Rebalancing Frequency? Daily vs annually?

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texasdiver
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Rebalancing Frequency? Daily vs annually?

Post by texasdiver » Sat Sep 01, 2018 10:56 am

I'm wondering if anyone is aware of any quantitative studies that look into the question of rebalancing frequency and whether or not there is any possible advantage to frequent (daily) rebalancing.

We are at the point where my wife has a mid 6-figure rollover IRA with Vanguard that is currently invested in a single target retirement fund. We can reduce her fees by a couple hundred dollars by breaking it up into admiral shares of the underlying funds and then doing annual reblancing. But I'm wondering if we are gaining any slight advantage in the other direction by leaving it in a target retirement fund that gets rebalanced daily instead of annually. And if it is really worth the bother.

I have found a lot of material online about determining the optimal rebalancing frequency and using tools such as rebalancing bands. But nothing to compare daily rebalancing (as is done by target funds) to annual rebalancing as is done by most DIY investors.

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Re: Rebalancing Frequency? Daily vs annually?

Post by livesoft » Sat Sep 01, 2018 11:08 am

In my opinion, there are no studies of rebalancing that will give one any definitive answer.

Indeed, the search for a "Rebalancing Bonus" is harder than the search for the Higgs Boson and will have just as much benefit to mankind. Namely, none.

The problem is that the level of noise and randomness in returns overwhelms the signal. So even if there was a statistically significant rebalancing effect, it would not apply to any one investor nor their portfolio.

Another way of saying this: If one misses one single nice day to rebalance, then that will mess up any performance measurements for years.

All that written, I think one should try to do rebalancing if they enjoy working with their investments. It would be almost impossible to tell if rebalancing hurt one or helped one. And probably no one would believe you if you came up with a good method anyways.
Last edited by livesoft on Sat Sep 01, 2018 11:11 am, edited 1 time in total.
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Re: Rebalancing Frequency? Daily vs annually?

Post by vineviz » Sat Sep 01, 2018 11:10 am

The research I’ve read, which I don’t have handy, suggests the optimal rebalancing interval is somewhere between 1 and 5 years.

Rebalancing more often than annually offers no significant economic benefits, but if transaction fees are zero there isn’t much harm either.
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Re: Rebalancing Frequency? Daily vs annually?

Post by marcopolo » Sat Sep 01, 2018 11:15 am

Rebalancing frequency does not really change risk-adjusted returns.
What it can do is help you maintain a consistent risk profile.

Vanguard suggest using a combination of thresholds and annual (or semi-annual) rebalancing.
See here: https://www.vanguard.com/pdf/icrpr.pdf
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Re: Rebalancing Frequency? Daily vs annually?

Post by jeffyscott » Sat Sep 01, 2018 11:22 am

I think, perhaps, behavioral studies might be more important, if any exist?

I know it was very difficult to actually execute a rebalancing strategy in 2008-09. With target retirement fund this is taken out of your hands, so you know it will actually be implemented. So assuming you definitely want to rebalance without limit under all circumstances, this will definitely happen by using the target retirement fund.
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Re: Rebalancing Frequency? Daily vs annually?

Post by vineviz » Sat Sep 01, 2018 11:27 am

jeffyscott wrote:
Sat Sep 01, 2018 11:22 am
I think, perhaps, behavioral studies might be more important, if any exist?

I know it was very difficult to actually execute a rebalancing strategy in 2008-09. With target retirement fund this is taken out of your hands, so you know it will actually be implemented. So assuming you definitely want to rebalance without limit under all circumstances, this will definitely happen by using the target retirement fund.
I agree.
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Re: Rebalancing Frequency? Daily vs annually?

Post by ThePrince » Sat Sep 01, 2018 11:36 am

jeffyscott wrote:
Sat Sep 01, 2018 11:22 am
I think, perhaps, behavioral studies might be more important, if any exist?

