Rebalance market timing - a good idea?

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JustinR
Posts: 1420
Joined: Tue Apr 27, 2010 11:43 pm

Rebalance market timing - a good idea?

Post by JustinR »

Let's say it's time to rebalance due to whatever your criteria is: calendar date or bands.

First you recognize that you need to rebalance fund A into fund B.

However, wait until the ratio of fund A:fund B is the highest its been in the last year or so, to get the best transfer rate. Unlike buying or selling, when exchanging the only thing that matters is the ratio between the two prices.

By waiting, either you'll get an increasingly better deal, or the funds will equalize to the point where you don't need to rebalance anymore.

What's wrong with this strategy?
Fundhunter
Posts: 181
Joined: Sun Mar 11, 2007 9:11 pm
Location: Atlanta

Re: Rebalance market timing - a good idea?

Post by Fundhunter »

No, that is just market timing. What happens if Fund A goes down tomorrow relative to Fund B and stays down or goes further down for the next year? You don't rebalance (even though you would have been better off had you rebalanced today)? Your method eliminates a potential profit gained by rebalancing it seems to me.
andrew99999
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Joined: Fri Jul 13, 2018 8:14 pm

Re: Rebalance market timing - a good idea?

Post by andrew99999 »

If you wait and it reverses, "yay no need to rebalance" is not a positive. You've missed out on the rebalancing bonus in your attempt to time the market.
BogleMelon
Posts: 2550
Joined: Mon Feb 01, 2016 11:49 am

Re: Rebalance market timing - a good idea?

Post by BogleMelon »

JustinR wrote: Wed Dec 12, 2018 7:34 pm Let's say it's time to rebalance due to whatever your criteria is: calendar date or bands.

First you recognize that you need to rebalance fund A into fund B.

However, wait until the ratio of fund A:fund B is the highest its been in the last year or so, to get the best transfer rate. Unlike buying or selling, when exchanging the only thing that matters is the ratio between the two prices.

By waiting, either you'll get an increasingly better deal, or the funds will equalize to the point where you don't need to rebalance anymore.

What's wrong with this strategy?
The primary reason to rebalance, is to maintain your own peace of mind knowing that your risk is exactly where you want it to be. If it is time to rebalance, then by not rebalancing you may become too anxious and worry about the market. Being anxious, excited or worry is a bad thing for an investor.
"One of the funny things about stock market, every time one is buying another is selling, and both think they are astute" - William Feather
MotoTrojan
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Joined: Wed Feb 01, 2017 8:39 pm

Re: Rebalance market timing - a good idea?

Post by MotoTrojan »

andrew99999 wrote: Wed Dec 12, 2018 9:37 pm If you wait and it reverses, "yay no need to rebalance" is not a positive. You've missed out on the rebalancing bonus in your attempt to time the market.
This. A better strategy is to just use rebalancing-bands so that you always rebalance at/near the worst-ratio, since that will be the point it crosses your band.
TheBogleWay
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Joined: Mon Dec 05, 2016 9:04 pm

Re: Rebalance market timing - a good idea?

Post by TheBogleWay »

I've been all-index fund and hold and stick to the plan like Bogleheads suggest for nearly a decade now.


However the last month I had an idea. If a recession to occur, a bad one, 50-70%+ drop in stocks, I'd be tempted to dump my bonds into stocks. Bonds were less likely to take a loss in this hypothetical scenario, stocks would be at least NEAR the bottom and should hypothetically rise back up, then I would take the stocks that have been a loss (an equal amount) and move them to bonds. I'd take a tax loss on the stocks for some tax advantages, and still have the same position, using my 401k to switch in between and would only do it assuming bonds didn't take a giant loss.



Wait, is this even allowed? Anyone have thoughts on this?


Edit: If this isn't allowed, what about simply the idea of selling some stocks simply for the tax loss harvesting, and moving an equal dollar amount of BND inside my 401k to stocks to make up for the loss?


Or the 3rd scenario, simply moving more bonds to stocks at near-bottom?

(I have decades until retirement)
Northern Flicker
Posts: 7040
Joined: Fri Apr 10, 2015 12:29 am

Re: Rebalance market timing - a good idea?

Post by Northern Flicker »

It’s just a different rebalancing heuristic. The relative fund movements could go either way, with equal likelihood based on info available to an individual investor so It will neither help you nor hurt you on average.
Last edited by Northern Flicker on Thu Dec 13, 2018 4:02 pm, edited 1 time in total.
Risk is not a guarantor of return.
dcabler
Posts: 1743
Joined: Wed Feb 19, 2014 11:30 am

Re: Rebalance market timing - a good idea?

Post by dcabler »

JustinR wrote: Wed Dec 12, 2018 7:34 pm Let's say it's time to rebalance due to whatever your criteria is: calendar date or bands.

First you recognize that you need to rebalance fund A into fund B.

However, wait until the ratio of fund A:fund B is the highest its been in the last year or so, to get the best transfer rate. Unlike buying or selling, when exchanging the only thing that matters is the ratio between the two prices.

By waiting, either you'll get an increasingly better deal, or the funds will equalize to the point where you don't need to rebalance anymore.

What's wrong with this strategy?
Backtested something like this years ago. Used Momentum (200 day moving average, 10 month moving average or 12/6 moving average crossover).
Idea was something like this: If equities are on a roll via the momentum indictors, then just let it ride. Once momentum trigger is hit indicating that the ride was over, rebalance. Vice versa if going the other direction...

Was hoping for something of a rebalance bonus, but....
- whipsaws can erase any bonus you might come up with
- anything I tried that improved things started to look increasingly like extreme curve fitting

And now that work is on the "Island of Misfit Spreadsheets", along with many others sitting on my hard drive. :P
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