Rebalancing - Personal Philosophies

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archerydoc
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Rebalancing - Personal Philosophies

Post by archerydoc » Sun Oct 08, 2017 4:56 pm

I am curious how often others are rebalancing their portfolios. I am also interested to hear personal opinions regarding the "best" time(s) of year to perform this essential activity.

jebmke
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Re: Rebalancing - Personal Philosophies

Post by jebmke » Sun Oct 08, 2017 4:59 pm

I normally re-balance when I hit a re-balance band, not at a specific time. Of course, I am not reinvesting dividends (I'm retired, I spend them) so in one sense I am re-balancing out of equity every quarter.
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livesoft
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Re: Rebalancing - Personal Philosophies

Post by livesoft » Sun Oct 08, 2017 5:01 pm

Excellent question!

I don't rebalance based on any calendar date. I rebalance based on tight asset allocation bands,so when bands are triggered, then I rebalance. I also rebalance into equities on really bad days and I rebalance out of bonds when bonds have a really good day. I also rebalance when I reinvest distributions. I rebalance when I sell before withdrawing cash from the portfolio.

Here is a thread which some people discuss some personal philosophies ... that is, what they really do:
viewtopic.php?t=227582

I think you can agree that the best time to rebalance into equities is at the lowest point in the year for the equities that you need to buy because of your asset allocation. It would be remarkably lucky if that low point occurred on a date that you had pre-scheduled rebalancing.
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Re: Rebalancing - Personal Philosophies

Post by dbr » Sun Oct 08, 2017 5:15 pm

If logical is best, then it seems to me rebalancing according to bands makes sense and rebalancing on a schedule does not make sense. I don't know if that is a philosophy. I am sure that people who prefer to adhere to a schedule have their reasons, and who am I to tell other people what to do.

remomnyc
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Re: Rebalancing - Personal Philosophies

Post by remomnyc » Sun Oct 08, 2017 5:19 pm

Until recently, I rebalanced with new money. When I got close to FIRE, I started selling to move to a more conservative allocation. I sold a big chunk during the dip in 2016 and again this summer to get to 60/40. My new rule is to rebalance when I hit 6% bands.

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randomizer
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Re: Rebalancing - Personal Philosophies

Post by randomizer » Sun Oct 08, 2017 5:26 pm

remomnyc wrote:
Sun Oct 08, 2017 5:19 pm
Until recently, I rebalanced with new money. When I got close to FIRE, I started selling to move to a more conservative allocation. I sold a big chunk during the dip in 2016 and again this summer to get to 60/40. My new rule is to rebalance when I hit 6% bands.
You locked in a loss during the dip?

mega317
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Re: Rebalancing - Personal Philosophies

Post by mega317 » Mon Oct 09, 2017 1:05 am

My IPS says once a year, in early January when we make our Roth contributions. I just don't foresee the usual drift of a few percent making a difference in my life. If we're 73/27 for a while I don't care.

But we have been fortunate to get some minor windfalls (unexpected bonuses and such) the last few years which, since we're young, are a significant percentage of the portfolio. So I've done it at those times as well.

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digarei
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Re: Rebalancing - Personal Philosophies

Post by digarei » Mon Oct 09, 2017 4:15 am

archerydoc wrote:
Sun Oct 08, 2017 4:56 pm
I am curious how often others are rebalancing their portfolios. I am also interested to hear personal opinions regarding the "best" time(s) of year to perform this essential activity.
I rebalance whenever I have new money to invest. Buy anywhere, sell only from within tax sheltered accounts.

But there are many successful approaches. I’m not ashamed to point you in the direction of some good research in this area:


Vanguard Best practices for portfolio rebalancing (2015) 16 pp

https://www.vanguard.com/pdf/ISGPORE.pdf


You don’t have to read the entire paper for their conclusions.
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2015
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Re: Rebalancing - Personal Philosophies

Post by 2015 » Mon Oct 09, 2017 10:53 am

digarei wrote:
Mon Oct 09, 2017 4:15 am
archerydoc wrote:
Sun Oct 08, 2017 4:56 pm
I am curious how often others are rebalancing their portfolios. I am also interested to hear personal opinions regarding the "best" time(s) of year to perform this essential activity.
I rebalance whenever I have new money to invest. Buy anywhere, sell only from within tax sheltered accounts.