I know it was very difficult to actually execute a rebalancing strategy in 2008-09. With target retirement fund this is taken out of your hands, so you know it will actually be implemented. So assuming you definitely want to rebalance without limit under all circumstances, this will definitely happen by using the target retirement fund.
One of the chief reasons I use Betterment and Blooom—often times, we’re our own worst enemies.

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Re: Rebalancing Frequency? Daily vs annually?

Post by texasdiver » Sat Sep 01, 2018 2:10 pm

livesoft wrote:
Sat Sep 01, 2018 11:08 am
In my opinion, there are no studies of rebalancing that will give one any definitive answer.

Indeed, the search for a "Rebalancing Bonus" is harder than the search for the Higgs Boson and will have just as much benefit to mankind. Namely, none.

The problem is that the level of noise and randomness in returns overwhelms the signal. So even if there was a statistically significant rebalancing effect, it would not apply to any one investor nor their portfolio.

Another way of saying this: If one misses one single nice day to rebalance, then that will mess up any performance measurements for years.

All that written, I think one should try to do rebalancing if they enjoy working with their investments. It would be almost impossible to tell if rebalancing hurt one or helped one. And probably no one would believe you if you came up with a good method anyways.
I suppose it would be easy enough to do something like take a 10-20 year period and compare the performance of a fixed allocation life strategy balanced fund that has daily rebalancing to the aggregate performance of the underlying funds with some sort of fixed annual rebalancing rule where rebalancing occurs on the first business day of the year or some such. It would be more complicated to do with most target date fund that have built-in glide paths that change over time. But as you say, each individual investor is going to follow different rules and for those of us in the allocations stage, all new monthly deposits are going to complicate the analysis as well.

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Re: Rebalancing Frequency? Daily vs annually?

Post by livesoft » Sat Sep 01, 2018 2:17 pm

texasdiver wrote:
Sat Sep 01, 2018 2:10 pm
I suppose it would be easy enough to do something like take a 10-20 year period and compare the performance of a fixed allocation life strategy balanced fund that has daily rebalancing to the aggregate performance of the underlying funds with some sort of fixed annual rebalancing rule where rebalancing occurs on the first business day of the year or some such. It would be more complicated to do with most target date fund that have built-in glide paths that change over time. But as you say, each individual investor is going to follow different rules and for those of us in the allocations stage, all new monthly deposits are going to complicate the analysis as well.
Sure, it would be easy to do a fixed annual rebalancing rule and even to do it for all possible trading days of the year. If you think about that though, most days should be terrible days to do rebalancing. There could even be some artifacts created because of what happened in March 2000 and March 2009.

But one could see the performance of the approximately 250 different days, compute the average, and see the spread. I would guess that the standard deviation of the average was higher than the expected rebalancing bonus. That is, if one rebalanced annually, there would be no way to pick the expected best day of the year and it would be changing every year anyways.
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Re: Rebalancing Frequency? Daily vs annually?

Post by nisiprius » Sat Sep 01, 2018 2:42 pm

William J. Bernstein wrote:Is there any reason to believe that, on average, rebalancing will help more than it hurts? Not if we believe that market movements are random. After all, we rebalance with the hope that an asset with past higher/lower than average returns will have future lower/higher than average returns.

Is this actually true? Probably. Recall that over short periods of time asset classes display momentum, but that over periods of time over a year or longer tend to mean-revert....

Rebalance your portfolio approximately once every few years; more than once per year is probably too often. In taxable portfolios, do so even less frequently.
I'm going to state some things that I think are true without trying to defend them, as the subject is always controversial.

1) There is only a rebalancing bonus if the things you are rebalancing show mean reversion that takes place over about the same time scale as your rebalancing interval. If your rebalancing interval resonates with mean reversion, there is a bonus. If it resonates with momentum, rebalancing causes harm. There is neither momentum nor mean reversion over very short periods of time, therefore daily rebalancing neither helps nor hurts. In theory, then, it should be inferior to a rebalancing interval that is on the same time scale as mean reversion.

