If you are old, why bother with rebalancing!!?

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123
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Re: If you are old, why bother with rebalancing!!?

Post by 123 » Tue Feb 05, 2019 6:16 pm

If we don't concern ourselves with rebalancing should we concern ourselves with what investment we take withdrawals or distributions from or can we do that willy-nilly?

Isn't any withdrawal or distribution a rebalancing (whether we are conscious that it is affecting the balance(ing) of the account or not)?

I tend to think about rebalancing less and less. Over the really long term we'd probably be okay without it.

Agreed that rebalancing can be a commitment to "do something" when maybe doing nothing is just as well.

What event lead the OP (livesoft) to this inspiration/revelation? Or has OP decided not to care anymore?
Last edited by 123 on Tue Feb 05, 2019 6:20 pm, edited 1 time in total.
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Re: If you are old, why bother with rebalancing!!?

Post by One Ping » Tue Feb 05, 2019 6:17 pm

The Wizard wrote:
Tue Feb 05, 2019 6:00 pm
I'm old, retired almost six years now.
I started retirement with a 50/50 AA due to SoR risk over the seven years before SS at age 70.
Over past six years, I've done Roth conversions and to a lesser degree increased my taxable account holdings.
I hold only stock funds in my Roth IRA and my taxable account.
So my composite AA now is close to 60/40.

Due to decent income from lifetime immediate annuities and (soon) SS, I won't need income from portfolio on a monthly basis anymore.
So I may well continue rebalancing toward a higher stock percentage as RMDs start next year...
Wiz,

Just don't do anything and your equity allocation will in all probability drift higher over time. See my charts above. Obviously this is using historical data, but over all 62 30-year periods I looked at since 1928 you ended up with an average ending equity allocation of 86%. You also don't incur any transaction costs (e.g., CG taxes in the taxable acct.)

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Re: If you are old, why bother with rebalancing!!?

Post by Gideont » Tue Feb 05, 2019 6:26 pm

HomerJ wrote:
Tue Feb 05, 2019 2:19 pm
2015 wrote:
Tue Feb 05, 2019 2:02 pm
HomerJ wrote:
Tue Feb 05, 2019 1:51 pm
livesoft wrote:
Tue Feb 05, 2019 11:38 am
...

...
But I will admit that I do not rebalance any more in down markets. If stocks drop, I will pull from bonds, and wait for stocks to recover. I will not sell bonds and buy stocks.

But I will rebalance the other direction. If stocks are up a good amount, I will sell stocks and rebalance into bonds to maintain my Asset Allocation risk profile.

HomerJ, would please be so kind as to explain your rationale for the underlined sentence. Why did you decide to stop rebalancing during down markets? Even though I have every intention of rebalancing during down markets, I'd be untruthful if I stated I can guarantee I will do so during the next 2008 style event. I'm interested in your reasoning.
Because I'm more about preserving my money now, and less about growing it.

I'm 50/50 stocks/bonds. If stocks grow, and I find myself at 60/40, I sell stocks (lock in the gains), and drop back to 50/50. I don't want the next 50% crash to take away more than 25%-30% of my portfolio.

If I just let stocks keep growing, just in the past 8 years I'd probably be at 70/30 at this point, and the recent 20% drop would have been more painful and scary (Although I'd technically have more money from not rebalancing the past 8 years, but hindsight is 20/20).

Now, when the opposite happens, and stocks drop, I'm not interested in selling bonds to buy stocks anymore (I DID do this in 2008, to a limited extent, but I recognized it's not for me)

I don't need the extra return that might provide. I'm well on track to hit FI and retire early without any sizeable gains. Instead I'm more interested in keeping that 50% of my money safe. That's why I was 50% in bonds to begin with. It defeats my current goal of preservation to take some of money out of my "safe" pile and throw it into the stock market while it's going down in hopes of making big gains. I don't need big gains.

I understand it's the smart thing to do and 99% (99.9%?) likely to pay off with more money for me.

But it's not 100%. The 50% in bonds is enough for me to survive if a 20-year Great Depression II happens and I don't need to risk any of that 50% to meet my goals if the stock market bounces back like it normally does.

Rebalancing only on the upside meets my current goals.
I read this blog post today http://www.theretirementcafe.com that I think also described what you are doing. The blog post is called “Honey, What's Our Retirement Plan?” and describes one strategy that I think dovetails nicely with how HomerJ balances his gains and doesn’t touch his bonds. “That strategy is to allocate some amount of retirement plan resources to generate a floor of safe lifetime income, to invest the remaining assets, if any, in a risky aspirational portfolio, and then to decide how to spend the risky assets throughout retirement. The correct balance will depend on how willing you are to risk losing your standard of living for the chance of having an even higher one.”

This really appeals to me too.
Last edited by Gideont on Tue Feb 05, 2019 6:36 pm, edited 1 time in total.

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Re: If you are old, why bother with rebalancing!!?

Post by livesoft » Tue Feb 05, 2019 6:35 pm

123 wrote:
Tue Feb 05, 2019 6:16 pm
What event lead the OP (livesoft) to this inspiration/revelation? Or has OP decided not to care anymore?
I've read a few "help me with my portfolio" threads in the past few weeks from retirees in their late 60's or older who have been worried about managing their portfolios or want to dis-engage from their expensive advisor or were worried about their asset allocation despite having tons of money. Responses encouraged them to use Vanguard PAS or other roboadvisor or a Balanced fund.

In essence, an advisor provides no added value for these people whatsoever.

I realized that none of that really mattered at their stage of life if they could just step back, turn off their worries, and not pay any extra.

And for myself, if I pre-decease my spouse, I don't have to give my spouse any extra instructions ahead of time because it just won't matter at all. She will be able to spend as she pleases and the portfolio will take care of itself without any intervention for years and years.
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Re: If you are old, why bother with rebalancing!!?

