Rebalancing in a turbulent market

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KingRiggs
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Rebalancing in a turbulent market

Post by KingRiggs »

My AA is 50% US Eqities, 20% International Equities, 30% bonds.

My ISP calls for a rebalance, as International has dwindled to 16% (20% off target). My equity allocation had gone up in the past few years, but not enough to trigger a rebalance. Currently it’s a bit above target while bonds are right on target. All rebalancing is in my 401k, so no tax implications.

Is it a stupid time to rebalance from US equities to international? They both usually move in the same direction, just at different magnitudes. I know as soon as someone says “I’m not trying to time the market” that they’re timing the market. :twisted:

Just trying to avoid a sell low, buy high moment. Should I just look at it as similar to doing a TLH? I’m selling US equities low and buying International low as well?
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KlangFool
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Re: Rebalancing in a turbulent market

Post by KlangFool »

OP,

1) If you cannot follow your IPS, why bother to have one? The whole point of IPS is to avoid emotion in your rebalancing.

2) What are your IPS? If it is 5/25 band based rebalancing, it needs 25% off target before it is triggered.

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Re: Rebalancing in a turbulent market

Post by quantAndHold »

Yup. Klang is right. You have a written IPS. Follow it. If you can’t follow it, you may need to look more closely at your risk tolerance.

That said, buying on the way down is hard. It goes against everything our emotional brain says to do. Think about the research you did before you wrote the IPS, and why you thought it was right at the time. That thinking is probably still right today, it’s just that your emotions are getting in the way.
Yes, I’m really that pedantic.
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Re: Rebalancing in a turbulent market

Post by watchnerd »

KingRiggs wrote: Thu Mar 05, 2020 11:59 am
Just trying to avoid a sell low, buy high moment. Should I just look at it as similar to doing a TLH? I’m selling US equities low and buying International low as well?
I think that's a useful framing.

That's how I used to view it.

Or just don't bother, which is what I do between US and ex-US.

The reason I don't bother any more.

--I hold global market weights. Rebalancing between US and ex-US only matters if you're trying to tilt away from market weight.

--While I hold VTWAX in taxable (easier to auto invest), which is automatically market weight, I slice and dice in tax-deferred between VTI, VEA, and VWO to get lower ER and exposure to China A shares. But I just let them fluctuate and never rebalance between them.
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Re: Rebalancing in a turbulent market

Post by KingRiggs »

Thanks, Klang

My rebalance band is 5%/20%, so I’m just scratching it now.

My monthly 401k contribution will go to the International fund, but that’s not big enough to nudge the needle much.

I fully intend to follow my ISP and rebalance, just wondering if it needs to happen ASAP or if I should sit back and let things declare themselves for a week or two, tops.

Since both funds seem to have good days and bad days in tandem, it probably doesn’t matter much. But I figured I’d tap into the collective Boglehead wisdom.
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Re: Rebalancing in a turbulent market

Post by Triple digit golfer »

Your ISP says to rebalance, so rebalance.

Who cares if total equities are still in balance? The components within equities are out of balance, so rebalance the entire portfolio.
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Re: Rebalancing in a turbulent market

Post by KingRiggs »

quantAndHold wrote: Thu Mar 05, 2020 12:10 pm Yup. Klang is right. You have a written IPS. Follow it. If you can’t follow it, you may need to look more closely at your risk tolerance.

That said, buying on the way down is hard. It goes against everything our emotional brain says to do. Think about the research you did before you wrote the IPS, and why you thought it was right at the time. That thinking is probably still right today, it’s just that your emotions are getting in the way.
This really has nothing to do with my risk tolerance, as my stock/bond allocation will not be changing. As I noted above, I’m happy with my IPS and plan to follow it. Just didn’t want my IPS tail to wag my portfolio dog into a stupid mistake.
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Re: Rebalancing in a turbulent market

Post by JoeRetire »

KingRiggs wrote: Thu Mar 05, 2020 11:59 am Is it a stupid time to rebalance from US equities to international?
It's your ISP. You can choose to ignore it if you like.

How much is a plan worth if you aren't going to follow it?
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Re: Rebalancing in a turbulent market

Post by chevca »

If your ISP calls for a rebalance, then rebalance. Why ask is if you should?
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Re: Rebalancing in a turbulent market

Post by watchnerd »

KingRiggs wrote: Thu Mar 05, 2020 12:13 pm

Since both funds seem to have good days and bad days in tandem, it probably doesn’t matter much. But I figured I’d tap into the collective Boglehead wisdom.
Now is your chance to TLH both and consolidate into VTWAX and never have to worry about US vs International rebalancing ever again.