2) Many people think that there must be a rebalancing bonus even without mean reversion--that it simply transforms volatility into added return by "buying low, selling high." I think they're wrong. They think I'm wrong.

3) Every rebalancing rule will "fire" at various times. (The simplest one "fires" every December 31st, for example). Whether rebalancing increases or decreases return depends on the exact details of the particular short-term fluctuations that are happening at the time when the rule fires.

4) People often fantasize that if you rebalanced, say, during 2008-2009, you would have gotten a huge bonus. This is because they unconsciously believe that any reasonable rebalancing rule is going to fire reasonably close to the bottom.

This isn't so. If the rule calls for rebalancing infrequently, it might fire only once but and it might be on a "false alarm" that's nowhere near the bottom. Or you may look at the chart and say "Gee, it ought to have fired there" and see that the particular dip fell just a tiny bit short of what was required for the firing rule.

More frequent rebalancing rules will fire many times going down and many times going up. That creates losses all the way down, throwing good money after bad, and gains all the way up. You can't even tell whether the gains are going to exceed the losses until you pair up each loss with a gain. So you're not looking at one big killing from buying near the bottom, you're looking at a flock of smaller losses that may or may not offset a flock of smaller gains.

5) There are huge 20/20 hindsight issues with trying to evaluate rebalancing strategies. It's too easy to fiddle with a rule until you get done that would have fire near the bottom in 2008-2009. Of course maybe when you adjust it so that it does, then it doesn't fire in 2011. So maybe you adjust it some more....
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Re: Rebalancing Frequency? Daily vs annually?

Post by MJW » Sat Sep 01, 2018 2:56 pm

It seems pretty obvious that you are not always going to be "buying low" when rebalancing. I may play around with Portfolio Visualizer later, but it seems like several things have to go "right" in order to achieve a rebalancing bonus often enough and to a large enough degree that it will matter over a long period of time. Ten, twenty, thirty years?

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Re: Rebalancing Frequency? Daily vs annually?

Post by livesoft » Sat Sep 01, 2018 3:12 pm

MJW wrote:
Sat Sep 01, 2018 2:56 pm
It seems pretty obvious that you are not always going to be "buying low" when rebalancing. I may play around with Portfolio Visualizer later, but it seems like several things have to go "right" in order to achieve a rebalancing bonus often enough and to a large enough degree that it will matter over a long period of time. Ten, twenty, thirty years?
A pet peeve of mine is that Portfolio Visualizer only uses month-end data and not intra-month data when doing such backtesting. Therefore, I consider PV practically useless for such an analysis.
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Re: Rebalancing Frequency? Daily vs annually?

Post by MJW » Sat Sep 01, 2018 3:14 pm

livesoft wrote:
Sat Sep 01, 2018 3:12 pm
MJW wrote:
Sat Sep 01, 2018 2:56 pm
It seems pretty obvious that you are not always going to be "buying low" when rebalancing. I may play around with Portfolio Visualizer later, but it seems like several things have to go "right" in order to achieve a rebalancing bonus often enough and to a large enough degree that it will matter over a long period of time. Ten, twenty, thirty years?
A pet peeve of mine is that Portfolio Visualizer only uses month-end data and not intra-month data when doing such backtesting. Therefore, I consider PV practically useless for such an analysis.
Well I guess you saved me some time, then.

Any more relevant looking at long periods of time?

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Re: Rebalancing Frequency? Daily vs annually?

Post by livesoft » Sat Sep 01, 2018 3:17 pm

nisiprius wrote:
Sat Sep 01, 2018 2:42 pm
5) There are huge 20/20 hindsight issues with trying to evaluate rebalancing strategies. It's too easy to fiddle with a rule until you get done that would have fire near the bottom in 2008-2009. Of course maybe when you adjust it so that it does, then it doesn't fire in 2011. So maybe you adjust it some more....
This is true, but can be partly circumvented by doing cross-validation and out-of-sample testing.

