Rebalancing mistakes

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fortysixandtwo
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Rebalancing mistakes

Post by fortysixandtwo » Mon Apr 06, 2020 12:47 pm

In 2016 I altered our accounts to have a 65%/35% Stock to bonds mix (with a third of those stocks being international). I set it and forgot it for a long time—too long. Fast forward to this financial meltdown. I'm thinking, what a great time to rebalance. Today I login and see that we are way heavy in stocks despite stocks sinking and bonds going up in the last month. I realize that my mistake was to not rebalance sometime in the last couple of years when our stocks value way outpaced our bonds value.

So our bonds represent somewhere below 20% of our value across various accounts. My question: even though we're below our bond target, would it still be advisable to sell some bonds and buy stocks, since bonds are up and stocks are down? Obviously I'd have to sell lots of stocks and rebuy bonds when the market comes back in order to hit our desired allocation. Thoughts?

theorist
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Re: Rebalancing mistakes

Post by theorist » Mon Apr 06, 2020 12:56 pm

If you are still off of your intended asset allocation by more than the size of your rebalancing bands, I would rebalance. It is best to check at least once every year :-).

Chris K Jones
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Re: Rebalancing mistakes

Post by Chris K Jones » Mon Apr 06, 2020 12:58 pm

The asset allocation is an indication fo the risk you are willing to take. I would start with the question of what asset allocation you want? Is it still 65/35? If it is, then I would sell stock to get back to that risk level. If you are comfortable where you are, I would leave it alone. I hope this helps. FWIW, Jack Bogle was not much of a fan of frequent rebalancing. You might feel comfortable where you are.

mega317
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Re: Rebalancing mistakes

Post by mega317 » Mon Apr 06, 2020 1:06 pm

fortysixandtwo wrote:
Mon Apr 06, 2020 12:47 pm
My question: even though we're below our bond target, would it still be advisable to sell some bonds and buy stocks,
Huh? Is this a typo? The answer is no. You should sell stocks and buy bonds.
https://www.bogleheads.org/forum/viewtopic.php?t=6212

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fortysixandtwo
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Re: Rebalancing mistakes

Post by fortysixandtwo » Mon Apr 06, 2020 1:10 pm

mega317 wrote:
Mon Apr 06, 2020 1:06 pm
fortysixandtwo wrote:
Mon Apr 06, 2020 12:47 pm
My question: even though we're below our bond target, would it still be advisable to sell some bonds and buy stocks,
Huh? Is this a typo? The answer is no. You should sell stocks and buy bonds.
I'm really confused. I thought the point of rebalancing, aside from keeping your bonds/stocks ratio where you wanted it, was to make sure that you are buying low and selling high. If we don't need to—and we don't—why would we sell stocks during a period when they are way down to buy bonds when they are up?

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fortysixandtwo
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Re: Rebalancing mistakes

Post by fortysixandtwo » Mon Apr 06, 2020 1:12 pm

theorist wrote:
Mon Apr 06, 2020 12:56 pm
If you are still off of your intended asset allocation by more than the size of your rebalancing bands, I would rebalance. It is best to check at least once every year :-).
Wouldn't it be wiser to wait until the stock market recovers to sell stocks and buy bonds? We are relatively young and can wait. I have zero desire to sell stocks while they are down and buy bonds while they are up just to meet my desired asset allocation right now.

DSInvestor
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Re: Rebalancing mistakes

Post by DSInvestor » Mon Apr 06, 2020 1:15 pm

fortysixandtwo wrote:
Mon Apr 06, 2020 1:10 pm


I'm really confused. I thought the point of rebalancing, aside from keeping your bonds/stocks ratio where you wanted it, was to make sure that you are buying low and selling high. If we don't need to—and we don't—why would we sell stocks during a period when they are way down to buy bonds when they are up?
You're looking to have a portfolio that is 65% stocks 35% bonds and it seems that your portfolio is only 20% bonds today. This implies your portfolio is currently 80% stocks 20% bonds. You are quite far away from your 65/35 target. You should have rebalanced and sold stocks for bonds way before this crisis. Yes, stocks have fallen quite a bit recently but you are still far away from your 65/35 target. The correct action to reduce risk in your portfolio is to sell stocks and buy bonds to get you closer to your target allocation of 65/35.

