When is a good time to rebalance?

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jessikaur
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When is a good time to rebalance?

Post by jessikaur » Wed Nov 08, 2017 4:10 pm

My portfolio is out of wack...
I'm 65% domestic stocks
20% foreign stocks
and 5% Reits right now..


When should I rebalance? since VTI is doing so well, does it make sense to rebalance now, like sell when high, and buy something else that is low like Reits?
(I would do these all in my tax advantaged accounts like ROths and 401K)

should I sell some domestic to bring up foreign...? or should i just start adding to foreign like next year during roth and 401k.. i typically like to keep foreign in taxable..

should I even bother with reits? i like it because it adds diversification...

thanks in advance!

sport
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Re: When is a good time to rebalance?

Post by sport » Wed Nov 08, 2017 4:14 pm

I rebalance whenever my AA is off by more than my allowed amount. Usually, the allocation to stocks has grown too high, so the risk level of my holdings is therefore too high. In this case, rebalancing reduces the risk level back to where I want it to be.

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flamesabers
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Re: When is a good time to rebalance?

Post by flamesabers » Wed Nov 08, 2017 4:18 pm

With rebalancing I prefer the approach of buying more of what I'm low on and buying less of what I have a surplus of. By using this approach there is no temptation to engage in market timing.

As far as reits and other sector funds go, I don't think they're a necessity when you're already holding a total stock market fund.

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Toons
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Re: When is a good time to rebalance?

Post by Toons » Wed Nov 08, 2017 4:36 pm

If you want to rebalance,
Some do
Some don't.
Do so when your asset allocation dictates it,
Irregardless of market levels. :happy
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gasdoc
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Re: When is a good time to rebalance?

Post by gasdoc » Wed Nov 08, 2017 4:38 pm

I have essentially a 4 fund portfolio (US stocks and bonds and international stocks and bonds). I rebalance whenever my asset allocation is off by more than 5%. I do not do any investing in REITs or other specialized stocks or funds. I understand these other investments, but prefer to follow Vanguard's example in order to eliminate personal fears and wishes for big gains by making these other choices. It works for me- slow and boring.

gasdoc

delamer
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Re: When is a good time to rebalance?

Post by delamer » Wed Nov 08, 2017 4:46 pm

What is your target allocation?

You are on the right track -- sell those assets that have become a bigger portion of your portfolio because their prices have increased (sell high) and buy those assets that have declined in price or have not increased as much (buy low).

bloom2708
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Re: When is a good time to rebalance?

Post by bloom2708 » Wed Nov 08, 2017 4:48 pm

One popular option is to re-balance on your birthday. Why that day? No significance other than it comes up once a year and you remember it. Set bands, say 3-5% to be your re-balance threshold.

OP, also, your statement about REITs adding diversity can be discussed.

Total US Stock index contains REIT at the market cap. By buying 5% more, you are tilting to "more REIT".

The best thing I like about this site is (if you stay here long enough) it forces you to research and come to terms with all your previous information and biases.

If you start with the 3 fund portfolio (Total US stocks, Total International stocks, Total US Bond) and understand why it is diversified, then you can start to see where adding "more" is not really more diversified. Adding more small cap, more REIT, more whatever. Sometimes more isn't more.

It does take some time to absorb it all. You are asking good questions and your questions will lead you to good answers. As you go along, you may find that you are heading toward a 3 fund style portfolio. Certain 401ks may not support a perfect 3 fund, but you can typically approximate it or go with a target fund that matches your desired asset allocation.
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Re: When is a good time to rebalance?

Post by MotoTrojan » Wed Nov 08, 2017 4:50 pm

jessikaur wrote:
Wed Nov 08, 2017 4:10 pm
My portfolio is out of wack...
I'm 65% domestic stocks
20% foreign stocks
and 5% Reits right now..


When should I rebalance? since VTI is doing so well, does it make sense to rebalance now, like sell when high, and buy something else that is low like Reits?
(I would do these all in my tax advantaged accounts like ROths and 401K)

should I sell some domestic to bring up foreign...? or should i just start adding to foreign like next year during roth and 401k.. i typically like to keep foreign in taxable..

should I even bother with reits? i like it because it adds diversification...

thanks in advance!
This is quite wacky, considering there is a 10% portion of your portfolio that is hiding. That issue aside, this allocation actually seems fine to me, so it must be wacky compared to your goal (which we don't know). I do think 5% is a bit low for REITs, or any asset class, as it won't really be worth the trouble/complexity. I'd drop or double to 10%, if you feel strong about them. Def keep them in tax-advantaged!!!

Easy Rhino
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Re: When is a good time to rebalance?

Post by Easy Rhino » Wed Nov 08, 2017 5:06 pm

I rebalance when my allocations are outside of their bands that I've defined (+-2 percent for small positions, +-5 percent for big ones, i think).

