When do YOU rebalance?

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
azanon
Posts: 2996
Joined: Mon Nov 07, 2011 10:34 am

Re: When do YOU rebalance?

Post by azanon »

midareff wrote: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.
I would suggest this may be an indication that your current stock asset allocation is too high.

Just a general comment (for anyone), but I think sometimes people underappreciate how risky typical portfolios are (say the venerable 60/40), because rebalancing rules will call for you to buy more stocks when stocks are dropping. In other words, if you're not willing to buy repeatidly during the drop, you might have too high an allocation to begin with. The sweet spot allocation, is being willing to buy more when prices drop, and to sell and profit-take when prices rise.

I would also consider either an all-in-one in this scenario, or a managed portfolio (say, like Betterment). Someone needs to be willing to rebalance when your policy rules call for it.

Now if you have an annual rebalacing policy rule, then fine, ignore the day-to-day movements. Your IPS rules allow you to. But I think threshold rules are better (per Kitces article).
BigSaver
Posts: 139
Joined: Mon Apr 20, 2015 7:31 am

Re: When do YOU rebalance?

Post by BigSaver »

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 check balances monthly, and if an asset class is off by >1% of total, I rebalance. My AA applies to my total portfolio, not to individual accounts. Therefore, it is fairly easy to shift within IRAs/401Ks to accomplish the desired overall AA. In addition to checking monthly, I occasionally do some bottom feeding after a big correction, i.e. do small shifts into hardest hit asset classes. Small amounts so as not to lose sleep.

Your AA plan is your friend & guide. Takes the emotion out of it.

Based on a lot of reading & research about rebalancing, I learned:
(1) Don't do it too often. For this reason, I dislike most target date funds because they rebalance daily.
(2) Train yourself to think of corrections/crashes as a buying opportunity, i.e. Think: !!Securities On Sale!!
(3) Don't try to time the market. AA rebalancing and buying-on-sale are all with an eye towards YOUR AA goal. Stay within [your] lanes.
BigSaver
Posts: 139
Joined: Mon Apr 20, 2015 7:31 am

Re: When do YOU rebalance?

Post by BigSaver »

One more point: You mentioned waiting 6-8 months. Here's my perspective: I am less certain of what the market will do in 6-8 months than in 5-10 years. Over the medium-long run, I feel fairly confident the market will be higher than it is today. In the short run?... No idea. Flip a coin.

Therefore, buy on sale & rebalance periodically as if you were a robot. Some bogleheads have written that they rebalance once a year on their birthday. I am more comfortable checking it monthly and rebalancing if off by >X%. I fear that an annual check will miss some opportunities, but I understand the flip side to less frequent checking, which is that it potentially locks in greater gains in a bull market.
miles monroe
Posts: 1279
Joined: Mon Jan 20, 2014 12:14 pm

Re: When do YOU rebalance?

Post by miles monroe »

i've never sold anything to rebalance. distributions go to my money market account and i direct them to where they need to go. new money also goes to where it needs to go.

(above is taxable. ira is in target retirement, so i let vanguard worry about that. :) )
golfallday
Posts: 118
Joined: Sat Feb 14, 2009 3:43 am
Location: College Point, NY

Re: When do YOU rebalance?

Post by golfallday »

My 457 annually and automatically on January 2. My Roth IRA is in Vanguard Target 2035 so it rebalances on its own.
User avatar
HomerJ
Posts: 16035
Joined: Fri Jun 06, 2008 12:50 pm

Re: When do YOU rebalance?

Post by HomerJ »

azanon wrote:In other words, if you're not willing to buy repeatidly during the drop, you might have too high an allocation to begin with. The sweet spot allocation, is being willing to buy more when prices drop, and to sell and profit-take when prices rise.
I disagree... For myself, now that I'm close to retirement, I will never buy more when prices drop because I don't need the extra return, and it adds risk.

I will rebalance the other direction, however, taking profits from a rising market.
User avatar
Leif
Posts: 3153
Joined: Wed Sep 19, 2007 4:15 pm

Re: When do YOU rebalance?

Post by Leif »

HomerJ wrote:
azanon wrote:In other words, if you're not willing to buy repeatidly during the drop, you might have too high an allocation to begin with. The sweet spot allocation, is being willing to buy more when prices drop, and to sell and profit-take when prices rise.
I disagree... For myself, now that I'm close to retirement, I will never buy more when prices drop because I don't need the extra return, and it adds risk.