While stocks have fallen recently, they are significantly higher today than in 2016 when you decided to go with 65/35.
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sergeant
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Re: Rebalancing mistakes

Post by sergeant » Mon Apr 06, 2020 1:17 pm

fortysixandtwo wrote:
Mon Apr 06, 2020 1:12 pm
theorist wrote:
Mon Apr 06, 2020 12:56 pm
If you are still off of your intended asset allocation by more than the size of your rebalancing bands, I would rebalance. It is best to check at least once every year :-).
Wouldn't it be wiser to wait until the stock market recovers to sell stocks and buy bonds? We are relatively young and can wait. I have zero desire to sell stocks while they are down and buy bonds while they are up just to meet my desired asset allocation right now.
Your stocks aren't down. You said in the OP they went up beyond your desired AA and seem to have far outpaced your fixed income component. What makes you think your stock portion is down?
AA- 20+ Years of Expenses Fixed Income/The remainder in Equities.

MotoTrojan
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Re: Rebalancing mistakes

Post by MotoTrojan » Mon Apr 06, 2020 1:21 pm

Maybe 65/35 was too conservative for you if you’re thinking of going higher than 80/20 without fear.

Young Boglehead
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Re: Rebalancing mistakes

Post by Young Boglehead » Mon Apr 06, 2020 1:22 pm

As far as I understand, your stock/bond ratio is both a function of your emotional risk tolerance and your need to actually use the money in your portfolio. The former is more important in determining the ratio when you are young, and you need to consider the latter more as you approach retirement age.
are you close to your retirement age?

If you aren't, and we've already had a large crash that you're presumably not reeling over, I'm not sure it makes sense to permanently sell an excess of stocks at these low prices in order to meet a (relatively) arbitrary stock/bond ratio. In sum, it seems to me that the time to lock in your gains and take money off the table would've been a few months ago, not now.

DSInvestor
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Re: Rebalancing mistakes

Post by DSInvestor » Mon Apr 06, 2020 1:25 pm

Young Boglehead wrote:
Mon Apr 06, 2020 1:22 pm
As far as I understand, your stock/bond ratio is both a function of your emotional risk tolerance and your need to actually use the money in your portfolio. The former is more important in determining the ratio when you are young, and you need to consider the latter more as you approach retirement age.
are you close to your retirement age?

If you aren't, and we've already had a large crash that you're presumably not reeling over, I'm not sure it makes sense to permanently sell an excess of stocks at these low prices in order to meet a (relatively) arbitrary stock/bond ratio. In sum, it seems to me that the time to lock in your gains and take money off the table would've been a few months ago, not now.
Sure stocks are not as high now as they were a couple of months ago.
In 2016, OP wanted 65/35. A couple of months ago OP's portfolio could have been 85/15 or 90/10. Yes, it would have been great to rebalance at 85/15 or 90/10 but it still makes sense to rebalance now at 80/20.
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Quirkz
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Re: Rebalancing mistakes

Post by Quirkz » Mon Apr 06, 2020 1:26 pm

In your shoes I would have a hard time rebalancing "against the grain" or whatever you want to call it. Even though it's counter to your AA, I'd probably sit tight. Not sure about selling bonds to buy stocks - you're going to ask yourself if that's really okay to violate your explicit plan that badly because of a perceived opportunity.

Otherwise, also make a note to check in on things a little more often so you don't find yourself in this situation again.

MishkaWorries
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Re: Rebalancing mistakes

Post by MishkaWorries » Mon Apr 06, 2020 1:27 pm

fortysixandtwo wrote:
Mon Apr 06, 2020 1:12 pm
theorist wrote:
Mon Apr 06, 2020 12:56 pm
If you are still off of your intended asset allocation by more than the size of your rebalancing bands, I would rebalance. It is best to check at least once every year :-).
I have zero desire to sell stocks while they are down and buy bonds while they are up just to meet my desired asset allocation right now.
There’s your answer. AA is to be in a place where you are comfortable. If you rode out a 35% drop at an 80/20 allocation without flinching, that’s a sign your 65/35 was too conservative.