But there are many successful approaches. I’m not ashamed to point you in the direction of some good research in this area:


Vanguard Best practices for portfolio rebalancing (2015) 16 pp

https://www.vanguard.com/pdf/ISGPORE.pdf


You don’t have to read the entire paper for their conclusions.
+1
My strategy matches VG's conclusions.
Conclusion

Just as there is no universally optimal asset allocation,
there is no universally optimal rebalancing strategy. The
only clear advantage so far as maintaining a portfolio’s
risk-and-return characteristics is that a rebalanced
portfolio more closely aligns with the characteristics of
the target asset allocation than with a never-rebalanced
portfolio. As our analysis has shown, the risk-adjusted
returns are not meaningfully different whether a portfolio
is rebalanced monthly, quarterly, or annually; however,
the number of rebalancing events and resulting costs
increase significantly. As a result, we conclude that a
rebalancing strategy based on reasonable monitoring
frequencies (such as annual or semiannual) and
reasonable allocation thresholds (variations of 5%
or so) is likely to provide sufficient risk control relative
to the target asset allocation for most portfolios with
broadly diversified stock and bond holdings, without
creating too many rebalancing events over the long term
.

dflaher
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Re: Rebalancing - Personal Philosophies

Post by dflaher » Mon Oct 09, 2017 11:05 am

jebmke wrote:
Sun Oct 08, 2017 4:59 pm
I normally re-balance when I hit a re-balance band, not at a specific time. Of course, I am not reinvesting dividends (I'm retired, I spend them) so in one sense I am re-balancing out of equity every quarter.
+1 My strategy as well.

longinvest
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Re: Rebalancing - Personal Philosophies

Post by longinvest » Mon Oct 09, 2017 11:07 am

I use a semi-lazy rebalancing method which takes care of annoying concerns such as maintaining a portfolio balanced across multiple accounts and wash sales: Two-Step Rebalancing.
Bogleheads investment philosophy | Lifelong Portfolio: 25% each of (domestic/international)stocks/(nominal/inflation-indexed)bonds | VCN/VXC/VAB/ZRR

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digarei
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Re: Rebalancing - Personal Philosophies

Post by digarei » Mon Oct 09, 2017 11:21 am

longinvest wrote:
Mon Oct 09, 2017 11:07 am
I use a semi-lazy rebalancing method which takes care of annoying concerns such as maintaining a portfolio balanced across multiple accounts and wash sales: Two-Step Rebalancing.
While I certainly appreciate the level of detail presented, I have a feeling that anyone who qualifies as semi-lazy will not read past the first two well-annotated paragraphs.

Do you have a Semi-Lazy Rebalancing for Dummies version?
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longinvest
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Re: Rebalancing - Personal Philosophies

Post by longinvest » Mon Oct 09, 2017 11:45 am

digarei wrote:
Mon Oct 09, 2017 11:21 am
longinvest wrote:
Mon Oct 09, 2017 11:07 am
I use a semi-lazy rebalancing method which takes care of annoying concerns such as maintaining a portfolio balanced across multiple accounts and wash sales: Two-Step Rebalancing.
While I certainly appreciate the level of detail presented, I have a feeling that anyone who qualifies as semi-lazy will not read past the first two well-annotated paragraphs.

Do you have a Semi-Lazy Rebalancing for Dummies version?
I don't have such a simpler post, right at this moment, but I'm taking note of your suggestion and putting it on (my unfortunately long) TODO list. I'll eventually start a new thread with a simpler initial post, accompanied with a spreadsheet which implements the method. For the time being, I offer to try answering questions about it on the linked thread.
Bogleheads investment philosophy | Lifelong Portfolio: 25% each of (domestic/international)stocks/(nominal/inflation-indexed)bonds | VCN/VXC/VAB/ZRR

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mickeyd
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Re: Rebalancing - Personal Philosophies

Post by mickeyd » Mon Oct 09, 2017 12:57 pm

My simple rebalancing efforts tend to happen after my annual RMD distribution. If there is a drastic AA change (5%+), I jigger my, now simple, AA a bit to get it in range. I then go to sleep for 12 month. EZPZ.
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czeckers
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Re: Rebalancing - Personal Philosophies

Post by czeckers » Mon Oct 09, 2017 2:42 pm

In my retirement accounts which receive monthly contributions, I direct incoming money to whichever fund is lagging the most behind its desired percent allocation. I use rebalancing bands and would rebalance the entire portfolio only if an asset is lagging by 20% relative to its allocation (this has happened only once in 10 years) or is 25% above (has never happened so far).