I will rebalance the other direction, however, taking profits from a rising market.
+1. Asymmetric rebalancing. I've heard Azanon argument from others and like Homer I also disagree (for me). When nearing/in retirement you want to protect against risk but also keep enough equities to provide long term growth in the portfolio. I am willing, however, to rebalance within equities.
carofe
Posts: 386
Joined: Thu Mar 20, 2014 7:21 pm

Re: When do YOU rebalance?

Post by carofe »

When I see a 3% drift. I don't have any problem selling winning shares and buying losers (in both directions), but I'm in the accumulation phase. I can see people during retirement struggling to buy shares in a bear market to rebalance. I would feel the same way.
US Total Stock Market + Intermediate Term Bond. That's it.
User avatar
midareff
Posts: 7417
Joined: Mon Nov 29, 2010 10:43 am
Location: Biscayne Bay, South Florida

Re: When do YOU rebalance?

Post by midareff »

azanon wrote:
midareff wrote: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.
I would suggest this may be an indication that your current stock asset allocation is too high.

Just a general comment (for anyone), but I think sometimes people underappreciate how risky typical portfolios are (say the venerable 60/40), because rebalancing rules will call for you to buy more stocks when stocks are dropping. In other words, if you're not willing to buy repeatidly during the drop, you might have too high an allocation to begin with. The sweet spot allocation, is being willing to buy more when prices drop, and to sell and profit-take when prices rise.

I would also consider either an all-in-one in this scenario, or a managed portfolio (say, like Betterment). Someone needs to be willing to rebalance when your policy rules call for it.

Now if you have an annual rebalacing policy rule, then fine, ignore the day-to-day movements. Your IPS rules allow you to. But I think threshold rules are better (per Kitces article).
OTOH azanon...... my 40/60, equities to bonds portfolio is hardly too risky. It is just risky enough to match my need, ability and willingness to take risk. .... and certainly presents no need for me to take additional risks chasing the possibility of additional gains, or encounter the possibility of additional losses. I would respectfully suggest your opinion of my "too high" asset allocation is a by product of your still being well within the accumulation stage of portfolio building rather than retired and in decummulation stage :mrgreen:
rixer
Posts: 716
Joined: Tue Sep 11, 2012 4:18 pm

Re: When do YOU rebalance?

Post by rixer »

I'm retired also and am not adding new money. I've got a lifestrategy fund so I don't have to worry about what's the best time to rebalance. I don't know if this is the best strategy for me but it does take care of all the indecisions.
azanon
Posts: 2996
Joined: Mon Nov 07, 2011 10:34 am

Re: When do YOU rebalance?

Post by azanon »

HomerJ wrote:
azanon wrote:In other words, if you're not willing to buy repeatidly during the drop, you might have too high an allocation to begin with. The sweet spot allocation, is being willing to buy more when prices drop, and to sell and profit-take when prices rise.
I disagree... For myself, now that I'm close to retirement, I will never buy more when prices drop because I don't need the extra return, and it adds risk.

I will rebalance the other direction, however, taking profits from a rising market.
I suspect it's more a misunderstanding than disagreement? I have a portfolio asset allocation with certain percentages assigned to my asset classes. I rebalance them to their target percentages when they move ouside their assiged allocation. The alternative is letting the allocation run all over the place, which is not something I've ever seen advised.

(edit) Again though, if someone is using a "time" based rebalance (such as annually) then its appropriate because that's what the IPS calls for.
Last edited by azanon on Tue Jun 28, 2016 12:50 pm, edited 1 time in total.
azanon
Posts: 2996
Joined: Mon Nov 07, 2011 10:34 am

Re: When do YOU rebalance?

Post by azanon »

midareff wrote:
azanon wrote:
midareff wrote: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.
I would suggest this may be an indication that your current stock asset allocation is too high.

Just a general comment (for anyone), but I think sometimes people underappreciate how risky typical portfolios are (say the venerable 60/40), because rebalancing rules will call for you to buy more stocks when stocks are dropping. In other words, if you're not willing to buy repeatidly during the drop, you might have too high an allocation to begin with. The sweet spot allocation, is being willing to buy more when prices drop, and to sell and profit-take when prices rise.

I would also consider either an all-in-one in this scenario, or a managed portfolio (say, like Betterment). Someone needs to be willing to rebalance when your policy rules call for it.

