Is there a point where you should stop or hold off rebalancing?

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ChinchillaWhiplash
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Is there a point where you should stop or hold off rebalancing?

Post by ChinchillaWhiplash » Tue Sep 11, 2018 10:44 am

With Emerging Markets I have sold off some TSM to buy more EM. Have also added new monthly contribution $s to EM. It is still off balance and keeps going lower % wise. Now Developed International is getting close to my 5% rebalance point. Is there a point where it might be best to just let it ride and put new $s into each asset class evenly each month? My TSM is very close to the % I have set for AA. I don't want to sell off more. Or should I just do rebalance once a year when selling off an asset class to balance and just put monthly contributions to which ever is lowest at that given time. What methods seem to work the best for you experienced folk

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vineviz
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Re: Is there a point where you should stop or hold off rebalancing?

Post by vineviz » Tue Sep 11, 2018 10:49 am

Annual rebalancing is generally superior to more frequent intervals.

I’d direct new money and withdrawals to the assets that needs it, then do a single rebalance once every 12 or 18 months.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

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vineviz
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Re: Is there a point where you should stop or hold off rebalancing?

Post by vineviz » Tue Sep 11, 2018 10:50 am

Annual rebalancing is generally superior to more frequent intervals.

I’d direct new money and withdrawals to the assets that needs it then do a single rebalance once every 12 or 18 months.

So all new investments should be in asset classes that are below your target allocation.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

mhalley
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Re: Is there a point where you should stop or hold off rebalancing?

Post by mhalley » Tue Sep 11, 2018 10:50 am

If you are questioning your rebalancing due to markets going lower, you are missing the point of the purpose of rebalancing. You are questioning your decision because you feel like you are throwing good money after bad. This is exactly how rebalancing should feel. If you question it, you are questioning your Ips.
How often to rebalance is a personal decision an no one knows the correct interval. It can be done Dailey (Target date funds) quarterly, annually, some even recommend every 4 years.

Mike Scott
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Re: Is there a point where you should stop or hold off rebalancing?

Post by Mike Scott » Tue Sep 11, 2018 10:51 am

What does your IPS say and what is the rationale? Some do it on specific dates. Some do it with % bands. Some a combination.

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ruralavalon
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Re: Is there a point where you should stop or hold off rebalancing?

Post by ruralavalon » Tue Sep 11, 2018 11:02 am

ChinchillaWhiplash wrote:
Tue Sep 11, 2018 10:44 am
With Emerging Markets I have sold off some TSM to buy more EM. Have also added new monthly contribution $s to EM. It is still off balance and keeps going lower % wise. Now Developed International is getting close to my 5% rebalance point. Is there a point where it might be best to just let it ride and put new $s into each asset class evenly each month? My TSM is very close to the % I have set for AA. I don't want to sell off more. Or should I just do rebalance once a year when selling off an asset class to balance and just put monthly contributions to which ever is lowest at that given time. What methods seem to work the best for you experienced folk
If you don't rebalance you may be missing an opportunity to buy low.

You state that your total stock market fund is close to the desired percentage, and you don't want to sell more.

What asset type is above its target asset allocation? You can sell some of that to help keep your international allocation on target.

When in the accumulation stage you can rebalance by how you invest your ongoing contributions, and then also annually by exchanging between funds in a tax-advantaged account if your asset allocation is still off target.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

retiredjg
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Re: Is there a point where you should stop or hold off rebalancing?

Post by retiredjg » Tue Sep 11, 2018 11:43 am

Eliminate the problem by holding 1 total international instead of developed and emerging separately.

If you prefer to hold them separately, there must be a reason....if that reason was a "rebalancing bonus" (if such a thing exists), you need to get with the program or give it up and move to one fund.

bloom2708
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Re: Is there a point where you should stop or hold off rebalancing?

Post by bloom2708 » Tue Sep 11, 2018 11:49 am

retiredjg wrote:
Tue Sep 11, 2018 11:43 am
Eliminate the problem by holding 1 total international instead of developed and emerging separately.

If you prefer to hold them separately, there must be a reason....if that reason was a "rebalancing bonus" (if such a thing exists), you need to get with the program or give it up and move to one fund.
+1

ChichillaWiplash is on a (very slow) journey to becoming a Total Market, 3 fund master. It just might take some time. Hold EM as a separate entity may or may work out. When to re-balance is just one stumbling block. If you keep hitting difficult decisions with multiple paths forward, return to "Nobody Knows Nothing". Any decision to tilt or sector or <insert here> is unknown going forward. Good luck on your journey!
Where to spend your time: | 1. You completely control <--spend your time here! | 2. You partially control <--spend very little time here! | 3. You have no control <--spend no time here

Luke Duke
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Re: Is there a point where you should stop or hold off rebalancing?