Accounts which do not receive monthly contributions are rebalanced annually on or about Halloween (because looking at your portfolio might be a little scary).
The Espresso portfolio: | | 16% LCV, 16% SCV, 16% EM, 8% Int'l Value, 8% Int'l Sm, 8% US REIT, 8% Int'l REIT, 20% Inter-term US Treas | | "A journey of a thousand miles begins with a single step."

ThePrince
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Re: Rebalancing - Personal Philosophies

Post by ThePrince » Mon Oct 09, 2017 3:06 pm

A lot of times we’re our own worst enemy. Therefore, I allow Blooom, Betterment, and Schwab handle those decisions for me.

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Portfolio7
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Re: Rebalancing - Personal Philosophies

Post by Portfolio7 » Mon Oct 09, 2017 6:18 pm

I maintain a base AA, but will direct from 0% to 10% depending on circumstances (e.g. overweighted in Int'l Equities/EM at the moment.) This is not recognized best practice, but keeps my worst impulses contained, protecting against 'big mistakes'. I'd like to think Charlie Munger would approve that last idea, at least.

I do have 15% bands, but never actually hit the clip level, since I always end up resetting my AA first (it's easy & virtually frictionless for us.)

As a result, I end up rebalancing inconsistently, 0 to 4 times per year. This irregularity does not worry me, as long as my portfolio volatility risk remains close to my target. Several studies seem to show little to no variation in results based on rebalance timing or banding, so I don't obsess.

I rebalanced perhaps once every 2 years in the period from 2010 to 2016. I didn't feel that any particular asset class was strongly mis-valued, so I just kept my base AA. This year I have rebalanced 3 times; in April, July and October, but only the first was overweighting Int'l. The other two had to do with replacing a fund in my portfolio.
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nedsaid
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Re: Rebalancing - Personal Philosophies

Post by nedsaid » Mon Oct 09, 2017 9:58 pm

archerydoc wrote:
Sun Oct 08, 2017 4:56 pm
I am curious how often others are rebalancing their portfolios. I am also interested to hear personal opinions regarding the "best" time(s) of year to perform this essential activity.
I rebalance several times a year, the market has been so strong that I have had to do this in order to keep my stock allocation even at 67%. This is accomplished in smaller amounts which is why I call this "mild rebalancing." The amounts have really added up since July 2013, when I started my program. Had I done nothing, my stock allocation would probably be 75% today. Mostly rebalancing from US Stocks to US Bonds but I have done a tiny bit from US Stocks to International Stocks.

Before July 2013, I rarely if ever rebalanced. Many of my fellow Bogleheads were just aghast at this, rebalancing like cleanliness is next to Godliness here at the Bogleheads Forum.
A fool and his money are good for business.

Ethelred
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Re: Rebalancing - Personal Philosophies

Post by Ethelred » Tue Oct 10, 2017 7:22 am

Copied and pasted from another recent thread, with a little editing:

The rebalancing strategy in my IPS is based on this article from Michael Kitces: https://www.kitces.com/blog/best-opport ... hresholds/
It's based on relative percentages, allowed to drift until thresholds are reached, and I check it monthly. I will rebalance any asset that reaches above 120% or below 83% (= 6/5 or 5/6) of target.

remomnyc
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Re: Rebalancing - Personal Philosophies

Post by remomnyc » Wed Oct 11, 2017 9:10 pm

randomizer wrote:
Sun Oct 08, 2017 5:26 pm
remomnyc wrote:
Sun Oct 08, 2017 5:19 pm
Until recently, I rebalanced with new money. When I got close to FIRE, I started selling to move to a more conservative allocation. I sold a big chunk during the dip in 2016 and again this summer to get to 60/40. My new rule is to rebalance when I hit 6% bands.
You locked in a loss during the dip?
Sorry, I wasn't clear. The sales during the dip and this summer were for different reasons. I sold during the dip to tax loss harvest. Due to the soaring market, I've had few opportunities to tax loss harvest, so whenever one presents itself, I tried to take advantage, to save up for when I start living off my investments. I was able to use the tax loss carry forwards against the sales to get to 60/40.

