sambb wrote: ↑Sat Mar 16, 2019 10:31 am
if your RISK TOLERANCE has changed, then rebalance to a lower allocation. Sounds like your risk tolerance has changed, so i would rebalance.
People have risk tolerance changes for all sorts of life events, aging, job issues, feelings of financial security,etc. if yours has changed then rebalance to whatever you desire. If you were comfortable before with 80S/20B, and now, you are more comfy with 50/50, then your risk tolerance has changed. Rebalance to your desired allocation based on your ability to tolerate risk - upside and downside. If you cant tolerate a 20% pullback, then i would not be heavy in stocks.
OK, I have to admit that I sold about 10% of my holdings. Call it "time-based rebalancing". I will explain my rationale.
I believe the market will fluctuate. I bet it will. Logically, this implies that it will go up, then down, and so on.
I don't believe you have to get the timing right twice, or even once. Just know "high" and "low" more or less.
I don't believe that risk tolerance changed for me. Risk changed.
The higher the market goes, the lower the upside, the higher the downside. Well, you get the point. So, I change my allocation accordingly. I do that very infrequently very similar to over-balancing at times like this.
About December 20, I don't remember, S&P500 fell to about 2420 or so. Upside was better, I increased my allocation to stock about 10%. If it goes up, I made money. If it keeps going down, I buy more in about 5% decline intervals. I just don't think about it. I make one of these moves every year or so, infrequently enough to do it in my retirement plan, so no taxable events. Informal, timed rebalancing. Call it a hybrid.
Last Friday, I sold a little more than I added in December. I have realized a gain but just betting that the market will get higher than 2420 at some point, which I don't claim to know. I made 17% in 3.5 months. Good enough for a few years. I don't even do much math or have those bands calculated in my IPS because they vary, but you don't have to be a genius to know that 2400 is "low", and 2900 is "high".
When will I buy and sell? If the market keeps going up very fast, I will sell another 10%, and so on. If not, I will not sell. If it goes back to the 2400s, I will buy more again. Sooner or later, it will happen, and the "stocks in free fall"
thread will get busy, and I start to think. Rinse and repeat. Whatever happens, I am happy. This has always worked better for me than buy and hold. The market will continue to fluctuate medium term, and go higher long term. That is a basic boglehead assumption. I don't pretend to know the future, but I know the past.
What many of us feel is that it is more likely for the market to go lower at some point in the future. Now is a good time to rebalance, that's all.