;)
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Re: Rebalancing in a turbulent market

Post by KingRiggs »

watchnerd wrote: Thu Mar 05, 2020 12:18 pm
KingRiggs wrote: Thu Mar 05, 2020 12:13 pm

Since both funds seem to have good days and bad days in tandem, it probably doesn’t matter much. But I figured I’d tap into the collective Boglehead wisdom.
Now is your chance to TLH both and consolidate into VTWAX and never have to worry about US vs International rebalancing ever again.

;)
That’s not for me, but thanks for the suggestion.
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Re: Rebalancing in a turbulent market

Post by watchnerd »

KingRiggs wrote: Thu Mar 05, 2020 12:22 pm
That’s not for me, but thanks for the suggestion.
Yes, it's not for most Bogleheads at this point.

I would just view your question as TLHing between two highly correlated stock funds and don't worry about market being up or down.

You're not getting in or out of the market to any greater or lesser degree than you were before.
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Re: Rebalancing in a turbulent market

Post by KlangFool »

KingRiggs wrote: Thu Mar 05, 2020 12:16 pm
quantAndHold wrote: Thu Mar 05, 2020 12:10 pm Yup. Klang is right. You have a written IPS. Follow it. If you can’t follow it, you may need to look more closely at your risk tolerance.

That said, buying on the way down is hard. It goes against everything our emotional brain says to do. Think about the research you did before you wrote the IPS, and why you thought it was right at the time. That thinking is probably still right today, it’s just that your emotions are getting in the way.
This really has nothing to do with my risk tolerance, as my stock/bond allocation will not be changing. As I noted above, I’m happy with my IPS and plan to follow it. Just didn’t want my IPS tail to wag my portfolio dog into a stupid mistake.
It does. It is the risk tolerance between the US and International stock. Stop rationalizing away your IPS. If you do this, you do not have an IPS.

In any case, IMHO, you should change your IPS to 5/25. 5/20 is a weird number and you will get into inconsistent results.

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Re: Rebalancing in a turbulent market

Post by KingRiggs »

chevca wrote: Thu Mar 05, 2020 12:17 pm If your ISP calls for a rebalance, then rebalance. Why ask is if you should?
I think everyone is misunderstanding. I WILL REBALANCE. Just wanted to see if there’s anything that I’m not aware of that would make it worthwhile waiting or a mistake to execute now. Since this will be an “exchange” at Schwab, the sell and buy orders should execute at the same time, so I shouldn’t get whip-sawed by selling US low and buying International high, as long as they are moving in the same direction that day.

I’m not looking for an ISP pep talk, just trying to avoid a dumb technical error that would cost me $$.
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Re: Rebalancing in a turbulent market

Post by KlangFool »

KingRiggs wrote: Thu Mar 05, 2020 12:29 pm
chevca wrote: Thu Mar 05, 2020 12:17 pm If your ISP calls for a rebalance, then rebalance. Why ask is if you should?
I think everyone is misunderstanding. I WILL REBALANCE. Just wanted to see if there’s anything that I’m not aware of that would make it worthwhile waiting or a mistake to execute now. Since this will be an “exchange” at Schwab, the sell and buy orders should execute at the same time, so I shouldn’t get whip-sawed by selling US low and buying International high, as long as they are moving in the same direction that day.

I’m not looking for an ISP pep talk, just trying to avoid a dumb technical error that would cost me $$.
I think that the mistake is it should be 5/25 instead of 5/20. You should start a spreadsheet and compare them (5/25 versus 5/20).

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Re: Rebalancing in a turbulent market

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KingRiggs wrote: Thu Mar 05, 2020 12:29 pm Just wanted to see if there’s anything that I’m not aware of that would make it worthwhile waiting or a mistake to execute now. Since this will be an “exchange” at Schwab, the sell and buy orders should execute at the same time, so I shouldn’t get whip-sawed by selling US low and buying International high, as long as they are moving in the same direction that day.
There is no technical issue to worry about.
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Re: Rebalancing in a turbulent market

Post by BillyK »

I have it written into my ISP not to sell fixed income to buy into equities during a volatile and turbulent market such as the one occurring now. A very worthwhile diary that I read after seeing it recommended on this forum is one that was written by Ohio Lawyer Benjamin Roth during the Great Depression The Great Depression: A Diary. A major takeaway that I got from reading the diary was not to be in such a big hurry to sell fixed income into a volatile and turbulent market. I have no problem sitting back and doing nothing other than reallocating new monies into areas that need rebalanced while preserving fixed income assets as a safety precaution.
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Re: Rebalancing in a turbulent market

Post by watchnerd »

BillyK wrote: Thu Mar 05, 2020 12:44 pm I have it written into my ISP not to sell fixed income to buy into equities during a volatile and turbulent market such as the one occurring now.
I have an exception to that when it comes to long Treasuries -- I view them as highly volatile risky assets that are fair game to rebalance out of.