Post by One Ping » Tue Feb 05, 2019 6:42 pm

livesoft wrote:
Tue Feb 05, 2019 6:35 pm
123 wrote:
Tue Feb 05, 2019 6:16 pm
What event lead the OP (livesoft) to this inspiration/revelation? Or has OP decided not to care anymore?
I've read a few "help me with my portfolio" threads in the past few weeks from retirees in their late 60's or older who have been worried about managing their portfolios or want to dis-engage from their expensive advisor or were worried about their asset allocation despite having tons of money. Responses encouraged them to use Vanguard PAS or other roboadvisor or a Balanced fund.

In essence, an advisor provides no added value for these people whatsoever.

I realized that none of that really mattered at their stage of life if they could just step back, turn off their worries, and not pay any extra.

And for myself, if I pre-decease my spouse, I don't have to give my spouse any extra instructions ahead of time because it just won't matter at all. She will be able to spend as she pleases and the portfolio will take care of itself without any intervention for years and years.
[Emphasis added]
Agree, livesoft, these are the key takeaways for me. This has been rather enlightening for myself as I have been wrestling with the 'what instructions do I leave my non-financially interested spouse'. It really just doesn't matter ... she will be fine.
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Re: If you are old, why bother with rebalancing!!?

Post by bck63 » Tue Feb 05, 2019 7:09 pm

I have been wondering the same thing. I am 10-12 years from retirement. If I continue investing at a 50/50 contribution rate I will have about 15 years of living expenses in fixed income, plus whatever value my stocks have, when I retire. Why do I need to rebalance? If stocks are way up I can live off them. If stocks go way down I have fixed income assets to live off of to ride out the downturns.

I'm not sure if this makes sense. Any input would be greatly appreciated.

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Re: If you are old, why bother with rebalancing!!?

Post by The Wizard » Tue Feb 05, 2019 7:15 pm

One Ping wrote:
Tue Feb 05, 2019 6:17 pm

...Just don't do anything and your equity allocation will in all probability drift higher over time. See my charts above. Obviously this is using historical data, but over all 62 30-year periods I looked at since 1928 you ended up with an average ending equity allocation of 86%. You also don't incur any transaction costs (e.g., CG taxes in the taxable acct.)

One Ping
I agree.
But, not doing anything isn't an option for those of us with large tax deferred accounts.
For six years so far, I've been effectively withdrawing modest amounts from tax deferred 403(b) and reinvesting 100% in stock funds.

My only non-stock funds now are TIAA Traditional and TREA, both of which have done better than bond funds lately, thus keeping my stock fund percentage from being even higher.

So I'll see what happens as RMDs start for me next year.
As stock indices hit new record highs again, I may trim some profits in tax-deferred and move the funds into TIAA Traditional, to keep my overall stock percentage from getting too high...
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Re: If you are old, why bother with rebalancing!!?

Post by One Ping » Tue Feb 05, 2019 8:18 pm

The Wizard wrote:
Tue Feb 05, 2019 7:15 pm
One Ping wrote:
Tue Feb 05, 2019 6:17 pm

...Just don't do anything and your equity allocation will in all probability drift higher over time. See my charts above. Obviously this is using historical data, but over all 62 30-year periods I looked at since 1928 you ended up with an average ending equity allocation of 86%. You also don't incur any transaction costs (e.g., CG taxes in the taxable acct.)

One Ping
I agree.
But, not doing anything isn't an option for those of us with large tax deferred accounts.
For six years so far, I've been effectively withdrawing modest amounts from tax deferred 403(b) and reinvesting 100% in stock funds.

My only non-stock funds now are TIAA Traditional and TREA, both of which have done better than bond funds lately, thus keeping my stock fund percentage from being even higher.

So I'll see what happens as RMDs start for me next year.
As stock indices hit new record highs again, I may trim some profits in tax-deferred and move the funds into TIAA Traditional, to keep my overall stock percentage from getting too high...
Well, of course, you do have to take required withdrawals. But can't you just reinvest those in your taxable at whatever the asset allocation for the account is at the time? Or even transfer in kind.

After all, it seems you don't really 'need the money' so what does 'keep my overall stock percentage from getting too high' even mean?
The Wizard wrote:
Tue Feb 05, 2019 6:00 pm
Due to decent income from lifetime immediate annuities and (soon) SS, I won't need income from portfolio on a monthly basis anymore.
So I may well continue rebalancing toward a higher stock percentage as RMDs start next year...
Not being argumentative, but I don't see the problem with just letting things drift otherwise.
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Re: If you are old, why bother with rebalancing!!?

Post by beyou » Tue Feb 05, 2019 10:57 pm

livesoft wrote:
Tue Feb 05, 2019 1:29 pm
beyou wrote:
Tue Feb 05, 2019 1:27 pm
Truth is, I could probably have avoided rebalancing during accumulation and had similar outcomes,except one thing....the ability to sleep at night. Not sure I could do that with 70% equity in my old age.
If you didn't look, then you wouldn't even know, would you?
Not sure how one could not look. If you withdraw you will look. If I look I can do the math.

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Re: If you are old, why bother with rebalancing!!?

Post by HomerJ » Tue Feb 05, 2019 11:09 pm

livesoft wrote:
Tue Feb 05, 2019 6:35 pm
123 wrote:
Tue Feb 05, 2019 6:16 pm
What event lead the OP (livesoft) to this inspiration/revelation? Or has OP decided not to care anymore?
I've read a few "help me with my portfolio" threads in the past few weeks from retirees in their late 60's or older who have been worried about managing their portfolios or want to dis-engage from their expensive advisor or were worried about their asset allocation despite having tons of money. Responses encouraged them to use Vanguard PAS or other roboadvisor or a Balanced fund.

