How often do you re-balance during these times?

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JD2775
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How often do you re-balance during these times?

Post by JD2775 »

Let's say your re-balance band is 5%.....do you watch the markets closely and re-balance during these times every time it reaches 5% threshold? Or do you wait until end of month? Or?

I am talking about times like these, not during "normal" market behavior...
pasadena
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Re: How often do you re-balance during these times?

Post by pasadena »

I update my numbers every day after market close. If I'm 5% off, I rebalance the next day (waiting until the last minute so I have a better idea of that day's closing prices).

That's the theory. Haven't really had to do it yet (I rebalanced early after the first few days, but that was mostly because I also wanted to move funds from one location to another and it felt like the right time to do that)
ThankYouJack
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Re: How often do you re-balance during these times?

Post by ThankYouJack »

What’s the point of checking it so closely unless you enjoy it?

I rebalance once a year (in January) if my band is outside of 5%. Maybe i’ll check things sooner and rebalance if the market really tanks, but definitely not there yet.
dbr
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Re: How often do you re-balance during these times?

Post by dbr »

We aren't even close to hitting 5% bands in my AA. I haven't actually sold and bought to rebalance in years.

In my opinion the whole exercise is over-emphasized. The only real point is to not let long term asset allocation drift to too high a risk as higher returning assets eventually outgrow lower returning assets. If you want you can eventually rebalance the other way if a really big market shift happens.
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Re: How often do you re-balance during these times?

Post by bloom2708 »

Stocks were 3.5% low before today for us.

If these losses hold, I will hit a 5% band at the end of today.

I will re-balance tomorrow. After a 5% re-balance, my next threshold is 10%.

This time is different, so I'll just see what happens.
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pasadena
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Re: How often do you re-balance during these times?

Post by pasadena »

ThankYouJack wrote: Mon Mar 09, 2020 9:55 am What’s the point of checking it so closely unless you enjoy it?
I do.
BillyK
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Re: How often do you re-balance during these times?

Post by BillyK »

I don't pay attention to my balancing bands when both the U.S. and global markets are all taking a major dump. My fixed income may become higher than my allocated percentage, but I don't find that to be the least bit disconcerting. I rebalance out of equities into fixed income as a means for risk control in up markets, but conversely when the risk shows up, I am not in a big hurry to unload my safer fixed income assets to buy riskier equities. However, I will use all new incoming monies to rebalance as much as I am able into equities. Sitting back and waiting for the smoke to clear in a market crash is a viable precautionary strategy.
agent13x
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Re: How often do you re-balance during these times?

Post by agent13x »

Part of the advantage of rebalancing is selling bonds to buy equities when they go on sale (like now). I am 100% equities so no rebalancing here, but I would probably rebalance daily with the way the market has been lately.
ThankYouJack
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Re: How often do you re-balance during these times?

Post by ThankYouJack »

agent13x wrote: Mon Mar 09, 2020 11:24 am Part of the advantage of rebalancing is selling bonds to buy equities when they go on sale (like now). I am 100% equities so no rebalancing here, but I would probably rebalance daily with the way the market has been lately.
We don’t know if stocks are on sale compared to what they will be tomorrow? If stocks continue to slide rebalancing more often is like catching a falling knife.
UnLearnYourself
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Re: How often do you re-balance during these times?

Post by UnLearnYourself »

ThankYouJack wrote: Mon Mar 09, 2020 11:37 am
agent13x wrote: Mon Mar 09, 2020 11:24 am Part of the advantage of rebalancing is selling bonds to buy equities when they go on sale (like now). I am 100% equities so no rebalancing here, but I would probably rebalance daily with the way the market has been lately.
We don’t know if stocks are on sale compared to what they will be tomorrow? If stocks continue to slide rebalancing more often is like catching a falling knife.
I think that points back to the OP's question. So your recommendation would be to rebalance less frequently?

Having recently jumped from Target Date funds to a 3-fund portfolio I too have questions on rebalancing frequency when in the midst of volatility like this.
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canadianbacon
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Re: How often do you re-balance during these times?