But now I'm thread-jacking, so I'll shut up.
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Re: Rebalancing in a turbulent market

Post by rich126 »

Maybe I misread it but I think rebalancing if things change by 5% is too low. Markets have gotten more and more volatile over the years and with the current virus issues it just seems like you'd be buy/selling too frequently. Either 10% or maybe better, just once a year. Also tight bands lead to watching your portfolio too much which is rarely a positive thing.
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Re: Rebalancing in a turbulent market

Post by KingRiggs »

KlangFool wrote: Thu Mar 05, 2020 12:30 pm
KingRiggs wrote: Thu Mar 05, 2020 12:29 pm
chevca wrote: Thu Mar 05, 2020 12:17 pm If your ISP calls for a rebalance, then rebalance. Why ask is if you should?
I think everyone is misunderstanding. I WILL REBALANCE. Just wanted to see if there’s anything that I’m not aware of that would make it worthwhile waiting or a mistake to execute now. Since this will be an “exchange” at Schwab, the sell and buy orders should execute at the same time, so I shouldn’t get whip-sawed by selling US low and buying International high, as long as they are moving in the same direction that day.

I’m not looking for an ISP pep talk, just trying to avoid a dumb technical error that would cost me $$.
I think that the mistake is it should be 5/25 instead of 5/20. You should start a spreadsheet and compare them (5/25 versus 5/20).

KlangFool
I’m not confused by my rebalance bands at all. +/-5% absolute for the larger ones, +/-20% of holding for international. Stems from when I used to have a 5% small cap tilt, which I have since eliminated. I’m happy with my current bands.
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Re: Rebalancing in a turbulent market

Post by KingRiggs »

rich126 wrote: Thu Mar 05, 2020 12:51 pm Maybe I misread it but I think rebalancing if things change by 5% is too low. Markets have gotten more and more volatile over the years and with the current virus issues it just seems like you'd be buy/selling too frequently. Either 10% or maybe better, just once a year. Also tight bands lead to watching your portfolio too much which is rarely a positive thing.
I’m happy with 5%. My portfolio balance has grown to the point where 5% is a pretty sizable amount. Balanced funds rebalance every day.
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Re: Rebalancing in a turbulent market

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watchnerd wrote: Thu Mar 05, 2020 12:34 pm
KingRiggs wrote: Thu Mar 05, 2020 12:29 pm Just wanted to see if there’s anything that I’m not aware of that would make it worthwhile waiting or a mistake to execute now. Since this will be an “exchange” at Schwab, the sell and buy orders should execute at the same time, so I shouldn’t get whip-sawed by selling US low and buying International high, as long as they are moving in the same direction that day.
There is no technical issue to worry about.
Thanks. That was the type of confirmation I was looking for.
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Re: Rebalancing in a turbulent market

Post by KlangFool »

KingRiggs wrote: Thu Mar 05, 2020 12:52 pm
KlangFool wrote: Thu Mar 05, 2020 12:30 pm
KingRiggs wrote: Thu Mar 05, 2020 12:29 pm
chevca wrote: Thu Mar 05, 2020 12:17 pm If your ISP calls for a rebalance, then rebalance. Why ask is if you should?
I think everyone is misunderstanding. I WILL REBALANCE. Just wanted to see if there’s anything that I’m not aware of that would make it worthwhile waiting or a mistake to execute now. Since this will be an “exchange” at Schwab, the sell and buy orders should execute at the same time, so I shouldn’t get whip-sawed by selling US low and buying International high, as long as they are moving in the same direction that day.

I’m not looking for an ISP pep talk, just trying to avoid a dumb technical error that would cost me $$.
I think that the mistake is it should be 5/25 instead of 5/20. You should start a spreadsheet and compare them (5/25 versus 5/20).

KlangFool
I’m not confused by my rebalance bands at all. +/-5% absolute for the larger ones, +/-20% of holding for international. Stems from when I used to have a 5% small cap tilt, which I have since eliminated. I’m happy with my current bands.
At 20% of the allocation, 5% absolute or 25% relative = same number.

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Re: Rebalancing in a turbulent market

Post by KingRiggs »

KlangFool wrote: Thu Mar 05, 2020 1:37 pm
KingRiggs wrote: Thu Mar 05, 2020 12:52 pm
KlangFool wrote: Thu Mar 05, 2020 12:30 pm
KingRiggs wrote: Thu Mar 05, 2020 12:29 pm
chevca wrote: Thu Mar 05, 2020 12:17 pm If your ISP calls for a rebalance, then rebalance. Why ask is if you should?
I think everyone is misunderstanding. I WILL REBALANCE. Just wanted to see if there’s anything that I’m not aware of that would make it worthwhile waiting or a mistake to execute now. Since this will be an “exchange” at Schwab, the sell and buy orders should execute at the same time, so I shouldn’t get whip-sawed by selling US low and buying International high, as long as they are moving in the same direction that day.

