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How often should I rebalance my tax deferred accounts?

Posted: Thu Feb 13, 2020 10:42 pm
by justsomeguy2018
Some of my retirement & HSA accounts have an option to autorebalance themselves at various frequencies (e.g. every quarter, every 6 months, every year, etc.)

Does it matter if you auto rebalance every quarter vs every year vs every 2 years etc. in a tax deferred account? I am trying to think of how that could or would impact anything.

Re: How often should I rebalance my tax deferred accounts?

Posted: Thu Feb 13, 2020 11:40 pm
by rbpublik
You can backtest various rebalancing options for the funds you're invested in using portfolio visualizer:
https://www.portfoliovisualizer.com/bac ... sisResults

FWIW - I used to maintain an 80/10/10 asset allocation in each of my individual accounts but grew pretty tired of the effort required and tax burden of rebalancing in taxable accounts. Now I keep my entire 10% VBTLX and 10% VTIAX allocations in a single tax-deferred account and then all of my other accounts (4+) are 100% VTSAX. I use a Google Sheets spreadsheet to aggregate the data based on # of shares in each account, compare to my desired asset allocation and rebalance when the conditions specified in my IPS are met (error bands). With this approach I avoid any tax burden of rebalancing in taxable accounts, and when I place the trade I use the "Sell one fund and use proceeds to buy another" option. If you're swapping between funds in the same family (not sure if that is the right term) this exchange happens on the same day so you don't miss any time in the market either.

#First(real)Post after reading for 2 years! Hope this helps...

Re: How often should I rebalance my tax deferred accounts?

Posted: Fri Feb 14, 2020 2:34 am
by Eagle33
Vanguard put out this paper A guide to smart rebalancing
Conclusion
Although a strong case exists for regularly rebalancing your portfolio to improve its risk-adjusted return, no specific rebalancing frequency and/or threshold is optimal forall investors. Generally, more frequent rebalancing will limit the risk in a portfolio to a level suitable for the investment goal, but this potentially comes at the cost of lower returns, increased turnover, and a heavier tax burden in the current period. Just as when investors determine a target asset allocation, they must balance their willingness to accept risk against their expected returns. Investors may also be able to improve portfolio performance, without sacrificing risk control, by practicing tax-efficient rebalancing through the use of tax-advantaged accounts, rebalancing with portfolio income, incorporating tax- and cost-sensitivity awareness into their rebalancing decision, and gifting overweighted and highly appreciated securities.

Re: How often should I rebalance my tax deferred accounts?

Posted: Fri Feb 14, 2020 7:55 am
by rkhusky
It depends on your personal preference. How often do you want to look at your accounts? If it is automatically rebalancing with no fees, then I see no issue with rebalancing every month.

The optimal rebalancing period can only be seen in hindsight, since it depends on how the stock market performs, and you can't predict the performance of the market.

Re: How often should I rebalance my tax deferred accounts?

Posted: Fri Feb 14, 2020 9:14 pm
by grabiner
If you have multiple accounts, and don't maintain the same allocation in each, it's probably better to rebalance across all accounts on your own. (You might not want to maintain the same allocation in each account; for example, if your 401(k) doesn't have a good international fund, you could hold all your international stock in your IRA.)

I rebalance across all my accounts once a year. I do this in January when I make my IRA contribution, since I have to look at my accounts at that time in order to decide which fund gets the IRA contribution. (And I need to rebalance in January even if the markets don't move, because January is also when I increase my bond allocation by 2% every year because retirement gets one year closer.)

Re: How often should I rebalance my tax deferred accounts?

Posted: Fri Feb 14, 2020 10:24 pm
by Phineas J. Whoopee
The frequency, if not decades or anything like that, probably won't matter very much. I personally have adopted a ten percent of portfolio wide tolerance band. At an equity target of 40%, which is mine now, I'll tolerate fluctuation up to 45%, or down to 35%, and take no action. Beyond that band I use tax-advantaged accounts to bring everything back to target. The policy is seldom triggered.

If you're trying to maximize return rebalancing is the wrong tool. It's meant to maintain your roughly approximate portfolio risk level where you decided it should be. It's a risk management technique, not a get rich as fast as possible technique.

Trying to get rich as fast as possible runs the risk of being busted as fast as possible. It's a trade-off for each investor.

More important than the policy you choose is following it consistently.

PJW

Re: How often should I rebalance my tax deferred accounts?

Posted: Fri Feb 14, 2020 10:33 pm
by abuss368
justsomeguy2018 wrote:
Thu Feb 13, 2020 10:42 pm
Some of my retirement & HSA accounts have an option to autorebalance themselves at various frequencies (e.g. every quarter, every 6 months, every year, etc.)