In essence, an advisor provides no added value for these people whatsoever.

I realized that none of that really mattered at their stage of life if they could just step back, turn off their worries, and not pay any extra.

And for myself, if I pre-decease my spouse, I don't have to give my spouse any extra instructions ahead of time because it just won't matter at all. She will be able to spend as she pleases and the portfolio will take care of itself without any intervention for years and years.
Your advice only works for someone like yourself who is a multi-millionaire. Congrats. You (or your wife) can't screw it up.
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Re: If you are old, why bother with rebalancing!!?

Post by midareff » Wed Feb 06, 2019 2:39 am

livesoft wrote:
Tue Feb 05, 2019 11:38 am
After seeing all the many many threads on how to rebalance and how to set up a retired person's portfolio along with all the "I didn't hit my rebalancing trigger even though the market dropped 20%" posts, I have come to the conclusion that ...

If one has any portfolio of equities:bonds in an asset allocation of between 30:70 and 70:30 and one is over age 62 (especially if one is collecting SS benefits), then there is no point is worrying about rebalancing, no point in looking at one's asset allocation, and no actual point in rebalancing.

It seems to me that one's portfolio will take care of itself no matter what one does because one is going to die within 40 years anyways.

That means at that time and going forward that one doesn't need LifeStrategy funds. One doesn't need Target Date Funds. One can just forget about looking at their portfolio pretty much ever again.
Thanks for the "feel good" post. If I can't rebalance a bit here or there or harvest a bit of bond loss am I supposed to go quietly into the night?

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Re: If you are old, why bother with rebalancing!!?

Post by SGM » Wed Feb 06, 2019 4:02 am

I was 100% in stock during the accumulation phase so there was no rebalancing unless you consider paying off a mortgage or making a large purchase with investment proceeds to be a form of rebalancing. Now I am 70/30 or so in retirement and I don't keep very close track of what my AA is. In late December it may have been 60/40, but the market has risen sharply the following month.

A key for us is to have other income streams outside of the portfolio as my human capital is greatly decreased. I don't have a crystal ball, but I don't think rebalancing is going to make much difference to us, but I have never been a fan of rebalancing. My response to 2008 and other market downturns was to continue investing in the stock market and buy more shares at a lower price. Now that I am retired extra money might go half into bond funds and half into stock index funds.

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Re: If you are old, why bother with rebalancing!!?

Post by qwertyjazz » Wed Feb 06, 2019 7:17 am

livesoft wrote:
Tue Feb 05, 2019 6:35 pm
123 wrote:
Tue Feb 05, 2019 6:16 pm
What event lead the OP (livesoft) to this inspiration/revelation? Or has OP decided not to care anymore?
I've read a few "help me with my portfolio" threads in the past few weeks from retirees in their late 60's or older who have been worried about managing their portfolios or want to dis-engage from their expensive advisor or were worried about their asset allocation despite having tons of money. Responses encouraged them to use Vanguard PAS or other roboadvisor or a Balanced fund.

In essence, an advisor provides no added value for these people whatsoever.

I realized that none of that really mattered at their stage of life if they could just step back, turn off their worries, and not pay any extra.

And for myself, if I pre-decease my spouse, I don't have to give my spouse any extra instructions ahead of time because it just won't matter at all. She will be able to spend as she pleases and the portfolio will take care of itself without any intervention for years and years.
How should they or your spouse spend down their money? AA is a good heuristic for selling at least. Or do you have a simpler one in mind?

Thank you
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Re: If you are old, why bother with rebalancing!!?

Post by LthanP » Wed Feb 06, 2019 7:57 am

I would love to get to that point, I have not updated my word doc that has our Investment Policy Statement since 10-8-2017.
But adding these lines would make it easier than what I have now :sharebeer

"If one has any portfolio of equities:bonds in an asset allocation of between 30:70 and 70:30 and one is over age 62 (especially if one is collecting SS benefits), then there is no point is worrying about rebalancing, no point in looking at one's asset allocation, and no actual point in rebalancing. "
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Re: If you are old, why bother with rebalancing!!?

Post by Sheepdog » Wed Feb 06, 2019 7:59 am

livesoft wrote:
Tue Feb 05, 2019 1:27 pm
HueyLD wrote:
Tue Feb 05, 2019 1:24 pm
Since when is age 62 considered old?

My definition of old is for those older than I am.
Mine, too. :)
Same here and I am 85, so I'm not old and I still watch my allocation balance.
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Re: If you are old, why bother with rebalancing!!?

Post by livesoft » Wed Feb 06, 2019 8:00 am

Sheepdog wrote:
Wed Feb 06, 2019 7:59 am
... and I still watch my allocation balance.
OK, when was the last time you rebalanced by exchanging from one asset class to another? And why did you do that?

(I am not talking about withdrawing.)
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Re: If you are old, why bother with rebalancing!!?

Post by Sheepdog » Wed Feb 06, 2019 8:14 am

livesoft wrote:
Wed Feb 06, 2019 8:00 am
Sheepdog wrote:
Wed Feb 06, 2019 7:59 am
... and I still watch my allocation balance.
OK, when was the last time you rebalanced by exchanging from one asset class to another? And why did you do that?

(I am not talking about withdrawing.)
I said I watched my balance regularly because it is there.. The last time I did rebalance? I don't remember exactly, but last year. Why? because I should according to my written plan which I wrote in 2008 after my balance went screwy and it hurt. It tells me to do so. By the way, withdrawing is part of my rebalancing in retirement.....I do live off my saving you should realize.
Last edited by Sheepdog on Wed Feb 06, 2019 8:17 am, edited 1 time in total.
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Re: If you are old, why bother with rebalancing!!?