I’m not looking for an ISP pep talk, just trying to avoid a dumb technical error that would cost me $$.
I think that the mistake is it should be 5/25 instead of 5/20. You should start a spreadsheet and compare them (5/25 versus 5/20).

KlangFool
I’m not confused by my rebalance bands at all. +/-5% absolute for the larger ones, +/-20% of holding for international. Stems from when I used to have a 5% small cap tilt, which I have since eliminated. I’m happy with my current bands.
At 20% of the allocation, 5% absolute or 25% relative = same number.

KlangFool
Right. That's why for the holding which comprises 20% of my portfolio (international stock), I use 20% of the holding, or a +/- 4% change. A little bit tighter band than my bigger holdings where I rebalance at +/- 5%. Thanks for your input, though. I'm glad we each have systems that work for us. :sharebeer
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Re: Rebalancing in a turbulent market

Post by chevca »

KingRiggs wrote: Thu Mar 05, 2020 12:29 pm
chevca wrote: Thu Mar 05, 2020 12:17 pm If your ISP calls for a rebalance, then rebalance. Why ask is if you should?
I think everyone is misunderstanding. I WILL REBALANCE. Just wanted to see if there’s anything that I’m not aware of that would make it worthwhile waiting or a mistake to execute now. Since this will be an “exchange” at Schwab, the sell and buy orders should execute at the same time, so I shouldn’t get whip-sawed by selling US low and buying International high, as long as they are moving in the same direction that day.

I’m not looking for an ISP pep talk, just trying to avoid a dumb technical error that would cost me $$.
No one is misunderstanding anything. Your IPS says to rebalance when your bands are hit. They were hit. So, rebalance.

You're looking for something you don't need to look for.

Maybe adding something to the IPS about rebalancing quarterly, twice a year, or once a year? Then you don't have to watch it all the time.
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Re: Rebalancing in a turbulent market

Post by KingRiggs »

chevca wrote: Thu Mar 05, 2020 1:44 pm
KingRiggs wrote: Thu Mar 05, 2020 12:29 pm
chevca wrote: Thu Mar 05, 2020 12:17 pm If your ISP calls for a rebalance, then rebalance. Why ask is if you should?
I think everyone is misunderstanding. I WILL REBALANCE. Just wanted to see if there’s anything that I’m not aware of that would make it worthwhile waiting or a mistake to execute now. Since this will be an “exchange” at Schwab, the sell and buy orders should execute at the same time, so I shouldn’t get whip-sawed by selling US low and buying International high, as long as they are moving in the same direction that day.

I’m not looking for an ISP pep talk, just trying to avoid a dumb technical error that would cost me $$.
No one is misunderstanding anything. Your IPS says to rebalance when your bands are hit. They were hit. So, rebalance.

You're looking for something you don't need to look for.

Maybe adding something to the IPS about rebalancing quarterly, twice a year, or once a year? Then you don't have to watch it all the time.
Like Chance the Gardener said in "Being There": "I like to watch".

I think people misread what my original question was. It was, basically, is there a reason for me NOT to rebalance that I'm not thinking of. Not "talk me into rebalancing". Thanks for everyone's input, especially watchnerd. :happy
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Re: Rebalancing in a turbulent market

Post by chevca »

There is a thought about how rebalancing might mess up momentum of an asset class. Although, that's usually thought about more on the way up than down.

That's part of the benefit of rebalancing at set points of the year. You're letting things do what they do, and if on June 1st, or whenever, things need rebalancing then rebalance.
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Re: Rebalancing in a turbulent market

Post by sergeant »

There is no reason for you not to rebalance. I did some today into international.
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Re: Rebalancing in a turbulent market

Post by watchnerd »

KingRiggs wrote: Thu Mar 05, 2020 1:47 pm Thanks for everyone's input, especially watchnerd. :happy
You're welcome!
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Re: Rebalancing in a turbulent market

Post by Triple digit golfer »

rich126 wrote: Thu Mar 05, 2020 12:51 pm Maybe I misread it but I think rebalancing if things change by 5% is too low. Markets have gotten more and more volatile over the years and with the current virus issues it just seems like you'd be buy/selling too frequently. Either 10% or maybe better, just once a year. Also tight bands lead to watching your portfolio too much which is rarely a positive thing.
An average 80/20 portfolio takes a 25% market drop or 42% increase to hit 5% bands, assuming zero bond returns. That doesn't sound too frequent to me.

You don't rebalance when the market changes 5%. You rebalance when the asset allocation changes by 5%.
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