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Re: Rebalancing - Personal Philosophies

Post by Dandy » Thu Oct 12, 2017 8:45 am

I am almost 70 and feel I have "enough". My allocation is 43/57 and I try to keep equities between 40 and 45%. I have a diverse mix of fixed income funds/CDs etc. I don't worry much about rebalancing them -- if you have a bit more in intermediate bond fund vs a short term bond fund the risk/reward difference is usually minimal.

I focus on keeping the overall equity vs fixed income within my target range. Equities are where the big risks are not usually the fixed income side --at least my fixed income.

I use the end of February since the year end and January often have a lot of changes e.g. bonuses get invested, funds payout final dividends, withdrawals to pay for holiday expenses, estimated taxes, etc.

goingup
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Re: Rebalancing - Personal Philosophies

Post by goingup » Thu Oct 12, 2017 8:55 am

remomnyc wrote:
Wed Oct 11, 2017 9:10 pm
randomizer wrote:
Sun Oct 08, 2017 5:26 pm
remomnyc wrote:
Sun Oct 08, 2017 5:19 pm
Until recently, I rebalanced with new money. When I got close to FIRE, I started selling to move to a more conservative allocation. I sold a big chunk during the dip in 2016 and again this summer to get to 60/40. My new rule is to rebalance when I hit 6% bands.
You locked in a loss during the dip?
Sorry, I wasn't clear. The sales during the dip and this summer were for different reasons. I sold during the dip to tax loss harvest. Due to the soaring market, I've had few opportunities to tax loss harvest, so whenever one presents itself, I tried to take advantage, to save up for when I start living off my investments. I was able to use the tax loss carry forwards against the sales to get to 60/40.
Not to quibble, but I think when you TLH to reduce your equities, you are just "selling low". The magic of TLH is to harvest losses and purchase a similar asset. At least that's is how I do it. It's more common to "sell equities high" and buy bonds to get equity allocation lower. :confused

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Re: Rebalancing - Personal Philosophies

Post by pkcrafter » Thu Oct 12, 2017 9:43 am

I check twice a year--March and October, but generally rebalance in October when I take RMDs.

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Re: Rebalancing - Personal Philosophies

Post by PoppyA » Thu Oct 12, 2017 9:54 am

Good someone explain “bands”
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Re: Rebalancing - Personal Philosophies

Post by kathyauburn » Thu Oct 12, 2017 10:00 am

archerydoc wrote:
Sun Oct 08, 2017 4:56 pm
I am curious how often others are rebalancing their portfolios. I am also interested to hear personal opinions regarding the "best" time(s) of year to perform this essential activity.
I do not rebalance. Too much trouble. I let the fund I'm in do it for me on a daily basis.

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Toons
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Re: Rebalancing - Personal Philosophies

Post by Toons » Thu Oct 12, 2017 10:09 am

I don't rebalance.
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dcabler
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Re: Rebalancing - Personal Philosophies

Post by dcabler » Thu Oct 12, 2017 10:14 am

I balance on bands in general, but I also try and move "towards balance" with my deposits and with how I direct capital gains/dividends in my mutual funds.

Ethelred
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Re: Rebalancing - Personal Philosophies

Post by Ethelred » Thu Oct 12, 2017 10:14 am

PoppyA wrote:
Thu Oct 12, 2017 9:54 am
Good someone explain “bands”
Rebalancing is about keeping your asset allocation close to how you plan it.

Your asset allocation is allowed to vary within a band without rebalancing (exchanging between asset classes). You only rebalance if your asset allocation goes outside that band. If your asset allocation is, say, 70% stock / 30% bonds (or other fixed income), you might only rebalance if your stock percentage goes above 75% or below 65%.

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Re: Rebalancing - Personal Philosophies

Post by Doc » Thu Oct 12, 2017 10:56 am

goingup wrote:
Thu Oct 12, 2017 8:55 am
Not to quibble, but I think when you TLH to reduce your equities, you are just "selling low". The magic of TLH is to harvest losses and purchase a similar asset. At least that's is how I do it. It's more common to "sell equities high" and buy bonds to get equity allocation lower.
I'm missing something here. TLH and rebalancing are two different things. If the market declines to such a level that TLH harvesting makes sense one would harvest the loss but at the same time buy enough of a similar but not substantially identical investment to replace the assets sold plus enough to rebalance back to your target based on "hitting your bands".

