https://www.kitces.com/blog/best-opport ... hresholds/

Its interesting that the recent discussion of a new book, Living off Your Money, the book also suggests sell equities (20%) when they reach 120% of their inflation adjusted value. Probably not a coincidence. I'm currently using bands suggested by Larry Swedroe, 5%/25%. If the asset class is > 20% then use 5% absolute band. If <= 20% then use relative 25% band. Since I S&D my asset classes are < 20% so I use 25% from the target allocation to rebalance.


That method seemed to work pretty well in the Kitces article as well, 2nd only to 20% relative intervals. I guess when it comes down to it, rebalancing's main purpose is just to maintain your risk level to where you started. This hypothetical added extra return would just be a bonus to the main purpose.

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Re: When do YOU rebalance?

Post by JonnyDVM » Sun Jun 05, 2016 9:19 pm

Ron Scott wrote:Let's say the total market, both US and international, dropped 20% this summer and remained low for the next 6-8 months. Bonds remained unchanged.

Would you be buying into stocks this year?


Are you predicting this? That be great for me. Yes, I would love buying at a discount. Probably would be scooping up all equities with new income as well as selling off some bonds to buy more. I sold a little piece of bonds off in February to buy TSM. Why wouldn't you rebalance after a 20% drop?

Also not sure if anyone mentioned this but an excellent indicator that it's time to consider rebalancing is when the "US stocks in free fall" thread gets hot.
Sometimes the questions are complicated and the answers are simple. -Dr. Seuss

Bob's not my name
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Re: When do YOU rebalance?

Post by Bob's not my name » Tue Jun 28, 2016 3:10 am

azanon wrote:I recently started using 20% tolerance bands, with review of my portfolio every 5 days, after taking into consideration this very informative article (written 5/4/16) by Michael Kitces on the subject: https://www.kitces.com/blog/best-opport ... hresholds/
Something I don't understand about the 20% rule is that Kitces says the rule applies to each investment class, but then he applies it only to the majority position (stocks in his example).

Consider a portfolio that is 75% stock, 25% bonds. When the bond allocation has risen to 30%, the 20% rule is invoked, but at this point the stock allocation is less than 7% out of whack.

Now consider a more complex allocation that includes international stocks, small caps, and REITs. It is the smallest allocations that will trigger rebalancing, right? :|

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BeBH65
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Re: When do YOU rebalance?

Post by BeBH65 » Tue Jun 28, 2016 3:34 am

Hello Bob,

Bob's not my name wrote:Now consider a more complex allocation that includes international stocks, small caps, and REITs. It is the smallest allocations that will trigger rebalancing, right? :|
It is my understanding that each class could trigger rebalancing.

Consider the following examples:

Code: Select all

        AA   real   abs   rel
Bond    25%   30%   5%*  120%*
TSM     45%   42%   -3%   93%
Int     15%   14%   -1%   93%
SC      10%    9%   -1%   90%
REIT     5%    5%   0%   100%
* Bond triggers rebalancing (twice) - need to sell 17% of the bonds allocation and buy TSM, International, SC

Code: Select all

       AA   real   diff   rel
Bond  25%    27%    2%   108%
TSM   45%    46%    1%   102%
Int   15%    12%   -3%   80%*
SC    10%    10%    0%   100%
REIT   5%     5%    0%   100%
* International triggers rebalancing - Need to buy International and sell Bonds and TSM to fund this buy.

edited: to improve formatting
Last edited by BeBH65 on Tue Jun 28, 2016 4:23 am, edited 2 times in total.
BeBH65. (only an investment enthusiast, not a financial adviser, perform your due diligence).

Bob's not my name
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Re: When do YOU rebalance?

Post by Bob's not my name » Tue Jun 28, 2016 3:37 am

So we agree that Kitces's example doesn't comply with his rule. Young investors with stock-heavy portfolios who follow his rule might be rebalancing today even though stocks are down only about 5% since Thursday.

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Re: When do YOU rebalance?

Post by Van » Tue Jun 28, 2016 6:07 am

Once a year in the second week or so of January. I use the money that has accumulated in my tax-free MM account over the year. All earnings and dividends from all investments go into the MM account rather than being reinvested.

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Re: When do YOU rebalance?

Post by midareff » Tue Jun 28, 2016 6:46 am

I'm 5 years into retirement and have no incoming new money. I would need to see a change in excess of 5% of my target AA portfolio wise before going for that second cup of coffee, and then I would still think about it some more. Low hanging fruit is not always what it seems and while it will always nice to have more there is a point of differentiation between having enough and taking additional risk to see what comes next.

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Re: When do YOU rebalance?

Post by azanon » Tue Jun 28, 2016 9:01 am

Bob's not my name wrote:
azanon wrote:I recently started using 20% tolerance bands, with review of my portfolio every 5 days, after taking into consideration this very informative article (written 5/4/16) by Michael Kitces on the subject: https://www.kitces.com/blog/best-opport ... hresholds/
Something I don't understand about the 20% rule is that Kitces says the rule applies to each investment class, but then he applies it only to the majority position (stocks in his example).

Consider a portfolio that is 75% stock, 25% bonds. When the bond allocation has risen to 30%, the 20% rule is invoked, but at this point the stock allocation is less than 7% out of whack.

Now consider a more complex allocation that includes international stocks, small caps, and REITs. It is the smallest allocations that will trigger rebalancing, right? :|


My understanding is that it applies to each investment class. But I'll add that I don't apply it to my bonds, because i use only 100% ST and IT Treasuries. I view my treasuries as cash proxies. However, I've noticed it doesn't seem to matter if I make that exception, because if I'm applying it to everything else, the treasuries are almost always within their "bands".

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