Post by livesoft » Wed Feb 06, 2019 8:16 am

Thank you very much!
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Re: If you are old, why bother with rebalancing!!?

Post by livesoft » Wed Feb 06, 2019 8:22 am

So there may be stages that one can work their way into:

1. Don't bother to look. Take QCDs, RMDs, and/or distributions and donate/spend them. (Don't forget distributions can come from all accounts, taxable, tax-advantaged.)

2. Look to see the total balance, but otherwise do #1.

3. Do #2, but if you don't spend all RMDs and distributions, use them for rebalancing or gifting.

3.5 Do #3, but if you need more money to spend, sell something.

4. Do #3.5, but also exchange among investments from time to time to rebalance as desired.

5. Do #4, but also full-on market timing.

(Added: BTW, I got a message that if one is adding money to investments or spending money from investments and using those to maintain asset allocation, then that might just be called "balancing" because one is not moving from one asset class to a different asset class.)
Last edited by livesoft on Wed Feb 06, 2019 8:37 am, edited 2 times in total.
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Re: If you are old, why bother with rebalancing!!?

Post by longinvest » Wed Feb 06, 2019 8:25 am

I know that this post won't be popular. Most people only want confirmation of what they believe and this post won't do that for those who don't like rebalancing.

When we compare the returns of two portfolios, a drifting one and a rebalanced one with a similar average allocation to stocks over the entire investment period, we find that the average return and average volatility are similar. But, at the end of the investment period, the rebalanced portfolio still has the same exposure to stocks, while the drifting portfolio has an arbitrary allocation, usually much higher than target, exposing the portfolio to much bigger losses in a future stock crash.

Most of the returns of a bond fund are given out as distributions. Stock funds, on the other hand, often provide part of their returns through capital growth that is represented by a growing price. As a result, over time, a drifting portfolio will usually tend to let stocks dominate the portfolio (except during stock market crises).

Luckily, index fund managers don't let assets drift like that within their funds. They continuously rebalance to add new stocks, to reduce the number of shares after a buyback, and so on, to avoid letting the fund drift away from market capitalization weightings.

Do-it-yourself investors are the managers of their portfolios. It's their task to manage the risk exposure of their portfolios. Adopting an asset allocation target and rebalancing to it on a predetermined schedule, like once a year on one's birthday, is an easy and effective management approach.

Some people claim that it would be sufficient to rebalance from stocks to bonds to avoid letting stocks dominate. But, this approach to portfolio management doesn't withstand the test of logic. If a lower stock allocation is acceptable after a stock crash, this lower stock allocation should be acceptable before the crash. Letting the portfolio sustain larger losses by keeping a higher stock allocation before the crash can only be done in the hope of higher returns, yet accepting a lower stock allocation after the crash indicates that higher returns aren't an objective; the contradiction is obvious.

Just to insist on that last paragraph, let me put it this way: an investor should think of the lowest stock allocation he would accept after a stock crash and adopt it now, immediately, then rebalance his portfolio to this target during both good times and bad times. If one decides that 30% in stocks is the minimum acceptable stock exposure, then letting stocks drop to 18% of portfolio after a stock crash shouldn't be acceptable, otherwise one should simply adopt an 18% stock allocation before the crash!

Here are two older posts I wrote about rebalancing:

viewtopic.php?f=10&t=262077&p=4182112#p4179086
viewtopic.php?f=10&t=262077&p=4182112#p4181007

Here were the conclusions:
longinvest wrote:
Tue Oct 23, 2018 7:29 am
...
SO, WHY REBALANCE?
...
The answer is: to manage risk. What risk? The risk of ending up with too many of one's eggs in one basket. The risk that stocks crash after the allocation has drifted, causing bigger portfolio losses.
...
In the long run, a leveraged all-stocks portfolio (something like 140% stocks, if I remember correctly, according to the Kelly criterion) is most likely (not guaranteed!) to beat a mixed portfolio of stocks and bonds. Adding bonds to a portfolio is a risk management decision, not a return maximization strategy, and rebalancing goes along with that decision.
longinvest wrote:
Wed Oct 24, 2018 10:37 am
Avoiding rebalancing (or not rebalancing into stocks) to reduce losses is illogical; the same loss protection can be achieved by simply choosing a higher allocation to bonds in the first place. This will, of course, reduce the potential upside of the portfolio, but it will do so consistently. A non-rebalanced portfolio reduces potential gains at the worst of times, at the bottom of a bear market, and it increases potential losses at the worst of times, at the top of a bubble; it's an illogical approach to risk management.
Those without the emotional fortitude to rebalance their portfolio should simply buy an all-in-one fund, like a LifeStrategy or Target Retirement fund, and let the manager do the work.
Last edited by longinvest on Wed Feb 06, 2019 1:14 pm, edited 3 times in total.
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Re: If you are old, why bother with rebalancing!!?

Post by tennisplyr » Wed Feb 06, 2019 8:31 am

Retired 8 years, in my late sixties....not a major numbers cruncher. I don't do any formal rebalancing, tend to withdraw from asset class showing recent growth. Satisfied with my AA of ~50/50.
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Re: If you are old, why bother with rebalancing!!?

Post by sschullo » Wed Feb 06, 2019 8:44 am

Its part of being prudent, IMO.
It's the one strategy that will get me to act like Buffett, who just about everybody in the world adores, especially the active management crowd, and that's to sell high and buy low! I rebalance more so than ever because I AM OLD! What is the matter with keeping my equity risk in check? I need my portfolio for retirement support. Besides constructing a fully diversified portfolio with the stock-bond split, all of this and rebalancing is a hedge against losing 40%-70% of my portfolio in another downturn. Heck, if I were 30, I would be 100% stocks and rebalance between domestic and international.
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Re: If you are old, why bother with rebalancing!!?