And one could even test a random rebalancing trigger strategy. For instance, roll a fair die. A 1 means rebalance once on your birthday. A 2 means rebalancing twice, on your birthday and 6 months later. A 3 means don't rebalance in that year. A 4 means rebalance once, but on a random day picked by a random number generator. A 5 means rebalance twice in that year, but on two randomly selected days. A 6 means consult livesoft on the days to rebalance that year.
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Re: Rebalancing Frequency? Daily vs annually?

Post by Jeff Albertson » Sat Sep 01, 2018 3:29 pm

From Bernstein's "Case Studies in Rebalancing" (January 2000)
Monthly rebalancing is too frequent.
There are small rewards to increasing one's rebalancing frequency from quarterly up to several years, but this comes at the price of increased portfolio risk.
You makes your choice and you takes your chances, but don't sweat this one too much. The returns differences among various rebalancing strategies are quite small in the long run.
http://www.efficientfrontier.com/ef/100/rebal100.htm
or
http://www.efficientfrontier.com/ef/100.pdf

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Re: Rebalancing Frequency? Daily vs annually?

Post by H-Town » Sat Sep 01, 2018 3:56 pm

texasdiver wrote:
Sat Sep 01, 2018 10:56 am
I'm wondering if anyone is aware of any quantitative studies that look into the question of rebalancing frequency and whether or not there is any possible advantage to frequent (daily) rebalancing.

We are at the point where my wife has a mid 6-figure rollover IRA with Vanguard that is currently invested in a single target retirement fund. We can reduce her fees by a couple hundred dollars by breaking it up into admiral shares of the underlying funds and then doing annual reblancing. But I'm wondering if we are gaining any slight advantage in the other direction by leaving it in a target retirement fund that gets rebalanced daily instead of annually. And if it is really worth the bother.

I have found a lot of material online about determining the optimal rebalancing frequency and using tools such as rebalancing bands. But nothing to compare daily rebalancing (as is done by target funds) to annual rebalancing as is done by most DIY investors.
I'd pick one interval (quarterly, semi-annual, annual) and stick with it. I'd recommend do it annually.

Other than from an extremely obvious identifying event such as 30-50% market crash (rebalancing bonds to stock), tinkering with rebalancing based on your feel of current market is a crapshoot. It might make you feel better that you do something but it doesn't mean that you'll get the higher return as a result of rebalancing.

I would avoid doing it frequently (daily or weekly) as you can't ignore the cost of each transaction. Even if it's in your tax-deferred accounts, somebody gonna have to do recordkeeping and other administrative stuff.

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Re: Rebalancing Frequency? Daily vs annually?

Post by afan » Sat Sep 01, 2018 4:10 pm

There have been plenty of studies of rebalancing frequency. I don't recall seeing any that suggested rebalancing more often than once per year had any benefit.
During accumulation, you can direct new investment to the asset that is currently low compared to your desired allocation. This avoids taxes and transaction costs of selling to rebalance.

Recognize that your target asset allocation itself is at gest an educated guess. It would be absurd to claim that being 5 percent off clearly represented a problem that required adjustment. How do you know that the allocation you chose is not 5% off the ideal to begin with? Or much more? Rebalancing to stay in a +/- 10% range should be plenty.
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Re: Rebalancing Frequency? Daily vs annually?

Post by TD2626 » Sat Sep 01, 2018 4:12 pm

Maybe doing a combination of some of the re-balancing approaches discussed here: https://www.bogleheads.org/wiki/Rebalancing could work. For example, doing it at a minimum annually; and also using regular contributions/withdrawals to move closer to the desired allocation, and also rebalancing if the allocation is more than X% off the desired could work. (X would presumably be around 5% or something like that).