Post by canadianbacon »

ThankYouJack wrote: Mon Mar 09, 2020 11:37 am
agent13x wrote: Mon Mar 09, 2020 11:24 am Part of the advantage of rebalancing is selling bonds to buy equities when they go on sale (like now). I am 100% equities so no rebalancing here, but I would probably rebalance daily with the way the market has been lately.
We don’t know if stocks are on sale compared to what they will be tomorrow? If stocks continue to slide rebalancing more often is like catching a falling knife.
And if they don't continue to slide it's not like catching a falling knife.
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OpenMinded1
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Re: How often do you re-balance during these times?

Post by OpenMinded1 »

pasadena wrote: Mon Mar 09, 2020 9:49 am I update my numbers every day after market close. If I'm 5% off, I rebalance the next day (waiting until the last minute so I have a better idea of that day's closing prices).

That's the theory. Haven't really had to do it yet (I rebalanced early after the first few days, but that was mostly because I also wanted to move funds from one location to another and it felt like the right time to do that)
If you have target date funds they rebalance very frequently, so you don't have to bother.
KlangFool
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Re: How often do you re-balance during these times?

Post by KlangFool »

OP,

I do both 5/25 and annual rebalancing. 40% of my portfolio is in the Wellington fund. It would take a 30% stock market drop before my 5/25 band is triggered.

The short answer to your question is not likely I will need to rebalance unless we have a 30% stock market drop before August. Or else, I probably rebalance around August. Aka, my annual rebalancing time.

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BillyK
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Re: How often do you re-balance during these times?

Post by BillyK »

OpenMinded1 wrote:

If you have target date funds they rebalance very frequently, so you don't have to bother.
That is arguably one of the downsides of target funds in a major crash which is a consideration for holding instead a 3 or 4 fund (international bonds).
ThankYouJack
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Re: How often do you re-balance during these times?

Post by ThankYouJack »

canadianbacon wrote: Mon Mar 09, 2020 11:45 am
ThankYouJack wrote: Mon Mar 09, 2020 11:37 am
agent13x wrote: Mon Mar 09, 2020 11:24 am Part of the advantage of rebalancing is selling bonds to buy equities when they go on sale (like now). I am 100% equities so no rebalancing here, but I would probably rebalance daily with the way the market has been lately.
We don’t know if stocks are on sale compared to what they will be tomorrow? If stocks continue to slide rebalancing more often is like catching a falling knife.
And if they don't continue to slide it's not like catching a falling knife.
Yep, we just need a crystal ball to tell us when to rebalance ;)
ThankYouJack
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Re: How often do you re-balance during these times?

Post by ThankYouJack »

UnLearnYourself wrote: Mon Mar 09, 2020 11:44 am
ThankYouJack wrote: Mon Mar 09, 2020 11:37 am
agent13x wrote: Mon Mar 09, 2020 11:24 am Part of the advantage of rebalancing is selling bonds to buy equities when they go on sale (like now). I am 100% equities so no rebalancing here, but I would probably rebalance daily with the way the market has been lately.
We don’t know if stocks are on sale compared to what they will be tomorrow? If stocks continue to slide rebalancing more often is like catching a falling knife.
I think that points back to the OP's question. So your recommendation would be to rebalance less frequently?

Having recently jumped from Target Date funds to a 3-fund portfolio I too have questions on rebalancing frequency when in the midst of volatility like this.
I think it’s impossible to prove if rebalancing more or less frequently makes a difference. So I personally don’t bother rebalance frequently. But I am following this thread because someone may convince me otherwise.
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Re: How often do you re-balance during these times?

Post by GAAP »

I use the range rebalancing method described by Gobind Daryanani with a 20% rebalance band and 10% tolerance bands. The 20 Market Day look interval corresponds nicely to normal fund distributions. I send all distributions to cash, using the new funds to purchase whatever is farthest below target.

Twitches in the market are not a factor for me.
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Ketawa
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Re: How often do you re-balance during these times?

Post by Ketawa »

There's nothing special about using specific time intervals or bands for rebalancing. Absent frictions like tax impacts or ETF bid/ask spreads, every investor is effectively making the decision to "buy" their portfolio at the current market price. The reason to have a set time interval or rebalancing band is to minimize the amount of time you spend managing your portfolio for little reason, and to ensure you do not stray too far from your target asset allocation.

If daily rebalancing is good enough for every target date fund or balanced fund, it's good enough for regular investors.

I would rebalance all the time, except I'm limited to only two regular interfund transfers per month in my TSP account. I already used one this month. I might pull the trigger on a second tomorrow. After two interfund transfers, the only transfers that are allowed are net into the G Fund.
OpenMinded1
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Re: How often do you re-balance during these times?