Post by Luke Duke » Tue Sep 11, 2018 11:54 am

vineviz wrote:
Tue Sep 11, 2018 10:50 am
Annual rebalancing is generally superior to more frequent intervals.
What is your definition of superior?

MrBeaver
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Re: Is there a point where you should stop or hold off rebalancing?

Post by MrBeaver » Tue Sep 11, 2018 12:12 pm

ChinchillaWhiplash wrote:
Tue Sep 11, 2018 10:44 am
Is there a point where it might be best to just let it ride and put new $s into each asset class evenly each month?
...
Or should I just do rebalance once a year when selling off an asset class to balance and just put monthly contributions to which ever is lowest at that given time.
I don't claim to have the right answer here, but I'll share what I've decided to do:
  1. All contributions go into different asset classes at their target allocation percentage
  2. Any time one asset class hits a rebalancing band (method of your choosing), I rebalance. I check every week or two to ensure I hit 'opportunities' similar to the Opportunistic Rebalancing article.
So essentially, I always let it ride, and then just rebalance when things get out of whack.

My thinking is that the entire theory of having bands (rather than rebalancing frequently, e.g. as a total international vs EM + developed would, or as a cap-weighted index does as valuations of the underlying stocks change daily) is to allow some momentum in asset classes to run prior to rebalancing. It also has the side effect of reducing transaction costs, but in today's investing environment that's really only applicable to taxable accounts where LTCG taxes might be realized. If there is no benefit to allowing momentum to run some, then ignoring transaction costs, one should rebalance as frequently as possible. If there is a benefit to allowing momentum to run, then I don't want my contributions clouding the amount which one asset class has risen or fallen prior to rebalancing, and I don't want to add extra money to 'losers' beyond my target allocation before they hit my threshold to rebalance.

Since I surmise from what I've read that there is benefit in capturing some of the relative momentum between asset classes, I follow the above. But I know a lot of others know way more than me in rebalancing theory.

I try to do all my rebalancing in tax-deferred accounts to minimize tax costs, which works for now because I have much more value in my tax-advantaged space.
Last edited by MrBeaver on Tue Sep 11, 2018 12:46 pm, edited 1 time in total.


rgs92
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Re: Is there a point where you should stop or hold off rebalancing?

Post by rgs92 » Tue Sep 11, 2018 12:27 pm

I believe specifically buying EM at all is not the Boglehead way. You are supposed to buy the whole forest, not the trees.
EM is a patch of trees that should not be accentuated. It is akin to buying a sector fund.

gmaynardkrebs
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Re: Is there a point where you should stop or hold off rebalancing?

Post by gmaynardkrebs » Tue Sep 11, 2018 12:47 pm

rgs92 wrote:
Tue Sep 11, 2018 12:27 pm
I believe specifically buying EM at all is not the Boglehead way. You are supposed to buy the whole forest, not the trees.
EM is a patch of trees that should not be accentuated. It is akin to buying a sector fund.
Pretty big patch of trees.

jalbert
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Re: Is there a point where you should stop or hold off rebalancing?

Post by jalbert » Tue Sep 11, 2018 12:48 pm

retiredjg wrote:
Tue Sep 11, 2018 11:43 am
Eliminate the problem by holding 1 total international instead of developed and emerging separately.

If you prefer to hold them separately, there must be a reason....if that reason was a "rebalancing bonus" (if such a thing exists), you need to get with the program or give it up and move to one fund.
The issue is not whether DM and EM are split, but whether the asset allocation between them is based on fixed percentages or (float-adjusted) market-cap weights. If you separate DM and EM in separate funds, but set the allocation between them to be cap-weighted, no rebalancing between DM and EM is needed.
Index fund investor since 1987.

ChinchillaWhiplash
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Re: Is there a point where you should stop or hold off rebalancing?

Post by ChinchillaWhiplash » Tue Sep 11, 2018 6:04 pm

Thanks for all the input. Upon a recalculation with my current #s, turns out that I have the AA about where I intended. Guess after taking into consideration the overall drop across all AA the rebalance that I did a few month ago worked as intended. I am actuall low on bonds/fi. Almost to my rebalancing point of 5%. Think I will just add new $s here and call it good. I didn't have an actual rebalance schedule and was just going by %. Since monthly contributions are made, I look at the accounts fairly regularly. Think I might add in a rebalance date every 6 months for good measure. Is there a better time of the year to use for checking this? I know December is probably not a good month to use.

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vineviz
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Re: Is there a point where you should stop or hold off rebalancing?

Post by vineviz » Tue Sep 11, 2018 7:23 pm

ChinchillaWhiplash wrote:
Tue Sep 11, 2018 6:04 pm
Is there a better time of the year to use for checking this? I know December is probably not a good month to use.
December is one of the top twelve months for rebalancing, actually.

Seriously, it makes no difference.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

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