However, as for when I remember to check, I usually do it when ever I'm making an investment decision I need to think about, or if the hubbub in the news is getting too loud (if the janitor can't stop talking about stop picks, I'll wonder if maybe my stocks have become overvalued).

J295
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Re: When is a good time to rebalance?

Post by J295 » Wed Nov 08, 2017 9:39 pm

You would benefit from an IPS that sets forth re-balance metrics.

FWIW ... we review balances quarterly and adjust back to allocations if there is a 5% or greater differential (very rare for us); and then re-balance to our IPS allocation annually regardless of differential (since it is age based allocation).

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Re: When is a good time to rebalance?

Post by LadyGeek » Wed Nov 08, 2017 10:37 pm

This thread is now in the Investing - Theory, News & General forum (general question).
J295 wrote:
Wed Nov 08, 2017 9:39 pm
You would benefit from an IPS that sets forth re-balance metrics.
The wiki has some background info: Investment policy statement

And: Rebalancing

Make a plan and document when you will rebalance your portfolio. It doesn't have to be a time of year, it could be based on a threshold ("Different rebalancing approaches" in the wiki article).
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ThePrince
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Re: When is a good time to rebalance?

Post by ThePrince » Wed Nov 08, 2017 11:14 pm

When Betterment does it for me.

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Johnnie
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Re: When is a good time to rebalance?

Post by Johnnie » Wed Nov 08, 2017 11:36 pm

I'm a Merriman-head. He does it annually at the same time of year, and suggests that more often is contra-indicated for momentum reasons.

Here's what I like about that: It's a hard and fast rule, which takes away any hint of market-timing, and conforms with my signature line below. I know there are other hard and fast rules one could adopt, but some (like bands) seem to circle-back to that momentum thing.

I'm intrigued enough by Nisiprius's posts on this to have abandoned the "buy low sell high" rationale: if he's wrong that would be a bonus, and if he's right then I'm good with rebalancing for the simple and basic purpose of maintaining my chosen SWAN A/A.
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digarei
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Re: When is a good time to rebalance?

Post by digarei » Thu Nov 09, 2017 1:58 am


Recommended reading – Vanguard research published 2015

They back tested many different approaches to rebalancing and determined that:


  • • Periodic Rebalancing was helpful in controlling portfolio risk

    • In some cases, rebalancing improved returns.

    • Rebalancing to 5% bands was a reasonably good approach

    • Don't rebalance too often: once or twice a year is fine, or once every two years

Vanguard wrote:
[W]e conclude that for most broadly diversified stock and bond fund portfolios (assuming reasonable expectations regarding return patterns, average returns, and risk), annual or semiannual monitoring, with rebalancing at 5% thresholds, is likely to produce a reasonable balance between risk control and cost minimization for most investors. Annual rebalancing is likely to be preferred when taxes or substantial time/costs are involved.
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snowox
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Re: When is a good time to rebalance?

Post by snowox » Thu Nov 09, 2017 6:03 am

I too follow Vanguards ^ thesis in re balancing but I too am pretty diversified.

MikeG62
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Re: When is a good time to rebalance?

Post by MikeG62 » Thu Nov 09, 2017 8:53 am

Some good food for thought here...

https://www.kitces.com/blog/best-opport ... hresholds/

FWIW, I am using tolerance bands.
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TheHouse7
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Re: When is a good time to rebalance?

Post by TheHouse7 » Thu Nov 09, 2017 9:35 am

November :sharebeer
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ImUrHuckleberry
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Re: When is a good time to rebalance?

Post by ImUrHuckleberry » Thu Nov 09, 2017 12:49 pm

For the most part I keep our regular 401K contributions invested steady at the chosen allocation. I make the contributions into our Roth's in cash and once there is a $1 to $2k balance in cash I purchase whatever we're low on. This works fine with our relatively low current balances, but may not work once you have a large balance.

HRPennypacker
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Re: When is a good time to rebalance?

Post by HRPennypacker » Thu Nov 09, 2017 12:56 pm

I follow the 5% guidance above. I hate the rigmarole of having to do it, though.

URSnshn
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Re: When is a good time to rebalance?

Post by URSnshn » Thu Nov 09, 2017 1:01 pm

OP, I think it can be helpful to have an IPS for things like this. If you don't have one now may be the time to create one.

One idea: choose any day of the year, if on that day your AA is out of balance beyond your band percentage: rebalance. If not re-look next year.

BashDash
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Re: When is a good time to rebalance?

Post by BashDash » Thu Nov 09, 2017 1:06 pm

I have my 403b set to auto-rebalance me quarterly. Is this too much? I am trying to mimick the amazingly, simple and boring Vanguard Balanced Index fund allocation but I also through in a international in the 60/40.

remomnyc
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Re: When is a good time to rebalance?

