Tips on "Don't Just Do Something, Stand There!"

[KingRiggs]

As my portfolio has grown, it takes larger and larger swings to hit the rebalancing bands set in my ISP.

The last time I sold and bought to rebalance was last March. Since then, I have been dutifully following my ISP, purchasing bonds with my monthly contributions since they are underweight in my portfolio.

Even with the constant market climb, I have yet to hit my 5% rebalancing bands (target allocation 65 stock/35 bond; currently at 68/32).

It's really hard to keep from rebalancing early. I know some might say this means that my asset allocation is too aggressive, causing me to want to sell stocks in order to "lock in the gains". But I think it's actually the opposite -- my inner self wants to ADD equity shares and is tired of continuously adding to the bond side which just...sits there.

Can anyone give me their tips/tricks on sticking to their ISP? In my instance, I don't want to stray from it because of fear, but because of greed/Fear of Missing Out (FOMO). Would love to know if anyone else struggles with this and how they cope...

[David Althaus]

I suffer from the same affliction. Could it be our real problem is that we are assuming more risk than we thought we could endure?

All the best

[keystone]

I don't normally struggle with this, but if I did I would probably switch to all in one funds that automatically rebalance, e.g. Vanguard LifeStrategy, Balanced Index Fund, Target Retirement, etc.

[jebmke]

Just go back and remind yourself at how much fun you had re-balancing into equity as your equity dropped by 60% in 2008-09.

[burritoLover]

How did you handle the March drop - sounds like you handled it well. Perhaps you should increase your stock allocation?

[livesoft]

One can use their monthly bond fund dividend income, their withdrawals, and their contributions to help maintain their desired asset allocation. This monthly decision should give one enough satisfaction and both emotional plus expressive benefits that there should be no problem staying the course.

[whereskyle]

I don't normally struggle with this, but if I did I would probably switch to all in one funds that automatically rebalance, e.g. Vanguard LifeStrategy, Balanced Index Fund, Target Retirement, etc.

+1.

All you should do is buy according to your IPS. If you're having trouble doing that, it's time to switch to a single fund.

[KingRiggs]

How did you handle the March drop - sounds like you handled it well. Perhaps you should increase your stock allocation?

Perhaps. I just have this itch to buy more equities, but they are over-represented in my portfolio. So I'm just grinding along putting money into my bond side...

I'm sticking with my current ISP, just looking for coping mechanisms from others who may have my same psychological issues

[sailaway]

Our IPS calls for us to put new monies to stocks, then rebalance twice a year. We came to this method out of simplicity: we don't have to rebalance bonds in tax deferred accounts every time we want to buy stocks in taxable accounts. However, it certainly was the right thing for us this year. We didn't even peak at AA until it was time for our rebalance, by which time we were in perfect balance again, with no effort. I am sure the results will be different next week and that we have been rather aggressive over the last few months, but we sleep well in between not sweating the fluctuations.

[jebmke]

All you should do is buy according to your IPS. If you're having trouble doing that, it's time to switch to a single fund.

or change the IPS; nothing says that the bands have to be 5% or that they have to be the same on the upside and the downside.

Ours was +/- 5% for years but recently (2 years?) I changed our plan. Now I plan to re-balance at -3% on the down side and have no upper limit on the upside (never selling equity, that is). I should point out that the plan change was a result of different conditions, not just a whim.

[burritoLover]

How did you handle the March drop - sounds like you handled it well. Perhaps you should increase your stock allocation?

Perhaps. I just have this itch to buy more equities, but they are over-represented in my portfolio. So I'm just grinding along putting money into my bond side...

I'm sticking with my current ISP, just looking for coping mechanisms from others who may have my same psychological issues

Gotcha - you need some fun money. Say 1-5% of your contributions that you get to play with in the market in any way you want.

[flaccidsteele]

Can anyone give me their tips/tricks on sticking to their ISP? In my instance, I don't want to stray from it because of fear, but because of greed/Fear of Missing Out (FOMO). Would love to know if anyone else struggles with this and how they cope...

I solve this by not rebalancing because there’s no rationale for doing so, and neither Buffett nor Bogle have ever suggested that it’s necessary

If it’s good enough for them to not do it, it’s good enough for me. After 3 decades, it’s worked out fine. Simplicity is best

That’s how I cope

[KingRiggs]

All you should do is buy according to your IPS. If you're having trouble doing that, it's time to switch to a single fund.

or change the IPS; nothing says that the bands have to be 5% or that they have to be the same on the upside and the downside.

Ours was +/- 5% for years but recently (2 years?) I changed our plan. Now I plan to re-balance at -3% on the down side and have no upper limit on the upside (never selling equity, that is). I should point out that the plan change was a result of different conditions, not just a whim.

I like that system. Sort of like the folks who follow an AA until their bond side reaches a certain multiple of annual projected expenses, then invest everything going forward into equities...

Something to consider.

[KingRiggs]

Our IPS calls for us to put new monies to stocks, then rebalance twice a year. We came to this method out of simplicity: we don't have to rebalance bonds in tax deferred accounts every time we want to buy stocks in taxable accounts. However, it certainly was the right thing for us this year. We didn't even peak at AA until it was time for our rebalance, by which time we were in perfect balance again, with no effort. I am sure the results will be different next week and that we have been rather aggressive over the last few months, but we sleep well in between not sweating the fluctuations.