The benefit of rebalancing daily is probably not very large, if there even is one. This, however, assumes a perfectly rational investor that displays no behavioral problems. If a system is rebalancing daily with no direct investor involvement, this may make it psychologically easier to rebalance during a crash.

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Re: Rebalancing Frequency? Daily vs annually?

Post by Phineas J. Whoopee » Sat Sep 01, 2018 4:15 pm

Hi texasdiver.

What do you hope to accomplish by rebalancing? That's the key input to the question of under what circumstances to do it.

PJW

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Re: Rebalancing Frequency? Daily vs annually?

Post by Rick Ferri » Sat Sep 01, 2018 4:44 pm

I’ve studied rebalancing intervals on a number of occasions. In general, annual works fine, every two years works fine, so does every five years.

You could also use percentages. If your stock allocation becomes 5% greater than your target, rebalancing works fine. If you use 10%, it works fine also.

So, here is the bottom line, just pick one and do it. Don’t agonize over implementing the perfect rebalancing strategy. It can only be known in retrospect.

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Re: Rebalancing Frequency? Daily vs annually?

Post by texasdiver » Sat Sep 01, 2018 4:49 pm

Phineas J. Whoopee wrote:
Sat Sep 01, 2018 4:15 pm
Hi texasdiver.

What do you hope to accomplish by rebalancing? That's the key input to the question of under what circumstances to do it.

PJW
The purpose is to maintain my chosen asset allocation and risk level over time (equities vs fixed and foreign vs domestic). I don't have any particular band or trigger to follow. I would most likely just do it annually

The question arises in my mind as I contemplate slightly reducing fees by converting a mid 6-figure account from a single target retirement fund into the separate underlying funds. All things being equal, this will save a couple hundred dollars in fees annually. But, of course, all things are not equal. Other than the fee difference, the main difference between holding a target retirement fund and individual funds is the rebalancing frequency. The target funds do it daily. I would most likely do it annually if holding the individual funds.

I didn't start this thread to figure out the optimal method of manual rebalancing. I was more curious as to whether anyone has explored if there is any performance difference between balanced funds or target retirement funds that rebalance daily compared to holding the individual underlying funds and doing it at some other low frequency such as annually.

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Re: Rebalancing Frequency? Daily vs annually?

Post by Phineas J. Whoopee » Sat Sep 01, 2018 5:10 pm

texasdiver wrote:
Sat Sep 01, 2018 4:49 pm
Phineas J. Whoopee wrote:
Sat Sep 01, 2018 4:15 pm
Hi texasdiver.

What do you hope to accomplish by rebalancing? That's the key input to the question of under what circumstances to do it.

PJW
The purpose is to maintain my chosen asset allocation and risk level over time (equities vs fixed and foreign vs domestic). I don't have any particular band or trigger to follow. I would most likely just do it annually

The question arises in my mind as I contemplate slightly reducing fees by converting a mid 6-figure account from a single target retirement fund into the separate underlying funds. All things being equal, this will save a couple hundred dollars in fees annually. But, of course, all things are not equal. Other than the fee difference, the main difference between holding a target retirement fund and individual funds is the rebalancing frequency. The target funds do it daily. I would most likely do it annually if holding the individual funds.

I didn't start this thread to figure out the optimal method of manual rebalancing. I was more curious as to whether anyone has explored if there is any performance difference between balanced funds or target retirement funds that rebalance daily compared to holding the individual underlying funds and doing it at some other low frequency such as annually.
Hi texasdiver.

You seem to say two different things. The first is that you want to maintain your allocation, in which case I agree with Rick. It makes little difference.

The second is that you want to find a rebalancing schedule likely to enhance performance. That's a different matter.

Vanguard might as well rebalance daily because each day there are plenty of redemptions and new investments. They're just directing cash flows to maintain the portfolio. Posters here who adjust the mix of their retirement plan contributions every payday so as to bring the portfolio closer to the intended one are doing the same thing: using new cash flows to preserve the allocation. They aren't doing it to achieve superior returns, which is good, because there's no reason to expect doing so will.