Now if you have an annual rebalacing policy rule, then fine, ignore the day-to-day movements. Your IPS rules allow you to. But I think threshold rules are better (per Kitces article).
OTOH azanon...... my 40/60, equities to bonds portfolio is hardly too risky. It is just risky enough to match my need, ability and willingness to take risk. .... and certainly presents no need for me to take additional risks chasing the possibility of additional gains, or encounter the possibility of additional losses. I would respectfully suggest your opinion of my "too high" asset allocation is a by product of your still being well within the accumulation stage of portfolio building rather than retired and in decummulation stage :mrgreen:
It was probably a misunderstanding. I had formed this imagine that you let this 40/60 run all over the place and did't rebalance it when a situation calls for it. It wouldn't be a 40/60 if you didn't maintain it (rebalance it) as such according to your IPS.

Just a quick hypothetical scenario. If you had a 40/60, and we had a black monday (1987) event, with no recovery, and you didn't rebalance, you only had a 40/60 before the black monday. If you still said you had one after, wouldn't it be, at least from a certain point of view, disingenous?

Regarding being in accumulation vs. retirement, I have quite a bit more equities now than I would at retirement. You're right, i wouldn't be willing to use the portfolio I have now with no earned income. But of course I'll switch to a more appropriate portfolio when that time comes; one I can live with and rebalance. I also have a plan to establish enough guaranteed income, as appropriate. I'm fortunate that I should have a pension. But if I did not, I would likely consider a SPIA for at least a portion of my portfolio.
User avatar
Taylor Larimore
Advisory Board
Posts: 30328
Joined: Tue Feb 27, 2007 8:09 pm
Location: Miami FL

Re: When do YOU rebalance?

Post by Taylor Larimore »

Ron Scott:

My stock/bond allocation is simple in late retirement:

* What I think I might need--I hold in good quality bond funds.

* The rest of my portfolio--is in stock funds.

I seldom need to rebalance because my bond fund amounts seldom change -- and I don't need to worry about my stock funds.

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
azanon
Posts: 2996
Joined: Mon Nov 07, 2011 10:34 am

Re: When do YOU rebalance?

Post by azanon »

OK so I found an entire thread on "asymmetrical rebalancing", and see Taylor's post above. I didn't realize that sort of thing was common, and actually endorsed by some notables. OK, I guess I'll accept some people do that. I don't agree with it though. I think there's an asset allocation that everyone can live with, and it just might be that said portfolio won't have much stocks in it. Mine is x% stocks x% bonds x% alternatives. It always will be that, even if I have to buy it down, all the way to zero. Live by the sword, die by the sword. Charge!
azanon
Posts: 2996
Joined: Mon Nov 07, 2011 10:34 am

Re: When do YOU rebalance?

Post by azanon »

Taylor Larimore wrote:Ron Scott:

My stock/bond allocation is simple in late retirement:

* What I think I might need--I hold in good quality bond funds.

* The rest of my portfolio--is in stock funds.

I seldom need to rebalance because my bond fund amounts seldom change -- and I don't need to worry about my stock funds.

Best wishes.
Taylor
I guess everyone's situation is different. What I think I'll need will be covered by 2 social securities (mine and my wife's) and a pension, and the rest will be a portfolio of stocks and bonds that I'll rebalance the same way Vanguard would rebalance their "balanced" funds. If i didn't have a pension, I'd probably get a SPIA for a portion of the portfolio that I needed to be guaranteed, as a SPIA of course can easily outpay any bond yield.
User avatar
arthurdawg
Posts: 902
Joined: Mon Jun 02, 2008 7:47 am

Re: When do YOU rebalance?

Post by arthurdawg »

I let cash accumulate in my money market and every quarter or so I'll buy more funds with it.

I usually make contributions to 401k, 529, and Roths in the early part of the year. These are mostly bonds, so it doesn't really matter when I put the money in.


If there is a nice drop (like yesterday!) I'll sometimes go ahead and purchase taxable stock funds if I have cash around. It's not so much market timing on my part as just taking advantage of a sale on stocks.


I tend to not worry about my exact asset allocation. I haven't sold any of my current funds, so I just add cash to keep them settled.

Usually about 60% stocks / 30% bonds and cash / 10% REIT... Stocks are 60:40 for TSM and TIM with about 15% to SC Value and 10% SC World.

The small cap world has done nothing but lose money... have thought about selling it and just keeping SC value. I bought the FTSE all world fund back when TIM was a fund of funds, so it doesn't have a small cap world exposure...
Indexed Fully!
Post Reply