If the market drops another 30% will you panic sell? If yes, rebalance; if no leave as is.
We plan. G-d laughs.

Gufomel
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Re: Rebalancing mistakes

Post by Gufomel » Mon Apr 06, 2020 1:29 pm

It sounds to me that you don’t actually want to be 65/35 if you’re now at 80/20 in the middle of a market crash and not worried.

Why did you pick 65/35?

Young Boglehead
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Re: Rebalancing mistakes

Post by Young Boglehead » Mon Apr 06, 2020 1:34 pm

DSInvestor wrote:
Mon Apr 06, 2020 1:25 pm
Young Boglehead wrote:
Mon Apr 06, 2020 1:22 pm
As far as I understand, your stock/bond ratio is both a function of your emotional risk tolerance and your need to actually use the money in your portfolio. The former is more important in determining the ratio when you are young, and you need to consider the latter more as you approach retirement age.
are you close to your retirement age?

If you aren't, and we've already had a large crash that you're presumably not reeling over, I'm not sure it makes sense to permanently sell an excess of stocks at these low prices in order to meet a (relatively) arbitrary stock/bond ratio. In sum, it seems to me that the time to lock in your gains and take money off the table would've been a few months ago, not now.
Sure stocks are not as high now as they were a couple of months ago.
In 2016, OP wanted 65/35. A couple of months ago OP's portfolio could have been 85/15 or 90/10. Yes, it would have been great to rebalance at 85/15 or 90/10 but it still makes sense to rebalance now at 80/20.
Do you think it still makes sense to rebalance if OP doesn't seem to particularly care about his "too high" stock allocation even after a crash? If he doesn't need the money now, I'm wondering if 2016 OP perhaps underestimated his risk tolerance. Just as I think it makes sense to reduce your stock allocation even after a crash if you realize it truly didn't reflect your risk tolerance (assuming you keep it that way even when things are good), I think it also makes sense to keep a higher stock allocation than you originally intended if, even after a crash, you are sleeping well at night.

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Re: Rebalancing mistakes

Post by DoubleClick » Mon Apr 06, 2020 1:37 pm

Look at the last research article in this post:

viewtopic.php?f=1&t=309120&p=5124763#p5124763

What you're trying to do is what that article would call aggressive rebalancing. Tl;Dr: you'd be raising your risk well past your desired level, and there's unlikely to be a benefit in terms of returns.

Based on that, I would either get back to 65/35 or stay put (ala Bogle) if I were you. My 2c.

DSInvestor
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Re: Rebalancing mistakes

Post by DSInvestor » Mon Apr 06, 2020 1:48 pm

Young Boglehead wrote:
Mon Apr 06, 2020 1:34 pm
DSInvestor wrote:
Mon Apr 06, 2020 1:25 pm
Young Boglehead wrote:
Mon Apr 06, 2020 1:22 pm
As far as I understand, your stock/bond ratio is both a function of your emotional risk tolerance and your need to actually use the money in your portfolio. The former is more important in determining the ratio when you are young, and you need to consider the latter more as you approach retirement age.
are you close to your retirement age?

If you aren't, and we've already had a large crash that you're presumably not reeling over, I'm not sure it makes sense to permanently sell an excess of stocks at these low prices in order to meet a (relatively) arbitrary stock/bond ratio. In sum, it seems to me that the time to lock in your gains and take money off the table would've been a few months ago, not now.
Sure stocks are not as high now as they were a couple of months ago.
In 2016, OP wanted 65/35. A couple of months ago OP's portfolio could have been 85/15 or 90/10. Yes, it would have been great to rebalance at 85/15 or 90/10 but it still makes sense to rebalance now at 80/20.
Do you think it still makes sense to rebalance if OP doesn't seem to particularly care about his "too high" stock allocation even after a crash? If he doesn't need the money now, I'm wondering if 2016 OP perhaps underestimated his risk tolerance. Just as I think it makes sense to reduce your stock allocation even after a crash if you realize it truly didn't reflect your risk tolerance (assuming you keep it that way even when things are good), I think it also makes sense to keep a higher stock allocation than you originally intended if, even after a crash, you are sleeping well at night.
OP didn't say anything about sleeping well at night. OP either wants 65/35 or he/she doesn't. OP has acknowledged that it was a mistake not to take rebalancing action earlier. If OP's need, willingness and ability to take risk brings him/her back to 65/35 as an appropriate asset allocation then yes, rebalancing action is called for.