Post by whodidntante » Wed Feb 06, 2019 8:49 am

I intend to have a certain number of months of expenses in short term treasuries or other fixed income that would not have stock like risk, at the point of retirement. This will probably put me at about 70/30 at the onset of retirement in the fixed percentage model that most people here favor, but if I retire with more money then I'll be at 80/20, 85/15, whatever.

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Re: If you are old, why bother with rebalancing!!?

Post by The Wizard » Wed Feb 06, 2019 8:50 am

One Ping wrote:
Tue Feb 05, 2019 8:18 pm

...Well, of course, you do have to take required withdrawals. But can't you just reinvest those in your taxable at whatever the asset allocation for the account is at the time? Or even transfer in kind.

After all, it seems you don't really 'need the money' so what does 'keep my overall stock percentage from getting too high' even mean?
The Wizard wrote:
Tue Feb 05, 2019 6:00 pm
Due to decent income from lifetime immediate annuities and (soon) SS, I won't need income from portfolio on a monthly basis anymore.
So I may well continue rebalancing toward a higher stock percentage as RMDs start next year...
Not being argumentative, but I don't see the problem with just letting things drift otherwise.
Around 85% of portfolio is in tax-deferred 403(b) with TIAA, down from 95% at start of retirement.
My preferred non-stock investments of Trad and TREA are only available in tax-deferred and anyhow I'm not going to be holding interest generating ordinary income things in my taxable account to any large degree.

This discussion brings up a good point. I've been having withdrawals from tax-deferred done pro-rata, so I should look into having them done from only my stock funds, which will tend to preserve my AA.

Nonetheless, I can see my stock percentage drifting upward toward 70% over the next decade and that's probably OK...
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Re: If you are old, why bother with rebalancing!!?

Post by JBTX » Wed Feb 06, 2019 9:05 am

Probably doesn't make much difference if you assume future will be like last 30-40 years. Late 80s retiree in Japan 70/30 and 30/70 would have made a huge difference.

DecumulatorDoc
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Re: If you are old, why bother with rebalancing!!?

Post by DecumulatorDoc » Wed Feb 06, 2019 9:19 am

Most have an Investment Policy Statement with a desired asset allocation. I have never technically "rebalanced" by selling the over weighted asset and directly buying the undervalued one. But most of us with discipline, throughout our life, have actively stayed in balance. The first 30 or 40 years in the accumulation phase we added to underweighted categories, and then we grow "old" and have the pleasure of drawing from the overweighted assets. I doubt if many folks have a portfolio that remains static or is allowed to naturally drift for any lengthy period of time.

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TheGreyingDuke
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Re: If you are old, why bother with rebalancing!!?

Post by TheGreyingDuke » Wed Feb 06, 2019 10:06 am

livesoft wrote:
Wed Feb 06, 2019 8:22 am
So there may be stages that one can work their way into:

1. Don't bother to look. Take QCDs, RMDs, and/or distributions and donate/spend them. (Don't forget distributions can come from all accounts, taxable, tax-advantaged.)

2. Look to see the total balance, but otherwise do #1.

3. Do #2, but if you don't spend all RMDs and distributions, use them for rebalancing or gifting.

3.5 Do #3, but if you need more money to spend, sell something.

4. Do #3.5, but also exchange among investments from time to time to rebalance as desired.

5. Do #4, but also full-on market timing
I am mostly a #1, do sometimes peek at the balance when I am at Vanguard site to transact something. I have never re-balanced for re-balancing's sake, when I moved to the Boglehead type portfolio back 20 years ago (before I knew there was a Boglehead approach),I did some re-deployment.

The portfolio has drifted from 45/55 to something like 58/42, I am not 71, retired for 11 years and living from dividends and interest. A large portion of the assets are in taxable accounts with large capital gains so selling equities will come with a big price. Tax-advantaged is largely bonds.
One new wrinkle is needing to take RMD's from my TIRA, using QCD (how's that for a jumble of acronyms!) and since they are all bonds, I am "re-balancing" into equities!
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Re: If you are old, why bother with rebalancing!!?

Post by 3-20Characters » Wed Feb 06, 2019 10:25 am

We should split all these threads into two paths:

1. I may need every last dollar of my retirement savings
2. There’s no way damn way I can spend all this money

I would argue that #2 are endowment funds and therefore subject to different rules (equity percent). For the rest of us, that’s just a lot of nice theory. I watched a yale open lecture course where Shiller had Swensen as a guest lecturer. I enjoyed it immensely but I will not be putting my money into oil or timber. At least not until it reaches $29b or so. Oh heck, maybe I’ll start the process at $5b.

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Re: If you are old, why bother with rebalancing!!?

Post by MisterMister » Wed Feb 06, 2019 10:47 am

livesoft wrote:
Tue Feb 05, 2019 11:38 am
It seems to me that one's portfolio will take care of itself no matter what one does because one is going to die within 40 years anyways.
Although I have no children I do have a spouse and it is likely she may live 10-20 years longer than I.

Most of what I do is based on the idea of making sure her needs are met. It's a quandary because I could probably put what we have in CDs and we'd be OK. But that's if everything goes well, there are no major unexpected expenses, and we maintain good health relative to our age. Any one or any multiple of these things could go wrong. If that happens 20 years from now I'm better off if my portfolio has been growing, which requires that I invest the money we have.

I would probably do things differently if I were alone, OTOH I could assume more risk if I chose to do so. In any case the others in our lives are a big consideration.

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wander
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Re: If you are old, why bother with rebalancing!!?

Post by wander » Wed Feb 06, 2019 11:00 am

This is different than our plan. We will transfer everything into a balanced fund when we retire and quit looking at the portfolio regularly.

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Re: If you are old, why bother with rebalancing!!?

