Opportunistic rebalancing and handling flexibility

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Post Reply
michaeljc70
Posts: 1955
Joined: Thu Oct 15, 2015 3:53 pm

Opportunistic rebalancing and handling flexibility

Post by michaeljc70 » Mon Jun 06, 2016 10:07 am

I've been moving my portfolio to a 4 fund Vanguard portfolio and decided on a opportunistic band method for re-balancing using a relative % threshold and target. I am going with a 20% relative threshold band and 10% tolerance band.

This method seems to give a good amount of flexibility in deciding where in the range you will put money to re-balance once one is triggered. My question is, is there anyway to make this use less judgement and make it more on auto-pilot?

One reason I went to a simplified portfolio is to not make judgement calls on how I thought the market would do (should I just put enough to move stocks into my tolerance band or more?). Maybe this won't make much of a difference given the bands are not that big and maybe I am over thinking this?

User avatar
Rick Ferri
Posts: 8202
Joined: Mon Feb 26, 2007 11:40 am
Location: Vagabond, USA, Twitter: @Rick_Ferri
Contact:

Re: Opportunistic rebalancing and handling flexibility

Post by Rick Ferri » Mon Jun 06, 2016 11:12 am

My advice? Don't overthink rebalancing. Everything works as long as it's consistent, i.e. annually, bands, thresholds, etc. The less complicated the better because you'll actually get it done. Your plan sounds fine (if not too complicated). Just do it.

Rick Ferri
The views expressed by Rick Ferri are strictly his own as a private investor and author and do not reflect the views of any entity or other persons.

User avatar
1210sda
Posts: 1236
Joined: Wed Feb 28, 2007 8:31 am

Re: Opportunistic rebalancing and handling flexibility

Post by 1210sda » Mon Jun 06, 2016 11:29 am

Rick, so good to hear from you. Are you still writing a blog or some other vehicle for teaching us about investing?
1210

User avatar
Rick Ferri
Posts: 8202
Joined: Mon Feb 26, 2007 11:40 am
Location: Vagabond, USA, Twitter: @Rick_Ferri
Contact:

Re: Opportunistic rebalancing and handling flexibility

Post by Rick Ferri » Mon Jun 06, 2016 11:33 am

I've been on a sabbatical for several months. You'll hear from me in the future. I can't say exactly when or how.

:beer

Rick Ferri
The views expressed by Rick Ferri are strictly his own as a private investor and author and do not reflect the views of any entity or other persons.

User avatar
neurosphere
Posts: 2599
Joined: Sun Jan 17, 2010 1:55 pm
Location: NYC

Re: Opportunistic rebalancing and handling flexibility

Post by neurosphere » Mon Jun 06, 2016 11:53 am

Rick Ferri wrote:My advice? Don't overthink rebalancing. Everything works as long as it's consistent, i.e. annually, bands, thresholds, etc. The less complicated the better because you'll actually get it done. Your plan sounds fine (if not too complicated). Just do it.

Rick Ferri


I completely agree with Rick. 999 times out of a 1000, I would be a fool to disagree!

My method is to reballance every 18 months or so. Why 18 months? Because I had intended for annual rebalancing, but then found I put it off each year such that several times in a row it was closer to 18 months, so, I now I stick with 18 months. Although, does that mean that it's soon to be every 24 months if I yet again procrastinate at the 18 month mark? :D

livesoft
Posts: 56550
Joined: Thu Mar 01, 2007 8:00 pm

Re: Opportunistic rebalancing and handling flexibility

Post by livesoft » Mon Jun 06, 2016 12:00 pm

michaeljc70 wrote:I've been moving my portfolio to a 4 fund Vanguard portfolio and decided on a opportunistic band method for re-balancing using a relative % threshold and target. I am going with a 20% relative threshold band and 10% tolerance band.

With 20% relative threshold and 10% tolerance band, I think you will find that you have just made it a non-rebalancing portfolio. You will never have to rebalance. That's pretty much auto-pilot right there, so you have already achieved what you want to do.

If you want to make the thresholds smaller, then you could use a mix of TargetRetirement, LifeStrategy, and/or Balanced funds in tax-advantaged with some more tax-efficient funds in taxable.

Next question.
This signature message sponsored by sscritic: Learn to fish.

michaeljc70
Posts: 1955
Joined: Thu Oct 15, 2015 3:53 pm

Re: Opportunistic rebalancing and handling flexibility

Post by michaeljc70 » Mon Jun 06, 2016 1:09 pm

livesoft wrote:
michaeljc70 wrote:I've been moving my portfolio to a 4 fund Vanguard portfolio and decided on a opportunistic band method for re-balancing using a relative % threshold and target. I am going with a 20% relative threshold band and 10% tolerance band.

With 20% relative threshold and 10% tolerance band, I think you will find that you have just made it a non-rebalancing portfolio. You will never have to rebalance. That's pretty much auto-pilot right there, so you have already achieved what you want to do.

If you want to make the thresholds smaller, then you could use a mix of TargetRetirement, LifeStrategy, and/or Balanced funds in tax-advantaged with some more tax-efficient funds in taxable.

Next question.


I have 12% in TBM, so that gives a threshold band between 9.6% and 14.4%. It could definitely need rebalancing, but I agree it probably will be an infrequent event.

I was in the Target fund, but due to 1) tax consequences and 2) fees got out of it. Though the fees on the target funds are relatively low, I still figured over the long haul it would add up to a good chunk of change on my portfolio.

livesoft
Posts: 56550
Joined: Thu Mar 01, 2007 8:00 pm

Re: Opportunistic rebalancing and handling flexibility

Post by livesoft » Mon Jun 06, 2016 1:14 pm

michaeljc70 wrote:I have 12% in TBM, so that gives a threshold band between 9.6% and 14.4%. It could definitely need rebalancing, but I agree it probably will be an infrequent event.

I was in the Target fund, but due to 1) tax consequences and 2) fees got out of it. Though the fees on the target funds are relatively low, I still figured over the long haul it would add up to a good chunk of change on my portfolio.

How much would the markets (or your other funds) have to go up/down to cause a rebalancing event? With only 12% in TBM, it is going to be quite a lot isn't it? Since it appears that your equity funds are likely to be broad market index funds, they will be less volatile than a small-cap value fund and a small-cap emerging markets fund. That is, your use of broad market index funds will also obviate the need for any rebalancing.

My prediction is that your contributions alone will probably keep things in balance.
This signature message sponsored by sscritic: Learn to fish.

RNJ
Posts: 740
Joined: Mon Apr 08, 2013 9:06 am

Re: Opportunistic rebalancing and handling flexibility

Post by RNJ » Mon Jun 06, 2016 1:19 pm

livesoft wrote:
michaeljc70 wrote:I've been moving my portfolio to a 4 fund Vanguard portfolio and decided on a opportunistic band method for re-balancing using a relative % threshold and target. I am going with a 20% relative threshold band and 10% tolerance band.

With 20% relative threshold and 10% tolerance band, I think you will find that you have just made it a non-rebalancing portfolio. You will never have to rebalance. That's pretty much auto-pilot right there, so you have already achieved what you want to do.
.


Yes, this ^ . Also, don't forget that you'll be contributing to your portfolio with salary, dividends, etc. as you move through time, buying underperforming assets and thus keeping your portfolio properly allocated. Also, if you've got a taxable account you can use appreciated securities in lieu of cash for charitable contributions - another way of trimming winners.

Post Reply