I would not recommend calling it reducing stock allocation. Instead I look at it as taking action to get back to where you wanted to be. Go back and review the decision that came to 65/35 in the first place.

Nobody knows where the market will go. I don't think it is a safe bet to assume that stocks cannot fall further.
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mega317
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Re: Rebalancing mistakes

Post by mega317 » Mon Apr 06, 2020 2:01 pm

DSInvestor wrote:
Mon Apr 06, 2020 1:48 pm
OP didn't say anything about sleeping well at night. OP either wants 65/35 or he/she doesn't. OP has acknowledged that it was a mistake not to take rebalancing action earlier.
+1

I don't think OP knows what he or she wants.
https://www.bogleheads.org/forum/viewtopic.php?t=6212

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fortysixandtwo
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Re: Rebalancing mistakes

Post by fortysixandtwo » Mon Apr 06, 2020 2:13 pm

MotoTrojan wrote:
Mon Apr 06, 2020 1:21 pm
Maybe 65/35 was too conservative for you if you’re thinking of going higher than 80/20 without fear.
I definitely had a conservative target. Overly so I think.

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fortysixandtwo
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Re: Rebalancing mistakes

Post by fortysixandtwo » Mon Apr 06, 2020 2:18 pm

mega317 wrote:
Mon Apr 06, 2020 2:01 pm
DSInvestor wrote:
Mon Apr 06, 2020 1:48 pm
OP didn't say anything about sleeping well at night. OP either wants 65/35 or he/she doesn't. OP has acknowledged that it was a mistake not to take rebalancing action earlier.
+1

I don't think OP knows what he or she wants.
Ouch. I had chosen an overly conservative asset allocation. Then I didn't rebalance for a couple of years, which was my mistake. Now seems like a bad time to sell stocks and buy bonds, especially if I can wait/sleep well at night. That's all I'm thinking. If I can afford to wait until after this truly unique period of economic upheaval, would i not want to?

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fortysixandtwo
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Re: Rebalancing mistakes

Post by fortysixandtwo » Mon Apr 06, 2020 2:19 pm

DoubleClick wrote:
Mon Apr 06, 2020 1:37 pm
Look at the last research article in this post:

viewtopic.php?f=1&t=309120&p=5124763#p5124763

What you're trying to do is what that article would call aggressive rebalancing. Tl;Dr: you'd be raising your risk well past your desired level, and there's unlikely to be a benefit in terms of returns.

Based on that, I would either get back to 65/35 or stay put (ala Bogle) if I were you. My 2c.
Thanks for this.

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fortysixandtwo
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Re: Rebalancing mistakes

Post by fortysixandtwo » Mon Apr 06, 2020 2:24 pm

Gufomel wrote:
Mon Apr 06, 2020 1:29 pm
It sounds to me that you don’t actually want to be 65/35 if you’re now at 80/20 in the middle of a market crash and not worried.

Why did you pick 65/35?
I think I did some calculation based on my age and a feeling that I didn't need an "aggressive" portfolio. I've stated elsewhere that I was mistaken in not rebalancing in the past couple of years. But given that I am not worried, I feel like a stay the course approach would be better than selling stocks. I feel like a lot of posters are somehow personally offended by my questions. I'm just trying to make the best move from the position I currently find myself in.

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fortysixandtwo
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Re: Rebalancing mistakes

Post by fortysixandtwo » Mon Apr 06, 2020 2:26 pm

MishkaWorries wrote:
Mon Apr 06, 2020 1:27 pm
fortysixandtwo wrote:
Mon Apr 06, 2020 1:12 pm
theorist wrote:
Mon Apr 06, 2020 12:56 pm
If you are still off of your intended asset allocation by more than the size of your rebalancing bands, I would rebalance. It is best to check at least once every year :-).
I have zero desire to sell stocks while they are down and buy bonds while they are up just to meet my desired asset allocation right now.
There’s your answer. AA is to be in a place where you are comfortable. If you rode out a 35% drop at an 80/20 allocation without flinching, that’s a sign your 65/35 was too conservative.