Post by livesoft » Wed Feb 06, 2019 11:02 am

wander wrote:
Wed Feb 06, 2019 11:00 am
This is different than our plan. We will transfer everything into a balanced fund when we retire and quit looking at the portfolio regularly.
That's a #1 without the fries.
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Re: If you are old, why bother with rebalancing!!?

Post by convert949 » Wed Feb 06, 2019 11:20 am

HomerJ wrote:
Tue Feb 05, 2019 1:51 pm

But I will admit that I do not rebalance any more in down markets. If stocks drop, I will pull from bonds, and wait for stocks to recover. I will not sell bonds and buy stocks.
+1... 70 this year... I do not rebalance in either direction just draw from what is up. We use withdrawals to maintain a constant AA of 40/60. This results in 20 years of safe money for now.

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Re: If you are old, why bother with rebalancing!!?

Post by iceport » Wed Feb 06, 2019 11:58 am

livesoft wrote:
Tue Feb 05, 2019 11:38 am
If one has any portfolio of equities:bonds in an asset allocation of between 30:70 and 70:30 and one is over age 62 (especially if one is collecting SS benefits), then there is no point is worrying about rebalancing, no point in looking at one's asset allocation, and no actual point in rebalancing.
Does it follow, then, that there is likewise no point in the quixotic market-timing pursuit of "RBDs"?
"Discipline matters more than allocation.” ─William Bernstein

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Re: If you are old, why bother with rebalancing!!?

Post by livesoft » Wed Feb 06, 2019 12:20 pm

iceport wrote:
Wed Feb 06, 2019 11:58 am
Does it follow, then, that there is likewise no point in the quixotic market-timing pursuit of "RBDs"?
Yes, it does, but only when one reaches the circumstances in the OP.

But it also follows that the market-timing pursuit of "RBDs" won't hurt one either.
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Re: If you are old, why bother with rebalancing!!?

Post by knpstr » Wed Feb 06, 2019 12:40 pm

HomerJ wrote:
Tue Feb 05, 2019 2:19 pm

If I just let stocks keep growing, just in the past 8 years I'd probably be at 70/30 at this point, and the recent 20% drop would have been more painful and scary (Although I'd technically have more money from not rebalancing the past 8 years, but hindsight is 20/20).
It is wise, in my opinion, that you realize your preference for rebalancing is irrational. If it makes you "feel better" that is a fair personal preference, but as long as you know you are likely worse off in doing so in the proverbial "long run", I think that is okay.

It is the "price" of sleeping good. But that price probably could be $0 if you pondered the scenario longer and tried to check your emotions.
Last edited by knpstr on Wed Feb 06, 2019 12:50 pm, edited 1 time in total.
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Re: If you are old, why bother with rebalancing!!?

Post by OffGridder » Wed Feb 06, 2019 12:43 pm

livesoft wrote:
Tue Feb 05, 2019 6:35 pm


And for myself, if I pre-decease my spouse, I don't have to give my spouse any extra instructions ahead of time because it just won't matter at all. She will be able to spend as she pleases and the portfolio will take care of itself without any intervention for years and years.
If it does not matter, are your strategies which include +/- 2% bands, RBD, over rebalancing, TLH, and market timing between TBM and ST Corporate just recreational pursuits?
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Re: If you are old, why bother with rebalancing!!?

Post by BL » Wed Feb 06, 2019 1:07 pm

This thread could be a relief to older folks who seem to worry about surviving spouse rebalancing. Just set up auto withdrawals as needed and it could be on auto-pilot. The same goes for just getting old(er). Less need to worry, assuming you have enough. No need for management, either. Of course, choosing a balanced fund could take care of rebalancing as well. I agree there are "many roads to Dublin".

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Re: If you are old, why bother with rebalancing!!?

Post by markcoop » Wed Feb 06, 2019 1:46 pm

1) I would not be comfortable never rebalancing. I am 52 and manage a parent's money (35%/65% stock/bond). In that case I haven't rebalanced because there has not yet been a need. For myself, I believe it maintains my risk profile to rebalance and also keeps me from doing stupid things by actually doing something.

2) I do think it certainly depends upon how much money you have (ie., more than enough to meet your goals may mean no rebalancing necessary but a tighter budget may mandate keeping a closer eye on things.

3) Although I understand and mostly agree with the sentiment of this conversation, I think I would need to see alot more hard data to really convince myself of anything. However, there are certain things I have always questioned the value. Rebalancing is one of them (gut has been markets will keep things in check in the long run, especially with an upward trend to equities). Another one is tax-adjusting my portfolio because a dollar in a Roth IRA does not equal a dollar in a trad'l IRA. I once played around with that one and found the difference at the end was very little.
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Re: If you are old, why bother with rebalancing!!?

Post by WildBill » Wed Feb 06, 2019 2:06 pm

livesoft wrote:
Tue Feb 05, 2019 11:38 am
After seeing all the many many threads on how to rebalance and how to set up a retired person's portfolio along with all the "I didn't hit my rebalancing trigger even though the market dropped 20%" posts, I have come to the conclusion that ...

If one has any portfolio of equities:bonds in an asset allocation of between 30:70 and 70:30 and one is over age 62 (especially if one is collecting SS benefits), then there is no point is worrying about rebalancing, no point in looking at one's asset allocation, and no actual point in rebalancing.

It seems to me that one's portfolio will take care of itself no matter what one does because one is going to die within 40 years anyways.

That means at that time and going forward that one doesn't need LifeStrategy funds. One doesn't need Target Date Funds. One can just forget about looking at their portfolio pretty much ever again.
Howdy

What? Give up on the opportunities for market timing? Give up on tax loss harvesting?
Give up on the multiple opportunities to screw around on RBDs or RGDs? Give up on the opportunities to mess around with individual stocks? Give up on all the fun stuff?