Thanks for the input.

I'm not real comfortable with rebalancing based on the calendar, as a LOT can happen in the span of 6 months (see 2020, for example!). Missing out on buying triggers when stocks are depressed would really bother me. I'm more comfortable with maintaining a pretty closely-bound AA, and hence risk profile.

[JoeRetire]

It's really hard to keep from rebalancing early.

Can anyone give me their tips/tricks on sticking to their ISP?

Look at your portfolio positions less often. Perhaps once a year would work for you.

In my instance, I don't want to stray from it because of fear, but because of greed/Fear of Missing Out (FOMO).

Not because of fear? FOMO is "fear" - it has the word right in there!

[retired@50]

How did you handle the March drop - sounds like you handled it well. Perhaps you should increase your stock allocation?

Perhaps. I just have this itch to buy more equities, but they are over-represented in my portfolio. So I'm just grinding along putting money into my bond side...

I'm sticking with my current ISP, just looking for coping mechanisms from others who may have my same psychological issues

I'd suggest you do some reading about behavioral finance if you haven't done so already. Wanting to buy more equities now (when they are high priced) is irrational. You're in the grip of euphoria. Wait until the equities are on sale, then stock up, so to speak .

See link: https://www.bogleheads.org/wiki/Books:_ ... al_finance

Regards,

[dh]

To the OP. I think you have tapped into the fact that a great deal of investing is psychology and not math. Specifically, controlling our emotions and impulses is key; the math of rebalancing is simple. Like you, I have struggled with the same. It truly sounds like you are handling it very well. What might be helpful (or at least interesting) is to write a letter to yourself explaining what you are grappling with and plan to read your letter in six months. Put the letter in an envelop with the date to open (May 25, 2021). In six months, it should be an interesting read (given that you will know exactly what happened in the stock market during the last six months). Just my 2 cents.

Happy thanksgiving!

[bloom2708]

Could you simplify by only buying stock index funds and re-balance when you hit 6-7% off?

I have my new purchases always be stock index funds. That way I'm not missing out (low or highs).

Widen your band to re-balance but do it as often as you need to.

Re-balance, then start buying stocks again. Repeat.

[dwickenh]

I watched the market yesterday and as it increased to my 5% band, I pulled the trigger and transferred 5% of stocks to bonds. It felt good to follow my plan and I did wait until the band was reached. I am at 50/50 and reached 55% yesterday on the equity side.

[soccerrules]

i am at 60/40 and rebalance at 4-5% off target. I rebalanced back in spring as stocks went down.

I currently DCA at my target AA 60/40. This allows for me to buy both Stocks and Bonds every 2 weeks.

Then I will rebalance once if have hit my "band".

[Third Son]

I just retired after 38 years in my field. Married. One income. Four kids... Parochial school and college, braces. Mortgage. Vacations. Coaching soccer, t-ball, basketball. Hardly ever looked at my 401k. Kept adding to %contributed after a raise or bonus. Started thinking about retirement about 2 years ago. Kept monies in primarily target date funds while accumulating.

Retired at 60. Comfortable nest egg that will get me through the remaining years. Just stand there.

[RadAudit]

I use to periodically rebalance. For personal reasons, I switched to a constant risk portfolio - two LifeStrategy funds. They rebalance daily. Haven't hit my IPS bands (50 / 50, + / - 5%) and I don't anticipate doing so anytime soon. Makes staying the course a little bit easier.

[arcticpineapplecorp.]

Just go back and remind yourself at how much fun you had re-balancing into equity as your equity dropped by 60% in 2008-09.

only the international dropped by 60%. The total US dropped 55%. And that was from the peak 10/12/2007 to the trough 3/6/2009:



source:
http://quotes.morningstar.com/chart/fun ... A%5B%5D%7D

if you look at 2008-2009 as you mention, you get just a 19% drop for total US and 24% drop for total international (from 1/1/2008-12/31/2009):



source:
http://quotes.morningstar.com/chart/fun ... A%5B%5D%7D

just saying.

[Dottie57]

To help with the title, Stop seeking financial news every day. The hype can really make it seem you NEED to change.

[Eagle33]

You do realize you are doing mini-rebalacing when you add new money to buy the under weighted bond asset portion of your portfolio. Maybe add your new money at your target AA ratio and you should have more chance to hit a rebalance band trigger.

[BogleBoogie]

How did you handle the March drop - sounds like you handled it well. Perhaps you should increase your stock allocation?

Perhaps. I just have this itch to buy more equities, but they are over-represented in my portfolio. So I'm just grinding along putting money into my bond side...

I'm sticking with my current ISP, just looking for coping mechanisms from others who may have my same psychological issues

Ha! I am in same boat, nearly same AA with the same drift. I keep looking at doing something, but realize that I'm not quite to 5%. I think it is the desire to be active and involved. What I did is ponder what difference that tweak would make if the market went up or down and realized it really doesn't matter.

[GerryL]

I don't really worry about rebalancing that much. The only time I take any action is early in the year when I move $$ in my IRA into the settlement account to cover that year's RMD. I just move the $$ to nudge the AA back into line.

Maybe my tip is: Think of it as an unenjoyable task.