If the market drops another 30% will you panic sell? If yes, rebalance; if no leave as is.

What you're saying makes sense to me. Truth is I would be comfortable at lots of AA. I have time. It's hard for me to think of a scenario in which I would ever panic sell—I don't actually understand why/how panic selling is still a thing. Worst case scenario is that I have to sell because of a job loss.

mega317
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Re: Rebalancing mistakes

Post by mega317 » Mon Apr 06, 2020 2:26 pm

fortysixandtwo wrote:
Mon Apr 06, 2020 2:18 pm
If I can afford to wait until after this truly unique period of economic upheaval, would i not want to?
Wait for what?
https://www.bogleheads.org/forum/viewtopic.php?t=6212

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fortysixandtwo
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Re: Rebalancing mistakes

Post by fortysixandtwo » Mon Apr 06, 2020 2:28 pm

Quirkz wrote:
Mon Apr 06, 2020 1:26 pm
In your shoes I would have a hard time rebalancing "against the grain" or whatever you want to call it. Even though it's counter to your AA, I'd probably sit tight. Not sure about selling bonds to buy stocks - you're going to ask yourself if that's really okay to violate your explicit plan that badly because of a perceived opportunity.

Otherwise, also make a note to check in on things a little more often so you don't find yourself in this situation again.
Makes sense. I think I checked in somewhat regularly for a while to find that I didn't need to adjust and I then I got complacent. This is a good lesson for me. Though, I'm still young enough that just waiting is a totally viable option. Thanks for the reply.
Last edited by fortysixandtwo on Mon Apr 06, 2020 2:34 pm, edited 1 time in total.

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fortysixandtwo
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Re: Rebalancing mistakes

Post by fortysixandtwo » Mon Apr 06, 2020 2:29 pm

mega317 wrote:
Mon Apr 06, 2020 2:26 pm
fortysixandtwo wrote:
Mon Apr 06, 2020 2:18 pm
If I can afford to wait until after this truly unique period of economic upheaval, would i not want to?
Wait for what?
Wait for the pandemic to end. Do you really think that this current state of economic upheaval will continue indefinitely? What do you think happens to the market once there is a vaccine?

btenny
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Re: Rebalancing mistakes

Post by btenny » Mon Apr 06, 2020 2:30 pm

What is your age and employment status? How long are you from your planned retirement? Maybe if you answer these questions and think about the answers you will know what you should do. '

Good Luck.

DSInvestor
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Re: Rebalancing mistakes

Post by DSInvestor » Mon Apr 06, 2020 2:39 pm

I'd take some time to think whether you can block out emotions and act on your investment policy statement. Did you have an investment policy statement? Why did you not rebalance? Were you aware that stocks were rising and rising? Were you afraid to miss out on future gains if you had sold stocks to rebalance to get back to 65/35? I can see this happening. It happened to lots of people in the tech run up in the late 90s.

Let's say that your portfolio wasn't 80/20 today. Imagine if it was 50/50 today and you seek 65/35. Would you be able to sell bonds (did not decline much) to buy stocks (did have big decline) with all the bad news going around. Are you going to say that you're afraid to catch a falling knife?

I can tell you that from my own investment history, I had made many rebalancing mistakes, mostly from not having an investment policy statement or asset allocation. One of my biggest mistakes was on an individual stock purchase of $4000 early in my career. That regional telephone company when through a few acquisitions and at one time that 4K had grown to 150K. I was busy working, didn't pay attention but knew that the stock was responsible for a large chunk of growth in my portfolio. I didn't have a plan to diversify what was becoming a very large chuck of my portfolio. If memory serves me, my regional telco was acquired by Global Crossing who was building out fiber optic networks. Global crossing went bankrupt and I lost it all. It wasn't catastrophic for me as I was young but it was still a good chuck of money. Had I had an investment policy statement with a clause that said that no individual stock should exceed 5% of portfolio, I could have done well. Nowadays, I stick to the plan and try not to guess where markets will go. Just give me the numbers. What do I want to have and what do I currently have? If the two differ by a wide margin, I take action.
Last edited by DSInvestor on Mon Apr 06, 2020 2:42 pm, edited 1 time in total.
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mega317
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Re: Rebalancing mistakes