Post by OpenMinded1 »

BillyK wrote: Mon Mar 09, 2020 12:04 pm
OpenMinded1 wrote:

If you have target date funds they rebalance very frequently, so you don't have to bother.
That is arguably one of the downsides of target funds in a major crash which is a consideration for holding instead a 3 or 4 fund (international bonds).
I hear you. I'm primarily in target date funds to make things simple for my wife if something happens to me. But yeah the target date portfolio doesn't get more conservative as the market drops. I think that's the downside you are referring to. Not sure if that's a downside in the long run or not.
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Re: How often do you re-balance during these times?

Post by Rebalance »

I normally enjoy checking my portfolio balance almost every day the market is open. Part of my daily routine is to visit Vanguards "Portfolio Watch" and check my equity percentage. If that number is off by more than my band, then my IPS basically requires me to rebalance before I get to goof off again at home.

I'm retired living off my portfolio, so I also withdraw 1% of my portfolio as needed for living expenses. That normally also involves rebalancing the portfolio, or at the very least using the withdrawal to move the portfolio towards my targets. Just as my contributions pre-retirement normally moved my portfolio towards my targets.

My IPS allows me to change the size of my rebalance band whenever I rebalance. So I cannot avoid a rebalance by changing the band, but am not locked into one particular band forever. I have used bands of +/-4%, 3%, and currently 2%. When I get annoyed by not having a rebalance triggered by a bunch of nice dips I tend to shrink the band. When I think I'm spending too much time rebalancing I widen the band.

I don't know of any definitive science telling what band is ideal. In retrospect, the ideal often seems to be closely related to short-term market timing. If I had perfect foresight, I would set the band to trigger based on the close the day before the bear market bottom. I obviously cannot do that. However, I am convinced that rebalancing improves my risk adjusted returns.

I do have a floor of years of living expenses which must stay in cash/bonds. So there is a limit to my rebalancing. During the Great Recession I hit that floor about a month before the actual market bottom.
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thx1138
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Re: How often do you re-balance during these times?

Post by thx1138 »

We have assets spread across multiple accounts and brokerages so it is sort of a pain to gather all the data. I’ve intentionally left it awkward to do so I don’t obsessively check. Thus in the past I’ve only done rebalancing when making lump contributions like IRA at the start of the year or sometimes when adjusting 401k contributions around August.

Right now the move has been big enough I bothered checking despite not having any contributions to make. A week or so ago I could see I was close to a 5/25 band. I checked today and indeed have just broken the band (so definitely had broken it by more end of Thursday). Monday assuming the market isn’t shooting upwards back into the band I’ll schedule some exchanges for the end of the day to rebalance.
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Re: How often do you re-balance during these times?

Post by Rajsx »

I rebalanced into & also invested savings in the Total stock market during the present downturn.

I usually do it near the end of the market closing around 3.30 to 4 Pm & if the Market is down.

3/5 I invested at S&P down 3.4%

3/9/20 I made a Roth conversion(scheduled for end of the year from Total Bond Index to Total Stock Market with the S&P down 7%

3/11/20 I exchanged Intermediate Tax Exempt Bond to Total Stock Market with S&P down 4.89%

3/12/20 I invested when S&P down 9.5%

My target allocation is about 50 /45/5 , but due to the bull market the Stocks were out of proportion & also our bank savings had increased.

As the Bonds & Cash will provide us 10+ yrs of living expenses, I figured the Stock Market would hopefully be back up by then.
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Re: How often do you re-balance during these times?

Post by Bluce »

JD2775 wrote: Mon Mar 09, 2020 9:45 am Let's say your re-balance band is 5%.....do you watch the markets closely and re-balance during these times every time it reaches 5% threshold? Or do you wait until end of month? Or?

I am talking about times like these, not during "normal" market behavior...
I've not bought or sold anything, or re-balanced.

My AA is supposed to be 30/70 and it has changed to 28/72. So I'm still kinda sleeping through all this. :shock:
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cos
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Re: How often do you re-balance during these times?

Post by cos »

The rebalancing strategy I laid out in my investment policy statement is designed to account for times like these so I haven't changed anything. I'm rebalacing just as often as I otherwise would be: quarterly or at 15% absolute bands, whichever comes first.