Does it matter if you auto rebalance every quarter vs every year vs every 2 years etc. in a tax deferred account? I am trying to think of how that could or would impact anything.
I generally follow Vanguard's advice from their investment experts and that is a 5% difference is usually a point at which I will review and make adjustments if needed.

Re: How often should I rebalance my tax deferred accounts?

Posted: Fri Feb 14, 2020 10:43 pm
by justsomeguy2018
abuss368 wrote:
Fri Feb 14, 2020 10:33 pm
justsomeguy2018 wrote:
Thu Feb 13, 2020 10:42 pm
Some of my retirement & HSA accounts have an option to autorebalance themselves at various frequencies (e.g. every quarter, every 6 months, every year, etc.)

Does it matter if you auto rebalance every quarter vs every year vs every 2 years etc. in a tax deferred account? I am trying to think of how that could or would impact anything.
I generally follow Vanguard's advice from their investment experts and that is a 5% difference is usually a point at which I will review and make adjustments if needed.
Thanks, but the autorebalance options I have are at set schedules (e.g. once a quarter, once a year, etc.)

Re: How often should I rebalance my tax deferred accounts?

Posted: Fri Feb 14, 2020 10:47 pm
by abuss368
justsomeguy2018 wrote:
Fri Feb 14, 2020 10:43 pm
abuss368 wrote:
Fri Feb 14, 2020 10:33 pm
justsomeguy2018 wrote:
Thu Feb 13, 2020 10:42 pm
Some of my retirement & HSA accounts have an option to autorebalance themselves at various frequencies (e.g. every quarter, every 6 months, every year, etc.)

Does it matter if you auto rebalance every quarter vs every year vs every 2 years etc. in a tax deferred account? I am trying to think of how that could or would impact anything.
I generally follow Vanguard's advice from their investment experts and that is a 5% difference is usually a point at which I will review and make adjustments if needed.
Thanks, but the autorebalance options I have are at set schedules (e.g. once a quarter, once a year, etc.)
That is fine as well. I look periodically and within the established bands and go from there. Jack Bogle said he did not rebalance.

Re: How often should I rebalance my tax deferred accounts?

Posted: Sat Feb 15, 2020 2:07 pm
by Doc
justsomeguy2018 wrote:
Fri Feb 14, 2020 10:43 pm
Thanks, but the autorebalance options I have are at set schedules (e.g. once a quarter, once a year, etc.)
So what? You've gotten several good plans using rebalncing using bands or annually. It's not something you need to be doing constantly. It's not going to be something that takes up a lot of your time. More important is to rebalnce over your entire portfolio not just what is held at a specific broker.

The automatic plan is just a bell and whistle that isn't worth very much if anything at all.

Re: How often should I rebalance my tax deferred accounts?

Posted: Sat Feb 15, 2020 2:11 pm
by justsomeguy2018
Doc wrote:
Sat Feb 15, 2020 2:07 pm
justsomeguy2018 wrote:
Fri Feb 14, 2020 10:43 pm
Thanks, but the autorebalance options I have are at set schedules (e.g. once a quarter, once a year, etc.)
So what? You've gotten several good plans using rebalncing using bands or annually. It's not something you need to be doing constantly. It's not going to be something that takes up a lot of your time. More important is to rebalnce over your entire portfolio not just what is held at a specific broker.

The automatic plan is just a bell and whistle that isn't worth very much if anything at all.
Sure, but my question was if I set up an autorebalance, what frequency should I set it up for. I am not sure I have the diligence to rebalance using "bands" parameters.

Re: How often should I rebalance my tax deferred accounts?

Posted: Sat Feb 15, 2020 2:22 pm
by dbr
justsomeguy2018 wrote:
Sat Feb 15, 2020 2:11 pm
Doc wrote:
Sat Feb 15, 2020 2:07 pm
justsomeguy2018 wrote:
Fri Feb 14, 2020 10:43 pm
Thanks, but the autorebalance options I have are at set schedules (e.g. once a quarter, once a year, etc.)
So what? You've gotten several good plans using rebalncing using bands or annually. It's not something you need to be doing constantly. It's not going to be something that takes up a lot of your time. More important is to rebalnce over your entire portfolio not just what is held at a specific broker.

The automatic plan is just a bell and whistle that isn't worth very much if anything at all.
Sure, but my question was if I set up an autorebalance, what frequency should I set it up for. I am not sure I have the diligence to rebalance using "bands" parameters.
Since it doesn't matter, just pick one. However, the point that it doesn't make much sense to rebalance within a single account is still valid.