Post by mega317 » Mon Apr 06, 2020 2:42 pm

fortysixandtwo wrote:
Mon Apr 06, 2020 2:29 pm
mega317 wrote:
Mon Apr 06, 2020 2:26 pm
fortysixandtwo wrote:
Mon Apr 06, 2020 2:18 pm
If I can afford to wait until after this truly unique period of economic upheaval, would i not want to?
Wait for what?
Wait for the pandemic to end. Do you really think that this current state of economic upheaval will continue indefinitely? What do you think happens to the market once there is a vaccine?
And then what. I mean what do you do after the pandemic ends?
https://www.bogleheads.org/forum/viewtopic.php?t=6212

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fortysixandtwo
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Re: Rebalancing mistakes

Post by fortysixandtwo » Mon Apr 06, 2020 3:00 pm

mega317 wrote:
Mon Apr 06, 2020 2:42 pm
fortysixandtwo wrote:
Mon Apr 06, 2020 2:29 pm
mega317 wrote:
Mon Apr 06, 2020 2:26 pm
fortysixandtwo wrote:
Mon Apr 06, 2020 2:18 pm
If I can afford to wait until after this truly unique period of economic upheaval, would i not want to?
Wait for what?
Wait for the pandemic to end. Do you really think that this current state of economic upheaval will continue indefinitely? What do you think happens to the market once there is a vaccine?
And then what. I mean what do you do after the pandemic ends?
I sell stocks to buy bonds and get my portfolio closer to my target AA.

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fortysixandtwo
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Re: Rebalancing mistakes

Post by fortysixandtwo » Mon Apr 06, 2020 3:06 pm

DSInvestor wrote:
Mon Apr 06, 2020 2:39 pm
I'd take some time to think whether you can block out emotions and act on your investment policy statement. Did you have an investment policy statement? Why did you not rebalance? Were you aware that stocks were rising and rising? Were you afraid to miss out on future gains if you had sold stocks to rebalance to get back to 65/35? I can see this happening. It happened to lots of people in the tech run up in the late 90s.

Let's say that your portfolio wasn't 80/20 today. Imagine if it was 50/50 today and you seek 65/35. Would you be able to sell bonds (did not decline much) to buy stocks (did have big decline) with all the bad news going around. Are you going to say that you're afraid to catch a falling knife?
Thanks for the comment.

I was aware that stocks were rising, I was just distracted by life. Also, I checked probably three or four times after I set up my AA, when I thought market adjustments would warrant rebalancing, and they didn't. So then I just forgot to prioritize checking.

If I was 50/50 and wanted 65/35, I could sell bonds to buy stocks with no hesitation. I have been waiting for a stock market crash. Buying stocks is what I want to do, even with a stock heavy AA.

My mistake is that I didn't rebalance frequently enough. Wish I hadn't let that slip, but here I am. Now I'm trying to be smart given that I'm not sweating my stock heavy AA.

mega317
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Re: Rebalancing mistakes

Post by mega317 » Mon Apr 06, 2020 3:17 pm

OP I'm completely lost. What is your target allocation? You can't believe it was a mistake not to rebalance more frequently (which would have involved selling stocks and buying bonds along the way) but also that you want to sell bonds and buy stocks now.
https://www.bogleheads.org/forum/viewtopic.php?t=6212

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Re: Rebalancing mistakes

Post by theorist » Mon Apr 06, 2020 4:02 pm

fortysixandtwo wrote:
Mon Apr 06, 2020 1:12 pm
theorist wrote:
Mon Apr 06, 2020 12:56 pm
If you are still off of your intended asset allocation by more than the size of your rebalancing bands, I would rebalance. It is best to check at least once every year :-).
Wouldn't it be wiser to wait until the stock market recovers to sell stocks and buy bonds? We are relatively young and can wait. I have zero desire to sell stocks while they are down and buy bonds while they are up just to meet my desired asset allocation right now.
In fact, the way rebalancing works is that you sell a bit of the asset class that has overall done better than the one that has done worse. Since you are overweight in stocks, perforce they have done better since you were last at your desired allocation. I have no idea what will happen in the near future (which you may be anticipating), but the logic of rebalancing would be to do it by selling the class that has performed better since the last rebalance.