The recent market volatility forced me to rebalance on Monday so I'll be skipping my next scheduled quarterly rebalance on April 1st. Hopefully things settle down by then, but if they don't, I'm prepared.
Lookingforanswers
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Re: How often do you re-balance during these times?

Post by Lookingforanswers »

My IPS also says not to do anything major when the VIX (CBOE Volatility Index) is going crazy.
Last edited by Lookingforanswers on Thu Dec 17, 2020 11:27 pm, edited 2 times in total.
JustinR
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Re: How often do you re-balance during these times?

Post by JustinR »

Best practices for rebalancing based on a study Vanguard did:


Step 1) Rebalance with new money as you can.

Step 2) Choose one arbitrary day per year, like your birthday. On that day (and only on that specific date per year):
  1. If your bands (5%/25%) are breached, rebalance.
  2. Otherwise, do nothing.

So, keep investing with new money and don't do an actual rebalance until your birthday.
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Re: How often do you re-balance during these times?

Post by MnD »

With a 5 percentage point (either way) band of rebalancing when fixed income is below 25% or above 35%, rebalancing is a very infrequent event even "during these times". When going into a decline it is nearly always the case that your fixed income allocation will be on the lower side of your allowable asset allocation, thus the magnitude of equity decline needed to breach the upper fixed income limit is very substantial.

Thanks to aggregator services I can check my overall AA with a click of the button. I normally check weekly. If I am getting close to breaching a band I might check daily if a subsequent significant move occurs in the same direction. Fixed income currently 33.5% so not very close to triggering even with last week. The most important thing is to stick to your rebalancing rules. Many people have rules and then toss them out the window when markets get "interesting". I have a hunch I will be rebalancing soon, but it doesn't matter what my hunch is. I'll follow my IPS for rebalancing guidance as always.
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Lookingforanswers
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Re: How often do you re-balance during these times?

Post by Lookingforanswers »

JustinR wrote: Sun Mar 15, 2020 2:28 am Best practices for rebalancing based on a study Vanguard did:
Thanks for posting this - I think I read this in the past but re-reading it is really helpful.
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9-5 Suited
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Re: How often do you re-balance during these times?

Post by 9-5 Suited »

I have found that it is surprisingly hard to trigger a 5% rebalancing band. I was at 82% stock before the fall and now at 76%, so technically no action needed against an 80% target yet. I’ll probably just use new money to march toward the target for now unless I get motivated enough to rebalance a bit within 401k.
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Re: How often do you re-balance during these times?

Post by longinvest »

My global balanced index One-Fund Portfolio is rebalanced daily with the cash flows of other investors. It's automatic; I have nothing to do. :D

Vanguard's approach to rebalance my single-ETF portfolio (similar to LifeStrategy Moderate Growth fund) is described in this document:

Vanguard asset allocation ETFs: A simple yet sophisticated approach to portfolio construction
For investors managing their own portfolios, semi-annual or annual rebalancing if the equity allocation has deviated more than 5% from its target is often enough to strike a balance between the benefits of keeping a portfolio in line with its policy allocation and the transaction and monitoring costs of more frequent rebalancing (Jaconetti et al, 2010). However, the asset allocation ETFs can use daily cash flows to keep their holdings close to target. In the case of a big market movement that can cause the portfolios to deviate from their stated targets, we apply a 2% tolerance band. The result is an asset allocation that closely tracks the policy portfolio while keeping transaction costs low and also alleviating many of the operational complexities and administrative burdens of executing an asset allocation program, freeing up valuable time that can be spent elsewhere.
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Re: How often do you re-balance during these times?

Post by confusedinvestor »

Longinvest,

What is the Tolerance Band of 2% per Vanguard paragraph below vs 5% absolute percentage ?
longinvest wrote: Sun Mar 15, 2020 2:31 pm My global balanced index One-Fund Portfolio is rebalanced daily with the cash flows of other investors. It's automatic; I have nothing to do. :D

Vanguard's approach to rebalance my single-ETF portfolio (similar to LifeStrategy Moderate Growth fund) is described in this document:

Vanguard asset allocation ETFs: A simple yet sophisticated approach to portfolio construction
For investors managing their own portfolios, semi-annual or annual rebalancing if the equity allocation has deviated more than 5% from its target is often enough to strike a balance between the benefits of keeping a portfolio in line with its policy allocation and the transaction and monitoring costs of more frequent rebalancing (Jaconetti et al, 2010). However, the asset allocation ETFs can use daily cash flows to keep their holdings close to target. In the case of a big market movement that can cause the portfolios to deviate from their stated targets, we apply a 2% tolerance band. The result is an asset allocation that closely tracks the policy portfolio while keeping transaction costs low and also alleviating many of the operational complexities and administrative burdens of executing an asset allocation program, freeing up valuable time that can be spent elsewhere.
longinvest
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Re: How often do you re-balance during these times?