I suggest going with the first goal, which is clearly achievable, and not with the second which can only be known in retrospect.

PJW
Last edited by Phineas J. Whoopee on Sat Sep 01, 2018 5:14 pm, edited 1 time in total.

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Re: Rebalancing Frequency? Daily vs annually?

Post by vineviz » Sat Sep 01, 2018 5:13 pm

texasdiver wrote:
Sat Sep 01, 2018 4:49 pm
The question arises in my mind as I contemplate slightly reducing fees by converting a mid 6-figure account from a single target retirement fund into the separate underlying funds. All things being equal, this will save a couple hundred dollars in fees annually. But, of course, all things are not equal. Other than the fee difference, the main difference between holding a target retirement fund and individual funds is the rebalancing frequency. The target funds do it daily. I would most likely do it annually if holding the individual funds.
Generally speaking, as long as you are rebalancing at least once every 3 or 4 years the difference in rebalancing frequency would not be statistically significant.
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Re: Rebalancing Frequency? Daily vs annually?

Post by JustinR » Sat Sep 01, 2018 6:16 pm

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

Once a year is good enough.

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Re: Rebalancing Frequency? Daily vs annually?

Post by livesoft » Sat Sep 01, 2018 6:35 pm

The simple fact that there are all kinds of recommendations for how frequent to rebalance is almost proof that rebalancing based on the calendar has no merit.
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Re: Rebalancing Frequency? Daily vs annually?

Post by randomizer » Sat Sep 01, 2018 6:40 pm

1. Rebalance with new contributions.
2. Make a lot of new contributions.
3. Profit!

Either that or do it once a year. I have rebalancing bands defined in my IPS too, but I've never hit them.
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Re: Rebalancing Frequency? Daily vs annually?

Post by Cyclesafe » Sat Sep 01, 2018 7:10 pm

When TurboTax comes out in November I can fine tune my deferred withdrawals to just avoid the next bracket (or NIIT, AMT or whatever). I withdraw to move towards my desired asset allocation, which I am satisfied with being actually +/- 10% of this value.

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Re: Rebalancing Frequency? Daily vs annually?

Post by arcticpineapplecorp. » Sat Sep 01, 2018 7:23 pm

I think I remember reading in one of Bill Bernstein's books (sorry can't remember which one) that too frequent rebalancing can hurt returns, so the recommendation was once a year (or if memory serves once every year to two years), or if a rebalancing band has been met. You should read this article on rebalancing bands:

https://thefinancebuff.com/5-percent-re ... -band.html

what's interesting (and this has been discussed on bogleheads) is that rebalancing often doesn't even need to be done annually because it usually takes a pretty big move to hit one's rebalancing band. See the article above for a detailed explanation of that.

Finally, the target date funds may or may not technically "rebalance" daily as you suggest. They have inflows and outflows that allow them to rebalance but may not be rebalancing just due to market moves. Perhaps a more technical distinction if you will, but I think it's an important one.

Finally (really), one other benefit of the target date fund you may be overlooking is not only the automatic rebalancing, but the automatic reduction of risk over time.

Both of those could be well worth the extra $100 or so you spend with the target date fund (over holding them individually). For many, they have difficulty reblancing when the need arives and reducing risk over time. You say your wife's IRA has a target date fund, but did you have other accounts with individual funds (not under an umbrella of a target date fund)? If so, and you were an investor in 2008-2009 were you selling bonds to buy stocks? Similary, with the market being up over the past several years, have you been selling stocks to buy bonds? If not, you probably want to stick with the target date fund so they do that for you, which is the thing that should be done. People have a hard time selling their winners to buy the losers.
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Re: Rebalancing Frequency? Daily vs annually?