You will have to pry my portfolio from my cold dead fingers :twisted:

Happy tinkering with portfolios to all

W B
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Re: If you are old, why bother with rebalancing!!?

Post by 2015 » Wed Feb 06, 2019 2:09 pm

As I already have all of my income needs liability matched through end of life, I've come to the conclusion I'm probably over thinking this. I have no spouse and except for legacy considerations what the risky portfolio does and doesn't do really isn't of great concern barring the meteor strike.

Given that my life exists in a complex adaptive system over thinking rebalancing must come at the expense of some other, more important consideration, such as continued risk mitigation, which I view as much more impactful than whether I get rebalancing "just right."

Every time I start to over think any aspect of my financial affairs I always end up back at the beginning which is it probably doesn't matter and certainly won't matter what I do in my situation anyway. I have intentionally arranged my finances to be in this situation and see no good reason for violating that.

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Re: If you are old, why bother with rebalancing!!?

Post by DecumulatorDoc » Wed Feb 06, 2019 2:12 pm

knpstr wrote:
Wed Feb 06, 2019 12:40 pm
HomerJ wrote:
Tue Feb 05, 2019 2:19 pm

If I just let stocks keep growing, just in the past 8 years I'd probably be at 70/30 at this point, and the recent 20% drop would have been more painful and scary (Although I'd technically have more money from not rebalancing the past 8 years, but hindsight is 20/20).
It is wise, in my opinion, that you realize your preference for rebalancing is irrational. If it makes you "feel better" that is a fair personal preference, but as long as you know you are likely worse off in doing so in the proverbial "long run", I think that is okay.

It is the "price" of sleeping good. But that price probably could be $0 if you pondered the scenario longer and tried to check your emotions.
Rebalancing is how we manage risk, it is not irrational. Of course it comes at a cost. Since we understand that 100% equities has beaten pretty much every portfolio over a 30 year period of time, are you saying anything less than 100% equities is irrational?

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Re: If you are old, why bother with rebalancing!!?

Post by Godot » Wed Feb 06, 2019 2:24 pm

"Your advice only works for someone like yourself who is a multi-millionaire. Congrats. You (or your wife) can't screw it up."


Good point. This is decidedly not one-size-fits all advice. Has everything to do with portfolio size in retirement.
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Re: If you are old, why bother with rebalancing!!?

Post by Ged » Wed Feb 06, 2019 2:43 pm

HomerJ wrote:
Tue Feb 05, 2019 1:51 pm
livesoft wrote:
Tue Feb 05, 2019 11:38 am
After seeing all the many many threads on how to rebalance and how to set up a retired person's portfolio along with all the "I didn't hit my rebalancing trigger even though the market dropped 20%" posts, I have come to the conclusion that ...

If one has any portfolio of equities:bonds in an asset allocation of between 30:70 and 70:30 and one is over age 62 (especially if one is collecting SS benefits), then there is no point is worrying about rebalancing, no point in looking at one's asset allocation, and no actual point in rebalancing.

It seems to me that one's portfolio will take care of itself no matter what one does because one is going to die within 40 years anyways.

That means at that time and going forward that one doesn't need LifeStrategy funds. One doesn't need Target Date Funds. One can just forget about looking at their portfolio pretty much ever again.
40 years is a long time. I disagree with your conclusion.

But I will admit that I do not rebalance any more in down markets. If stocks drop, I will pull from bonds, and wait for stocks to recover. I will not sell bonds and buy stocks.

But I will rebalance the other direction. If stocks are up a good amount, I will sell stocks and rebalance into bonds to maintain my Asset Allocation risk profile.
This is my view as well. In the event of a reprise of an event like the Great Depression or the Japanese market crash the time to recover equity value may well exceed the lifetime of the retired investor. Rebalancing into equities under such a situation can lead to running out of money.

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Re: If you are old, why bother with rebalancing!!?

Post by longinvest » Wed Feb 06, 2019 3:30 pm

Ged wrote:
Wed Feb 06, 2019 2:43 pm
HomerJ wrote:
Tue Feb 05, 2019 1:51 pm
But I will admit that I do not rebalance any more in down markets. If stocks drop, I will pull from bonds, and wait for stocks to recover. I will not sell bonds and buy stocks.

But I will rebalance the other direction. If stocks are up a good amount, I will sell stocks and rebalance into bonds to maintain my Asset Allocation risk profile.
This is my view as well. In the event of a reprise of an event like the Great Depression or the Japanese market crash the time to recover equity value may well exceed the lifetime of the retired investor. Rebalancing into equities under such a situation can lead to running out of money.
It would seem to me that rebalancing now, before the market rebalances for me, would be a better approach. If, for example, I had a 70/30 stocks/bonds portfolio today but I would be unwilling to rebalance bonds into stocks after they lost 80%, it means that I would be OK with a 14:30 stocks:bonds ratio which is a 32/68 stocks/bonds allocation. It would seem sensible to adopt the 32/68 allocation today and then rebalance my portfolio, even if stocks crashed 80%.

Let's look at the scenario in details, assuming that bonds didn't gain any value during the crash.

We start with a $1,000,000 portfolio.

CASE 1: NON-REBALANCED 70/30 Stocks/Bonds

Stocks crash and lose 80% of their value. The $700,000 in stocks shrinks to $140,000. The $300,000 in bonds holds still. This results into a $440,000 portfolio with a 32/68 stocks/bonds allocation.

CASE 2: REBALANCED 32/68 Stocks/Bonds

Stocks crash and lose 80% of their value. The portfolio is regularly rebalanced 7 times during the crash, everytime stocks lose 20.54% (because (1 - 20.54%)^7 = 20%).