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Re: Rebalancing mistakes

Post by BroIceCream » Mon Apr 06, 2020 7:11 pm

fortysixandtwo wrote:
Mon Apr 06, 2020 1:10 pm
mega317 wrote:
Mon Apr 06, 2020 1:06 pm
fortysixandtwo wrote:
Mon Apr 06, 2020 12:47 pm
My question: even though we're below our bond target, would it still be advisable to sell some bonds and buy stocks,
Huh? Is this a typo? The answer is no. You should sell stocks and buy bonds.
I'm really confused. I thought the point of rebalancing, aside from keeping your bonds/stocks ratio where you wanted it, was to make sure that you are buying low and selling high. If we don't need to—and we don't—why would we sell stocks during a period when they are way down to buy bonds when they are up?
I agree with you fortysixandtwo. This is a great time to sell high (bonds), and buy [low] some great equity funds on clearance sale. I did this a couple weeks ago when my bond allocation got too big for my target %'s, and I picked up some great equity deals which have greatly improved the last couple weeks.

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Re: Rebalancing mistakes

Post by fortysixandtwo » Mon Apr 06, 2020 7:33 pm

mega317 wrote:
Mon Apr 06, 2020 3:17 pm
OP I'm completely lost. What is your target allocation? You can't believe it was a mistake not to rebalance more frequently (which would have involved selling stocks and buying bonds along the way) but also that you want to sell bonds and buy stocks now.
I’ve said several times that I should have rebalanced by selling stock as and buying bonds. I didn’t, that was my mistake. But rebalancing when stocks were way up made more sense. If I would have done that in 2019, now it’s likely that I would be heavy in bonds and could sell some to buy stocks at a discount. But given the hit stocks have taken, I’m feeling like I can wait until the pandemic is over and rebalance when stocks go back up. I’m not feeling stressed about my position as I’m not close to retirement. My original target AA was conservative, maybe I’ll adjust, but now seems like a bad time to sell stocks I’m order to buy bonds.

DSInvestor
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Re: Rebalancing mistakes

Post by DSInvestor » Mon Apr 06, 2020 9:16 pm

OP, are your still accumulating or are you withdrawing from your portfolio? If still accumulating, what are you buying with the new money? If you're withdrawing, what are you selling? Your asset allocation will guide you on which asset class to send new money. For example, if you seek 65/35 and find that you're 80/20, your asset allocation plan tells to send new money to the asset class below target i.e. bonds? Would this be acceptable to you given that you're not selling stocks to buy bonds?
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mega317
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Re: Rebalancing mistakes

Post by mega317 » Mon Apr 06, 2020 11:08 pm

You still don't make a lot of sense. If you feel it was a mistake not to rebalance earlier, then it is still a mistake not to rebalance now. Rebalancing is done to maintain your desired allocation and risk. Are you currently at your desired allocation or not?

Be careful about referring to stocks as "up" or "down". That is anchoring to a former price and not helpful in decision making.
https://www.bogleheads.org/forum/viewtopic.php?t=6212

CFM300
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Re: Rebalancing mistakes

Post by CFM300 » Mon Apr 06, 2020 11:45 pm

fortysixandtwo wrote:
Mon Apr 06, 2020 3:06 pm
My mistake is that I didn't rebalance frequently enough. Wish I hadn't let that slip, but here I am. Now I'm trying to be smart given that I'm not sweating my stock heavy AA.
According to Portfolio Visualizer, a $1,000,000 portfolio of Total Stock Market & Total Bond Market split 65/35 in 2016 would today be worth...

$1,301,630 if rebalanced annually

$1,282,749 if not rebalanced at all

The difference between what you wish you'd done and what you did is insignificant and irrelevant.

Pick the allocation you want going forward, exchange funds to make it happen, and then rebalance more consistently in the future.

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fortysixandtwo
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Re: Rebalancing mistakes

Post by fortysixandtwo » Tue Apr 07, 2020 7:42 am

mega317 wrote:
Mon Apr 06, 2020 11:08 pm
You still don't make a lot of sense.


I don’t think you are interested in understanding what I’m saying. Your first comment was not directed to me and was a dig at me.