As an example I would sell say S&P 500 and buy short Treasuries in taxable and buy a Russell 1000 and sell enough bonds in tax advantaged to pay for the purchase plus rebalancing needs. In thirty days I would reverse the trades as needed to get my FI/Equities in the rigth account for tax efficiency purposes.
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Re: Rebalancing - Personal Philosophies

Post by Hukedonfonix4me » Thu Oct 12, 2017 10:58 am

I have written re-balance bands into my IPS (viewtopic.php?t=185596). Rebalance whenever necessary according to the written plan.

I also look at the whole portfolio for rebalance opportunities if needed, once a year (around Thanksgiving :happy )
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Re: Rebalancing - Personal Philosophies

Post by Doc » Thu Oct 12, 2017 11:03 am

Regarding new investments and withdrawals for expenses:

I don't consider this rebalancing. Just good practice. Same with dividend reinvestment.

FWIW I rebalance based on ± 5% bands on the overall Equity/FI ratio target.
A scientist looks for THE answer to a problem, an engineer looks for AN answer and lawyers ONLY have opinions. Investing is not a science.

SimplicityNow
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Re: Rebalancing - Personal Philosophies

Post by SimplicityNow » Thu Oct 12, 2017 11:30 am

MY IPS states to rebalance every January if our asset allocation at that time differs by more then 5% of our desired allocation (currently 60%stocks/40% fixed income assets.

We had changed our AA from 50/50 to 60/40 and achieved that with new money as well as changing regular contributions to more stocks less fixed income assets. Due to this and recent market gains we are now at a tad over 60% equities. Time to change to a less aggressive mix for new incoming investments but will probably wait till January because I am lazy :)

remomnyc
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Re: Rebalancing - Personal Philosophies

Post by remomnyc » Thu Oct 12, 2017 11:55 am

goingup wrote:
Thu Oct 12, 2017 8:55 am
remomnyc wrote:
Wed Oct 11, 2017 9:10 pm
randomizer wrote:
Sun Oct 08, 2017 5:26 pm
remomnyc wrote:
Sun Oct 08, 2017 5:19 pm
Until recently, I rebalanced with new money. When I got close to FIRE, I started selling to move to a more conservative allocation. I sold a big chunk during the dip in 2016 and again this summer to get to 60/40. My new rule is to rebalance when I hit 6% bands.
You locked in a loss during the dip?
Sorry, I wasn't clear. The sales during the dip and this summer were for different reasons. I sold during the dip to tax loss harvest. Due to the soaring market, I've had few opportunities to tax loss harvest, so whenever one presents itself, I tried to take advantage, to save up for when I start living off my investments. I was able to use the tax loss carry forwards against the sales to get to 60/40.
Not to quibble, but I think when you TLH to reduce your equities, you are just "selling low". The magic of TLH is to harvest losses and purchase a similar asset. At least that's is how I do it. It's more common to "sell equities high" and buy bonds to get equity allocation lower. :confused
I did not TLH to reduce equities last year. I was doing it to gain tax loss carry forwards in preparation for rebalancing since I knew I would incur capital gains when I changed my allocations later.

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randomizer
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Re: Rebalancing - Personal Philosophies

Post by randomizer » Thu Oct 12, 2017 3:16 pm

remomnyc wrote:
Thu Oct 12, 2017 11:55 am
goingup wrote:
Thu Oct 12, 2017 8:55 am
remomnyc wrote:
Wed Oct 11, 2017 9:10 pm
randomizer wrote:
Sun Oct 08, 2017 5:26 pm
remomnyc wrote:
Sun Oct 08, 2017 5:19 pm
Until recently, I rebalanced with new money. When I got close to FIRE, I started selling to move to a more conservative allocation. I sold a big chunk during the dip in 2016 and again this summer to get to 60/40. My new rule is to rebalance when I hit 6% bands.
You locked in a loss during the dip?
Sorry, I wasn't clear. The sales during the dip and this summer were for different reasons. I sold during the dip to tax loss harvest. Due to the soaring market, I've had few opportunities to tax loss harvest, so whenever one presents itself, I tried to take advantage, to save up for when I start living off my investments. I was able to use the tax loss carry forwards against the sales to get to 60/40.
Not to quibble, but I think when you TLH to reduce your equities, you are just "selling low". The magic of TLH is to harvest losses and purchase a similar asset. At least that's is how I do it. It's more common to "sell equities high" and buy bonds to get equity allocation lower. :confused
I did not TLH to reduce equities last year. I was doing it to gain tax loss carry forwards in preparation for rebalancing since I knew I would incur capital gains when I changed my allocations later.
I see, so you sold the equities at a loss, and at the same time purchased similar equities (but not "substantially identical" ones). At this point you had booked some losses on paper for tax-loss purposes, and you had reduced the cost basis on the exchanged lots. When the time came to change asset allocation, you did it by selling equities that had presumably recovered from the dip by that point.