Post by remomnyc » Thu Nov 09, 2017 3:24 pm

My IPS says at 6% shift, rebalance.

sport
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Re: When is a good time to rebalance?

Post by sport » Thu Nov 09, 2017 3:30 pm

Another interesting question is the size of the rebalance transaction: For those with rebalancing bands, do you rebalance enough to get inside the band, or do you rebalance all the way to your target AA?

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digarei
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Re: When is a good time to rebalance?

Post by digarei » Thu Nov 09, 2017 6:16 pm

BashDash wrote:
Thu Nov 09, 2017 1:06 pm
I have my 403b set to auto-rebalance me quarterly. Is this too much? I am trying to mimick the amazingly, simple and boring Vanguard Balanced Index fund allocation but I also through in a international in the 60/40.
I don’t believe quarterly rebalancing is too much. Vanguard didn’t find much difference between portfolios that were rebalanced every quarter or just once a year.

The auto-balance feature is quite convenient—I don’t use it however because my portfolio is spread among multiple accounts and I prefer to rebalance all at once using a spreadsheet and then performing any needed exchanges within tax sheltered accounts.
sport wrote:
Thu Nov 09, 2017 3:30 pm
Another interesting question is the size of the rebalance transaction: For those with rebalancing bands, do you rebalance enough to get inside the band, or do you rebalance all the way to your target AA?
In years past, I rebalanced all the way—to the penny, once or twice per year. This is more difficult now for several reasons:

My IPS specifies rebalancing bands of variable size for different assets (larger allocations warrant wider bands) along with other criteria. Certain asset classes may remain out of band for months at a time (slice and dice portfolio). And a larger portfolio has made rebalancing without selling taxable funds more challenging.

One member of our chapter employs a straightforward rebalancing plan: once a year, they rebalance half-way to their target. I like this approach because it provides a way to allow for some momentum and probably reduces the number of rebalancing events in the long term.
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WhiteMaxima
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Re: When is a good time to rebalance?

Post by WhiteMaxima » Thu Nov 09, 2017 6:22 pm

If your asset is off by x%. Assume it's your employer account, then trading is limited. So save your rebalance opportunity when market shifted a lot. for aft-tax account, I won't even consider rebalance too much because of cap gain tax.

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Re: When is a good time to rebalance?

Post by Earl Lemongrab » Fri Nov 10, 2017 12:08 pm

I too use the ranges for rebalance indications. I have found that through the use of new funds, I haven't needed to sell/buy to keep the allocations inline. Each month I run the numbers to see which allocations are lagging, and that determines where the new money should go.
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rbaldini
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Re: When is a good time to rebalance?

Post by rbaldini » Fri Nov 10, 2017 12:19 pm

When do gymnasts on a balance beam rebalance?

When they're off balance.

Pick a range and rebalance when you're outside of it.

sambb
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Re: When is a good time to rebalance?

Post by sambb » Fri Nov 10, 2017 12:20 pm

also rebalance if risk tolerance changes - you will have to, because your allocations will not match up.

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Re: When is a good time to rebalance?

Post by midareff » Fri Nov 10, 2017 3:27 pm

sport wrote:
Wed Nov 08, 2017 4:14 pm
I rebalance whenever my AA is off by more than my allowed amount. Usually, the allocation to stocks has grown too high, so the risk level of my holdings is therefore too high. In this case, rebalancing reduces the risk level back to where I want it to be.
Same here.

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Re: When is a good time to rebalance?

Post by livesoft » Fri Nov 10, 2017 3:35 pm

I try to rebalance into equities on the lowest day of the year for equities and rebalance into bonds on the lowest day of the year for bonds.
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H-Town
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Re: When is a good time to rebalance?

Post by H-Town » Fri Nov 10, 2017 4:23 pm

jessikaur wrote:
Wed Nov 08, 2017 4:10 pm
My portfolio is out of wack...
I'm 65% domestic stocks
20% foreign stocks
and 5% Reits right now..


When should I rebalance? since VTI is doing so well, does it make sense to rebalance now, like sell when high, and buy something else that is low like Reits?
(I would do these all in my tax advantaged accounts like ROths and 401K)

should I sell some domestic to bring up foreign...? or should i just start adding to foreign like next year during roth and 401k.. i typically like to keep foreign in taxable..

should I even bother with reits? i like it because it adds diversification...

thanks in advance!
Do you have new money going in? Or do you stop contributing?

Most of the time, I rebalance when I contribute new money. I just put all new money to the funds that are losing. Eventually it'll get to my desire allocation. The last resort is to sell one fund and buy another. Maybe it's just my preference. I sell funds when I do tax loss harvesting. It's been a long time since the last time I do tax loss harvesting.

You can also rebalance during withdrawal period, just sell the winning stocks.

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