Post by longinvest »

confusedinvestor wrote: Sun Mar 15, 2020 3:52 pm What is the Tolerance Band of 2%
It means that Vanguard doesn't actively rebalance the all-in-one fund/ETF unless an asset is more than 2% above or below target. Most of the time passive rebalancing with daily cash flows is sufficient to keep the allocation within the tolerance band. This is very cost-efficient and tax-efficient.
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Re: How often do you re-balance during these times?

Post by jvini »

BillyK wrote: Mon Mar 09, 2020 10:55 am I don't pay attention to my balancing bands when both the U.S. and global markets are all taking a major dump. My fixed income may become higher than my allocated percentage, but I don't find that to be the least bit disconcerting. I rebalance out of equities into fixed income as a means for risk control in up markets, but conversely when the risk shows up, I am not in a big hurry to unload my safer fixed income assets to buy riskier equities. However, I will use all new incoming monies to rebalance as much as I am able into equities. Sitting back and waiting for the smoke to clear in a market crash is a viable precautionary strategy.
I like your thinking. I was going to rebalance out of bonds into equities if my allocation in bonds was 15% higher than it should be, BUT, I may just wait until the end of the year to rebalance, which is my usual time, and put new monthly money into equities. It would take a while to rebalance solely with new money at this point, but hopefully things will turn around by the end of the year. I guess I'll lose out if the market turns higher during the summer, but I'm willing to miss that opportunity in order to preserve capital and sleep better at night.
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JD2775
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Re: How often do you re-balance during these times?

Post by JD2775 »

jvini wrote: Sun Mar 15, 2020 6:24 pm
BillyK wrote: Mon Mar 09, 2020 10:55 am I don't pay attention to my balancing bands when both the U.S. and global markets are all taking a major dump. My fixed income may become higher than my allocated percentage, but I don't find that to be the least bit disconcerting. I rebalance out of equities into fixed income as a means for risk control in up markets, but conversely when the risk shows up, I am not in a big hurry to unload my safer fixed income assets to buy riskier equities. However, I will use all new incoming monies to rebalance as much as I am able into equities. Sitting back and waiting for the smoke to clear in a market crash is a viable precautionary strategy.
I like your thinking. I was going to rebalance out of bonds into equities if my allocation in bonds was 15% higher than it should be, BUT, I may just wait until the end of the year to rebalance, which is my usual time, and put new monthly money into equities. It would take a while to rebalance solely with new money at this point, but hopefully things will turn around by the end of the year. I guess I'll lose out if the market turns higher during the summer, but I'm willing to miss that opportunity in order to preserve capital and sleep better at night.
I just rebalanced this past week bonds into stocks to get back to my 70/30, but I like this thinking as well. I may refrain from rebalancing anymore now and just point new recurring contributions 100% into equities instead and then re-evaluate in a few months.
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Re: How often do you re-balance during these times?

Post by jvini »

Lookingforanswers wrote: Sun Mar 15, 2020 11:33 am
JustinR wrote: Sun Mar 15, 2020 2:28 am Best practices for rebalancing based on a study Vanguard did:
Thanks for posting this - I think I read this in the past but re-reading it is really helpful.
Thank you. Makes me feel better about waiting until the end of the year which is my annual rebalance time.
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Re: How often do you re-balance during these times?

Post by Chip »

JD2775 wrote: Mon Mar 09, 2020 9:45 am Let's say your re-balance band is 5%.....do you watch the markets closely and re-balance during these times every time it reaches 5% threshold? Or do you wait until end of month? Or?

I am talking about times like these, not during "normal" market behavior...
I have been watching markets closely. With a 60/40 portfolio and 5/25 bands I have had to rebalance once. It would have been twice, but I have used the downturn to pare an individual stock holding and move the proceeds into index funds. I guess that could be considered additional rebalancing.