How much had they recovered though? If the loss was $X per share and the recovery was $Y per share, your cost basis would have meant that you'd have gains of $Y per share with taxes due, offsetable by the loss of $X per share. I wonder how the math worked out. Did it mostly end up canceling out?

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Re: Rebalancing - Personal Philosophies

Post by John151 » Thu Oct 12, 2017 3:25 pm

I rebalanced all through the 1990’s and during the first decade of the 2000’s. But now my stock allocation is about five percentage points above my target, and I’ve decided not to rebalance. The reason: all of my stocks are in taxable accounts, and rebalancing by selling shares would trigger significant capital gains taxes. So I’ve decided to leave my stocks alone. I won’t sell shares, and I won’t buy shares either. New money is going into cash and bonds.

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Re: Rebalancing - Personal Philosophies

Post by goingup » Thu Oct 12, 2017 6:55 pm

Doc wrote:
Thu Oct 12, 2017 10:56 am
goingup wrote:
Thu Oct 12, 2017 8:55 am
Not to quibble, but I think when you TLH to reduce your equities, you are just "selling low". The magic of TLH is to harvest losses and purchase a similar asset. At least that's is how I do it. It's more common to "sell equities high" and buy bonds to get equity allocation lower.
I'm missing something here. TLH and rebalancing are two different things. If the market declines to such a level that TLH harvesting makes sense one would harvest the loss but at the same time buy enough of a similar but not substantially identical investment to replace the assets sold plus enough to rebalance back to your target based on "hitting your bands".

As an example I would sell say S&P 500 and buy short Treasuries in taxable and buy a Russell 1000 and sell enough bonds in tax advantaged to pay for the purchase plus rebalancing needs. In thirty days I would reverse the trades as needed to get my FI/Equities in the rigth account for tax efficiency purposes.
That makes sense. TLH and rebalancing at the same time would be an advanced dive off the high board for me. :D

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Re: Rebalancing - Personal Philosophies

Post by RadAudit » Thu Oct 12, 2017 7:11 pm

Just to add a wrinkle. I am retired and living off the portfolio. I recently finished McClung's Living Off Your Money. I'm thinking of using one of the approaches - Alt Prime Harvesting (?) - he discusses for withdrawals and rebalancing. viewtopic.php?t=192105 Theoretically, it'll help in withdrawing more as well as rebalancing.
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Re: Rebalancing - Personal Philosophies

Post by Fundhunter » Thu Oct 12, 2017 7:13 pm

45% fixed income (mostly short term, some intermediate, only long is small TIPS position- I avoid interest rate risk). 55% equity mutual funds (25% of which is international). I am newly retired and will begin withdrawals in November (from ONLY fixed income portion of portfolio, in a manner to keep my plan's %'s roughly in line within FI). Rebalance every 4 years in January at the end of each presidential term. That is a higher % of equities than a lot of retirees have, but I think I have a higher than normal risk tolerance, based on my experience in recent bear markets, when I slept just fine, mostly because of my strong belief that these bear markets will recover, and I will not be taking any withdrawals from equities. Equities will only be sold if required to rebalance, which is likely to be the case most of the time.

I am also taking Social Security now.

I evolved to this plan after a lot of research from a lot of different sources. Maybe not for everybody, but I am comfortable with it.

3funder
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Re: Rebalancing - Personal Philosophies

Post by 3funder » Sun Oct 15, 2017 10:05 pm

I don't do it often. If my AA is off by 5%, I'll bring it back in line. Anything less than that doesn't merit tinkering.