Post by abuss368 » Sat Sep 01, 2018 8:24 pm

Rick Ferri wrote:
Sat Sep 01, 2018 4:44 pm
I’ve studied rebalancing intervals on a number of occasions. In general, annual works fine, every two years works fine, so does every five years.

You could also use percentages. If your stock allocation becomes 5% greater than your target, rebalancing works fine. If you use 10%, it works fine also.

So, here is the bottom line, just pick one and do it. Don’t agonize over implementing the perfect rebalancing strategy. It can only be known in retrospect.

Rick Ferri
Hi Rick -

Thank you for that sound investment advice.

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Re: Rebalancing Frequency? Daily vs annually?

Post by livesoft » Sat Sep 01, 2018 9:05 pm

There is probably room for some AI algorithm here.
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Re: Rebalancing Frequency? Daily vs annually?

Post by Doc » Sun Sep 02, 2018 11:03 am

Question for all of you that rebalnce on a calendar basis of some type.

What do you do it the stock market drops 20% in a week? Do you just wait until your next rebalance date or do you it then?
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Re: Rebalancing Frequency? Daily vs annually?

Post by fortyofforty » Sun Sep 02, 2018 4:19 pm

I've thought the daily rebalancing provided by the LifeStrategy or Balanced Index funds only serves to reduce the daily volatility of price movements. Really, it will slowly and painfully rebalance all the way down into a market bottom, and reduce potential gains little by little all the way up. You can rebalance on your own, but if something happens to you, will your spouse know what to do, or when, or why? Will your spouse care enough about investing to find out, without surrendering control to the sea of investment sharks? For people who don't enjoy the "process", leaving it to the professionals isn't the worst idea.
"In a time of universal deceit, telling the truth becomes a revolutionary act." - George Orwell | There are many roads to doublin'. | Original Vanguard Diehard

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Re: Rebalancing Frequency? Daily vs annually?

Post by grabiner » Sun Sep 02, 2018 7:52 pm

Doc wrote:
Sun Sep 02, 2018 11:03 am
Question for all of you that rebalnce on a calendar basis of some type.

What do you do it the stock market drops 20% in a week? Do you just wait until your next rebalance date or do you it then?
I rebalance annually, and whenever I hit my tolerance bands. In 21 years, I have only hit the tolerance bands twice, with too much in bonds in October 2008 (near the market bottom) and too much in REITs in September 2009 (following a regular rebalance in early 2009).

I don't check daily, but I do check whenever I have new money to invest, and add the new money to the most underweighted asset class. This keeps me from needing to rebalance US/foreign, as I can add new investments in my taxable account to either US or foreign stock funds.
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Re: Rebalancing Frequency? Daily vs annually?

Post by neveragain » Sun Sep 02, 2018 9:05 pm

I used to never rebalance in my IRA. Hadn't done anything since I set it up years earlier. Then when I wised up, last year, I realized I was 95% in stock funds. My IRA was doing well and making money, but if the stock market had crashed I would have been in trouble.

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Re: Rebalancing Frequency? Daily vs annually?

Post by fortyofforty » Sun Sep 02, 2018 9:47 pm

Would rebalancing also impact our notion of "risk tolerance"? If you rebalance daily, back to say 80/20, your daily movements might be muted but you will constantly lock in the day's gain or loss. You might end up simply rebalancing all the way to a market bottom, then muting your returns as it climbs back up. Does that really reduce your long term risk? You're not really doing anything about the general trend of the stock market.

If you rebalance by bands, would that mitigate risk by forcing you to wait, not responding to daily fluctuations, but waiting for a significant stock market move, then reallocating money contrary to prevailing market sentiment, thereby buying low(er) and selling high(er)? Would that be a better way to reduce overall risk?
"In a time of universal deceit, telling the truth becomes a revolutionary act." - George Orwell | There are many roads to doublin'. | Original Vanguard Diehard

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