Your snide comments are not helpful. Others have been very helpful. I don’t think you need to respond anymore.

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fortysixandtwo
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Re: Rebalancing mistakes

Post by fortysixandtwo » Tue Apr 07, 2020 7:43 am

CFM300 wrote:
Mon Apr 06, 2020 11:45 pm
fortysixandtwo wrote:
Mon Apr 06, 2020 3:06 pm
My mistake is that I didn't rebalance frequently enough. Wish I hadn't let that slip, but here I am. Now I'm trying to be smart given that I'm not sweating my stock heavy AA.
According to Portfolio Visualizer, a $1,000,000 portfolio of Total Stock Market & Total Bond Market split 65/35 in 2016 would today be worth...

$1,301,630 if rebalanced annually

$1,282,749 if not rebalanced at all

The difference between what you wish you'd done and what you did is insignificant and irrelevant.

Pick the allocation you want going forward, exchange funds to make it happen, and then rebalance more consistently in the future.
Thanks for this. Makes sense.

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fortysixandtwo
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Re: Rebalancing mistakes

Post by fortysixandtwo » Tue Apr 07, 2020 7:50 am

Chris K Jones wrote:
Mon Apr 06, 2020 12:58 pm
The asset allocation is an indication fo the risk you are willing to take. I would start with the question of what asset allocation you want? Is it still 65/35? If it is, then I would sell stock to get back to that risk level. If you are comfortable where you are, I would leave it alone. I hope this helps. FWIW, Jack Bogle was not much of a fan of frequent rebalancing. You might feel comfortable where you are.
Thanks for the comment.

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fortysixandtwo
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Re: Rebalancing mistakes

Post by fortysixandtwo » Tue Apr 07, 2020 7:52 am

DSInvestor wrote:
Mon Apr 06, 2020 9:16 pm
OP, are your still accumulating or are you withdrawing from your portfolio? If still accumulating, what are you buying with the new money? If you're withdrawing, what are you selling? Your asset allocation will guide you on which asset class to send new money. For example, if you seek 65/35 and find that you're 80/20, your asset allocation plan tells to send new money to the asset class below target i.e. bonds? Would this be acceptable to you given that you're not selling stocks to buy bonds?
Tanks for this comment. I am accumulating. I thought of directing new money to reach my target AA. I might end up doing that.

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fortysixandtwo
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Re: Rebalancing mistakes

Post by fortysixandtwo » Tue Apr 07, 2020 7:55 am

[/quote]
I agree with you fortysixandtwo. This is a great time to sell high (bonds), and buy [low] some great equity funds on clearance sale. I did this a couple weeks ago when my bond allocation got too big for my target %'s, and I picked up some great equity deals which have greatly improved the last couple weeks.
[/quote]

Thanks for the comment. My problem is that I had neglected to rebalance during the last 2 years when stocks really shot up. So my AA is off in the wrong direction. To get it back to the target I would need to sell stocks and purchase bonds—which I am loath to do during this crisis. Which is why I was asking fellow Bogleheads.

CFM300
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Re: Rebalancing mistakes

Post by CFM300 » Tue Apr 07, 2020 9:30 am

fortysixandtwo wrote:
Tue Apr 07, 2020 7:55 am
I would need to sell stocks and purchase bonds—which I am loath to do during this crisis.
It seems like you'd rather hang on to your stocks than rebalance. In fact, it seems as though you'd like to buy even more stocks, because you think they're currently cheap. That's fine. Hold tight and pour new contributions into bonds. Or maybe even buy stocks and bonds 50/50 with your new contributions. As long as you understand and are comfortable with your increased risk profile.

Topic Author
fortysixandtwo
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Re: Rebalancing mistakes

Post by fortysixandtwo » Tue Apr 07, 2020 9:58 am

[/quote]
It seems like you'd rather hang on to your stocks than rebalance. In fact, it seems as though you'd like to buy even more stocks, because you think they're currently cheap. That's fine. Hold tight and pour new contributions into bonds. Or maybe even buy stocks and bonds 50/50 with your new contributions. As long as you understand and are comfortable with your increased risk profile.
[/quote]

Thanks for the feedback. I appreciate it.

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