We are retired. DW and I sat down this weekend and reviewed the amount of fixed income assets we would need to sustain our spending for the next 10 to 20 years. We are well above that level now. I'm comfortable with rebalancing down to 15 years. At least that's how I feel now. DW is a little more conservative. Kind of surprising as she has been the gunslinger in the family. :D We agreed to rebalance once more (which may happen today), then review that fixed income floor once again.
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Re: How often do you re-balance during these times?

Post by michoco911 »

Lookingforanswers wrote: Sat Mar 14, 2020 10:36 pm My personal IPS says that I will rebalance when I am off by 5%. I got there last week, but my IPS also says not to do anything major when the VIX (CBOE Volatility Index) is going crazy. In the past few weeks, the VIX has zoomed to more than 50 (it was more than 60 on Thursday), vs a "normal" level in the teens (it was under 15 most of January, and a bit higher in February).

I never watched the VIX until the 2008/2009 crisis and have since learned that when it's over 25 it's a pretty good predictor of my personal skittishness about doing anything big.

So my IPS says not to rebalance until the VIX drops below 20. I am tempted to rebalance now, but the the ultra-high VIX reminds me things are still a bit nutty.

I realize that watching VIX may make me a bit of a market timer but I also know that if I'm buying or selling much when the VIX is high, I'm prone to be buying the day before another big dip. It's easier for me to wait for calmer times, and VIX seems to do a good job of telling me when things are calmer.
I have been in this forum for the past 2 years and i have built my IPS based on books read and guidelines here.
However this is the first week where i hear several posts about adding VIX as part of the rebalancing formula.
Any links that detail that and explain why this is important to be take into consideration?
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Re: How often do you re-balance during these times?

Post by Portfolio7 »

If more anecdotal data is useful... this may sound a little complicated, but it's really pretty straightforward.

I have two processes which can change my AA. Depending on risk factors, I may skew a fund up or down a couple percent. This is a form of overweighting, and it leads to small changes in my AA 4 or 5 times a year within a particular range that I am comfortable with. Once I do make a change, I do not allow myself to make further changes for 30 days. I never make a change I can't live with long term, so if something happens in my real life, and my AA stays overweighted in one direction or another for a long time, I am not concerned. If I know I will be busy for a certain time period, I reset everything to my base AA.

I also use rebalance bands. If my AA has shifted more than 5% since my last transaction, then I will rebalance by the next weekend (so let's say within one week. I don't worry about a few days in between the trigger and the action.) The exception is when my last transaction was within 30 days, in which case I wait for the 30 days to pass. If the rebalance is closer to 10% (as this one is) I break out rebalancing into two transactions that are a month apart (and a third if overbalancing.) This makes me feel a little like I'm DCA'ing into a potential bottom, rather than standing below that falling knife people like to talk about.

The 30 day restriction passed last thursday. I checked my numbers and had roughly an 8.5% shift in AA. This weekend I put in the order to close half the gap. At the close of trading today, the exchange will take place. In another month, I'll close the remainder of the gap, assuming it still exists. After my rebalancing is completed, I am free to overbalance modestly (using an idea i've seen here on Bogleheads... 1% additional shift for every 5% market move), subject to the 30 day window and also subject to a minimum Fixed Income balance that I do not go below.
"An investment in knowledge pays the best interest" - Benjamin Franklin
Jags4186
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Joined: Wed Jun 18, 2014 7:12 pm

Re: How often do you re-balance during these times?

Post by Jags4186 »

I rebalance yearly on my birthday so in about a month I will be doing it.
DesertInvestor
Posts: 194
Joined: Tue Dec 20, 2016 1:04 pm

Re: How often do you re-balance during these times?

Post by DesertInvestor »

Portfolio7 wrote: Mon Mar 23, 2020 9:29 am If more anecdotal data is useful... this may sound a little complicated, but it's really pretty straightforward.

I have two processes which can change my AA. Depending on risk factors, I may skew a fund up or down a couple percent. This is a form of overweighting, and it leads to small changes in my AA 4 or 5 times a year within a particular range that I am comfortable with. Once I do make a change, I do not allow myself to make further changes for 30 days. I never make a change I can't live with long term, so if something happens in my real life, and my AA stays overweighted in one direction or another for a long time, I am not concerned. If I know I will be busy for a certain time period, I reset everything to my base AA.