Step 1: Stocks lose 20.54% and drop from $320,000 to $254,272. The portfolio is rebalanced by moving $44,695 from bonds to stocks, resulting into a $934,272 portfolio with a 32/68 stocks allocation. This is a 6.6% loss.
Steps 2 to 7: Same as step 1, but the final outcome, at the end of step 7 is a $621,317 portfolio with a 32/68 allocation.


The final allocation is identical, yet the rebalanced portfolio has an additional $181,317, 41% more than the non-rebalanced portfolio. This isn't a small difference; it's a major difference at both the emotional level, for the investor, and at the lifestyle level that the portfolio allows for.

If the investor is OK with a 32/68 allocation after the 80% crash, he has no reason not to adopt it right now and regularly rebalance.

Vanguard has determined, in its Target Retirement Fund series, that 30/70 stocks/bonds was the place to be in retirement. All Target Retirement funds are eventually merged into the Target Retirement Income fund which has this allocation. In other words, Vanguards thinks that a retirement portfolio should never have less than 30% in stocks and it rebalances bonds into stocks when stocks drop below target.
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Re: If you are old, why bother with rebalancing!!?

Post by John151 » Wed Feb 06, 2019 3:35 pm

I’m seventy-one. I have more than enough in bonds to see me through to the end of my days, so it really doesn’t matter what happens to my stocks. I rebalanced in 2008-2009, but I haven’t rebalanced since then, and I don’t plan to rebalance going forward.

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Re: If you are old, why bother with rebalancing!!?

Post by Kevin M » Wed Feb 06, 2019 3:42 pm

longinvest wrote:
Wed Feb 06, 2019 3:30 pm
It would seem to me that rebalancing now, before the market rebalances for me, would be a better approach. If, for example, I had a 70/30 stocks/bonds portfolio today but I would be unwilling to rebalance bonds into stocks after they lost 80%, it means that I would be OK with a 14:30 stocks:bonds ratio which is a 32/68 stocks/bonds allocation. It would seem sensible to adopt the 32/68 allocation today and then rebalance my portfolio, even if stocks crashed 80%.

Let's look at the scenario in details, assuming that bonds didn't gain any value during the crash.

We start with a $1,000,000 portfolio.

CASE 1: NON-REBALANCED 70/30 Stocks/Bonds

Stocks crash and lose 80% of their value. The $700,000 in stocks shrinks to $140,000. The $300,000 in bonds holds still. This results into a $440,000 portfolio with a 32/68 stocks/bonds allocation.

CASE 2: REBALANCED 32/68 Stocks/Bonds
<snip>
Steps 2 to 7: Same as step 1, but the final outcome, at the end of step 7 is a $621,317 portfolio with a 32/68 allocation.
Interesting analysis! Thanks for sharing it.

(My target allocation has been 30/70 stocks/fixed-income in retirement, but I'm thinking I won't rebalance from fixed income into stocks unless there's a really big drop in stocks--something big enough to make me nervous; hasn't even come close since last 2008 / early 2009.)

Kevin
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Re: If you are old, why bother with rebalancing!!?

Post by knpstr » Wed Feb 06, 2019 3:59 pm

DecumulatorDoc wrote:
Wed Feb 06, 2019 2:12 pm
Rebalancing is how we manage risk, it is not irrational. Of course it comes at a cost. Since we understand that 100% equities has beaten pretty much every portfolio over a 30 year period of time, are you saying anything less than 100% equities is irrational?
No, not all.
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Re: If you are old, why bother with rebalancing!!?

Post by The Wizard » Wed Feb 06, 2019 4:02 pm

ChipKnox wrote:
Wed Feb 06, 2019 2:24 pm
"Your advice only works for someone like yourself who is a multi-millionaire. Congrats. You (or your wife) can't screw it up."


Good point. This is decidedly not one-size-fits all advice. Has everything to do with portfolio size in retirement.
Not JUST portfolio size, but DEPENDENCY on portfolio in retirement.
If you have sufficient income from SS + pension + annuities, then portfolio withdrawals may not be needed for expenses on a regular basis...
Attempted new signature...

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Re: If you are old, why bother with rebalancing!!?

Post by livesoft » Wed Feb 06, 2019 4:14 pm

OffGridder wrote:
Wed Feb 06, 2019 12:43 pm
If it does not matter, are your strategies which include +/- 2% bands, RBD, over rebalancing, TLH, and market timing between TBM and ST Corporate just recreational pursuits?
I am not as old as 62 and I do not get SS, so I am not in the scenario in my original post. :)

But if you like, then yes, all my participation at bogleheads.org is just a recreational pursuit as are the things you listed.
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Re: If you are old, why bother with rebalancing!!?

Post by Cosmo » Wed Feb 06, 2019 6:13 pm

livesoft wrote:
Tue Feb 05, 2019 6:35 pm
123 wrote:
Tue Feb 05, 2019 6:16 pm
What event lead the OP (livesoft) to this inspiration/revelation? Or has OP decided not to care anymore?
I've read a few "help me with my portfolio" threads in the past few weeks from retirees in their late 60's or older who have been worried about managing their portfolios or want to dis-engage from their expensive advisor or were worried about their asset allocation despite having tons of money. Responses encouraged them to use Vanguard PAS or other roboadvisor or a Balanced fund.

In essence, an advisor provides no added value for these people whatsoever.

I realized that none of that really mattered at their stage of life if they could just step back, turn off their worries, and not pay any extra.

And for myself, if I pre-decease my spouse, I don't have to give my spouse any extra instructions ahead of time because it just won't matter at all. She will be able to spend as she pleases and the portfolio will take care of itself without any intervention for years and years.
Great post. It is reassuring to me knowing that my wife won't have to worry about this, especially since I am essentially in the equivalent of a simple, three-fund portfolio. Keep it simple, people.

Cosmo

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