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Re: Rebalancing - Personal Philosophies

Post by Sandtrap » Sun Oct 15, 2017 10:34 pm

John151 wrote:
Thu Oct 12, 2017 3:25 pm
I rebalanced all through the 1990’s and during the first decade of the 2000’s. But now my stock allocation is about five percentage points above my target, and I’ve decided not to rebalance. The reason: all of my stocks are in taxable accounts, and rebalancing by selling shares would trigger significant capital gains taxes. So I’ve decided to leave my stocks alone. I won’t sell shares, and I won’t buy shares either. New money is going into cash and bonds.
+1
At least for now, I don't sell anything but instead new money goes into whatever needs to be brought up to get back to target allocation. I strongly resist tinkering.
Not a financial expert - just a retired businessman hacking out of a sand trap -- again.

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Re: Rebalancing - Personal Philosophies

Post by Fundhunter » Sun Oct 15, 2017 11:51 pm

Sandtrap wrote:
Sun Oct 15, 2017 10:34 pm
John151 wrote:
Thu Oct 12, 2017 3:25 pm
I rebalanced all through the 1990’s and during the first decade of the 2000’s. But now my stock allocation is about five percentage points above my target, and I’ve decided not to rebalance. The reason: all of my stocks are in taxable accounts, and rebalancing by selling shares would trigger significant capital gains taxes. So I’ve decided to leave my stocks alone. I won’t sell shares, and I won’t buy shares either. New money is going into cash and bonds.
+1
At least for now, I don't sell anything but instead new money goes into whatever needs to be brought up to get back to target allocation. I strongly resist tinkering.
If your percentages are out of whack you can adjust them inside your tax deferred accounts to balance them without selling and incurring capital gains. If you are too strong in equities, you can sell some inside your IRA without touching your taxable. We are newly retired and I do sort of a reverse of this in my wife's taxable which she got from an inheritance. She is deferring Social Security now and is selling from her taxable account (equities) for living expenses (the long term capital gains tax is negligible in our present bracket and worth deferring Social Security), but to balance it out, we sell an equivalent amount inside her IRA and keep the balance where we want it.

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Re: Rebalancing - Personal Philosophies

Post by JustinR » Mon Oct 16, 2017 5:41 am

I rebalance with new money.

So everytime I invest, which can vary from weeks to months apart. Otherwise I'd do it once a year.

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House Blend
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Re: Rebalancing - Personal Philosophies

Post by House Blend » Mon Oct 16, 2017 9:22 am

Fundhunter wrote:
Sun Oct 15, 2017 11:51 pm
Sandtrap wrote:
Sun Oct 15, 2017 10:34 pm
John151 wrote:
Thu Oct 12, 2017 3:25 pm
I rebalanced all through the 1990’s and during the first decade of the 2000’s. But now my stock allocation is about five percentage points above my target, and I’ve decided not to rebalance. The reason: all of my stocks are in taxable accounts, and rebalancing by selling shares would trigger significant capital gains taxes. So I’ve decided to leave my stocks alone. I won’t sell shares, and I won’t buy shares either. New money is going into cash and bonds.
+1
At least for now, I don't sell anything but instead new money goes into whatever needs to be brought up to get back to target allocation. I strongly resist tinkering.
If your percentages are out of whack you can adjust them inside your tax deferred accounts to balance them without selling and incurring capital gains. If you are too strong in equities, you can sell some inside your IRA without touching your taxable.
This doesn't work for everyone.

For my 84 year old mother, 100% of tax deferred accounts are already in fixed income. Her equity allocation is 100% in taxable.

I set an equity target of 30% and the IPS I put in place calls for rebalancing whenever below 25% or above 35%. The portfolio is now at 35.8% equity.

However, her highest cost shares of equity are about 50% of current prices. And she lives in a high tax state. Shifting 1% of the portfolio from equity to fixed income would cost ~$1000 in extra taxes.

And her portfolio drawdown rate is very small. Basically just dividends from taxable. (Maybe a bit more, supported by a small fraction of her RMDs.) A market crash would have zero effect on her financial well being.

So I overrode the IPS. At this point, spending $1000 on taxes just to stay within the bands is too costly to be worth it. If a deep enough crash occurs, we'll resume buying equity with the excess RMDs, and rebalance from fixed income to equity if the lower limit is breached.

If your spending rate is low enough and time horizon short enough, asset allocation doesn't matter much.

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Re: Rebalancing - Personal Philosophies

Post by Sbashore » Mon Oct 16, 2017 1:16 pm

My personal philosophy fits my personal situation. I've been retired for about 12 years. I rebalance according to bands, but have an absolute dollar threshold for selling equities. That way I keep a tight reign on my chosen equity risk exposure.
Steve | Semper Fi

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