Learned I want more conservative AA - should I rebalance or gradually glide?

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
c_is_for_cow
Posts: 95
Joined: Sat Nov 21, 2015 8:19 am

Learned I want more conservative AA - should I rebalance or gradually glide?

Post by c_is_for_cow »

I’ve given this a lot of thought. During the pandemic, we’ve been 70/30 and watched our portfolio go way down. I rebalanced from bonds to stocks in March, and our portfolio has come back up and are currently sitting at 75/25. I’m 43 and my wife is 40. I’d like to go down to 60/40, maybe for life, mainly because I’ve learned the difference in returns of 70/30 and 60/40 aren’t significant enough to warrant the extra risk of a 70/30 portfolio. My question is, if we want to go down to 60/40, is it ok to rebalance in one transaction from stocks to bonds, or is it safer to do a gradual glide path? Asking because there seems to be so much volatility this year. For example, earnings reports are due this week and could tank the market if coronavirus hurt those companies worse than investors thought. My gut says to just do it, but this is one of the emotional sides of investing I just need to think through and get a 2nd opinion on.

Thanks,
Cow
3funder
Posts: 1522
Joined: Sun Oct 15, 2017 9:35 pm

Re: Learned I want more conservative AA - should I rebalance or gradually glide?

Post by 3funder »

How well are you doing in terms of saving? Before you dial back your original allocation, make sure you don't need to take that level of risk.
Global stocks, US bonds, and time.
lakpr
Posts: 6742
Joined: Fri Mar 18, 2011 9:59 am

Re: Learned I want more conservative AA - should I rebalance or gradually glide?

Post by lakpr »

I would vote on the side of doing it all at once, if you are absolutely sure that 60:40 is the asset allocation you want permanently. No point in dragging it out, I'd like to deal with issues one time, be done with it, and forget it.
User avatar
dwickenh
Posts: 2051
Joined: Sun Jan 04, 2015 9:45 pm
Location: Illinois

Re: Learned I want more conservative AA - should I rebalance or gradually glide?

Post by dwickenh »

Tear the band aid off all at once!!
The market is the most efficient mechanism anywhere in the world for transferring wealth from impatient people to patient people.” | — Warren Buffett
wolf359
Posts: 2253
Joined: Sun Mar 15, 2015 8:47 am

Re: Learned I want more conservative AA - should I rebalance or gradually glide?

Post by wolf359 »

If the market is up and you're at 75/25 when you want to be at 70/30, then you're at a rebalancing point anyways. There's no problem with switching down to 60/40 all at once instead.

It's switching to a more conservative asset allocation in the middle of a crash that kills returns. Right now you're selling stocks high and locking in your profits into bonds. When the market is up is the best time to make that type of change. If you gradually glide and the market crashes, you may find yourself at 60/40 anyways. Either way works, but doing it all at once while the market is high will give you a higher current portfolio balance.

Write down the reasons you're making this switch into your investment policy statement. Refer to it when you want to switch again. It's the constant switching of AA that affects your long-term returns.

Making the change isn't a problem. It's constantly making changes that is. Your asset allocation should be something you can stick with long-term, regardless of market conditions.
User avatar
Watty
Posts: 21401
Joined: Wed Oct 10, 2007 3:55 pm

Re: Learned I want more conservative AA - should I rebalance or gradually glide?

Post by Watty »

If the money is in a retirement account where taxes are not an issue then I would go on and move the money right away.

If they are in a taxable account then I would figure out what the tax impact would be before moving the money since that could complicate the decision especially if you have some short term gains that will become long term in the near future.

It would also be a good time to write out an Investing Policy Statement (IPS) to help you stick with whatever you decide is right for you.

https://www.bogleheads.org/wiki/Investm ... quirements
User avatar
cashboy
Posts: 590
Joined: Tue Sep 11, 2018 5:03 pm
Location: USA

Re: Learned I want more conservative AA - should I rebalance or gradually glide?

Post by cashboy »

just opinion of course:

do it now (if in tax deferred).

not sure what stocks (or funds) you have, but many have recovered (more than I would have expected). get to where you want to be while you can.
Three-Fund Portfolio: FSPSX - FXAIX - FXNAX (with slight tilt of CDs - CASH - Canned Beans - Rice - Bottled Water)
Triple digit golfer
Posts: 6251
Joined: Mon May 18, 2009 5:57 pm

Re: Learned I want more conservative AA - should I rebalance or gradually glide?

Post by Triple digit golfer »

If this is all tax protected accounts and you already determined that 60/40 is good for you, do it all at once immediately.
yules
Posts: 292
Joined: Wed Nov 27, 2019 10:31 am

Re: Learned I want more conservative AA - should I rebalance or gradually glide?

Post by yules »

dwickenh wrote: Sun Jul 19, 2020 10:06 am Tear the band aid off all at once!!
I argue that going from 75/25 to 60/40 is putting the band aid on all at once, since bonds are for protection/safety of a portfolio.

Yules
Scooter57
Posts: 1622
Joined: Thu Jan 24, 2013 9:20 am

Re: Learned I want more conservative AA - should I rebalance or gradually glide?

Post by Scooter57 »

FWIW there is a greater chance 2nd quarter results will look better than expected and boost the market higher, because expectations are so low. Plus the Oxford vaccine early results are coming out tomorrow and all the investors who don't understand how vaccines work will think the virus is all done.

Things only get ugly in another quarter or two when people start to realize that wishing and hoping only work when you are bamboozling people, not when you have to solve a very complex problem.
User avatar
JaneyLH
Posts: 529
Joined: Wed Oct 16, 2013 7:16 pm

Re: Learned I want more conservative AA - should I rebalance or gradually glide?

Post by JaneyLH »

Last November I decided to move from 70/30 to 50/50. At age 65, I made the move all at one time. Sure glad I did! Once you decide your portfolio is too risky, it's probably best to do the deed and ease your mind.
Topic Author
c_is_for_cow
Posts: 95
Joined: Sat Nov 21, 2015 8:19 am

Re: Learned I want more conservative AA - should I rebalance or gradually glide?

Post by c_is_for_cow »

Thanks for all the replies, much appreciated. I’m going to rebalance all at once via a tax-deferred transaction.
Post Reply