I also use rebalance bands. If my AA has shifted more than 5% since my last transaction, then I will rebalance by the next weekend (so let's say within one week. I don't worry about a few days in between the trigger and the action.) The exception is when my last transaction was within 30 days, in which case I wait for the 30 days to pass. If the rebalance is closer to 10% (as this one is) I break out rebalancing into two transactions that are a month apart (and a third if overbalancing.) This makes me feel a little like I'm DCA'ing into a potential bottom, rather than standing below that falling knife people like to talk about.

The 30 day restriction passed last thursday. I checked my numbers and had roughly an 8.5% shift in AA. This weekend I put in the order to close half the gap. At the close of trading today, the exchange will take place. In another month, I'll close the remainder of the gap, assuming it still exists. After my rebalancing is completed, I am free to overbalance modestly (using an idea i've seen here on Bogleheads... 1% additional shift for every 5% market move), subject to the 30 day window and also subject to a minimum Fixed Income balance that I do not go below.
This is complicated, but excellent. Its not a simple process in a market like this for busy people. i like the weekend isolation and the monthly rules so you don't have to worry about it and can move on with your life. it can be so consuming to think about. I will likely adopt the same.
adam1712
Posts: 510
Joined: Fri Jun 01, 2007 5:21 pm

Re: How often do you re-balance during these times?

Post by adam1712 »

I rebalance monthly with my new contributions. Now that it's getting a little tougher with a larger portfolio, I might move an extra $1000 or so in the direction it needs to go. I'd say roughly I aim for 1/12 of the difference so I'll be back to my AA in a year. I have no desire to move big amounts either once a year or when a band is breached.
JW-Retired
Posts: 7188
Joined: Sun Dec 16, 2007 12:25 pm

Re: How often do you re-balance during these times?

Post by JW-Retired »

JD2775 wrote: Mon Mar 09, 2020 9:45 am I am talking about times like these, not during "normal" market behavior...
Never re-balance in these times. Since a little before the turn of the century, I only re-balance when my equities get too high over my nominal 60%. Or with new money. Neither of those conditions are apt to happen soon.

That eliminates a lot of work and worry for me. :D
JW
Retired at Last
Triple digit golfer
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Re: How often do you re-balance during these times?

Post by Triple digit golfer »

JustinR wrote: Sun Mar 15, 2020 2:28 am Best practices for rebalancing based on a study Vanguard did:


Step 1) Rebalance with new money as you can.

Step 2) Choose one arbitrary day per year, like your birthday. On that day (and only on that specific date per year):
  1. If your bands (5%/25%) are breached, rebalance.
  2. Otherwise, do nothing.

So, keep investing with new money and don't do an actual rebalance until your birthday.
This seems like the most logical choice. It greatly lessens the "tinker" factor.

It makes great sense to put new money into the lagging asset class, although you'll drive yourself nuts trying to do it after a 10% up day followed by a 10% down day. I say for Step 1 above, just do the best you can. The "as you can" is there for a reason and I'm glad that you put it there. Our 401k (bonds and U.S. equities) are made biweekly and require a hardcopy form to be submitted to HR in order to change contribution allocation. Our Roth IRAs and taxable investments are mostly international equities and are made when money is available and often times early in the year.

So, for us, it's easier to simply contribute per our AA. In the case of a large market decline, like our recent 25%+ decline, I did change the 401k to go all into equities because I doubt anytime soon that we'll be back up to highs. But either way, this isn't of much significance. If suddenly my 75/25 becomes 76/24, I'm not going to change back to have the 401k go to bonds.

Step 2 makes a lot of sense, too. Pick a day each year to check, and if you need to rebalance, do so. If not, don't. "Need" in my last sentence means more than 5% off. Maybe you're 4% off and you get the need to tinker. You think, what if by next year I'm 10% off?! Well, that means momentum helped you even more! If your 75/25 becomes 79/21 and you don't rebalance, then the next year it's 85/25, congratulations! You did well. Lock in those gains now at year 2. On the other hand, if your 75/25 becomes 79/21 and you don't rebalance, then next year it's back to 75/25, well, the market took care of things for you. There is no large difference at a 5% swing, which is why rebalancing bands are typically recommend at 5% or more.

I generally think the less tinkering required, the better for most people.
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