Rebalancing into stocks when they fall is unrealistic

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Streptococcus
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Re: Rebalancing into stocks when they fall is unrealistic

Post by Streptococcus » Sat Mar 14, 2020 4:21 pm

Beliavsky wrote:
Thu Mar 12, 2020 10:45 pm
The common advice to decide on a stock/bond allocation and to rebalance to it periodically is unrealistic. In this market you would be selling bonds to buy stocks. VIX is 75, about 5 times its usual level. So after stocks have fallen drastically, and you have become substantially poorer, you should dial up risk? My wife is saying we need to exit stocks entirely, and I am trying to resist. If I insisted on rebalancing to get to our allocation of 2 months ago, she might divorce me.

Rebalancing out of stocks when they have outperformed bonds is feasible. There's no law saying you can't reduce risk after your investments have done well. it's the rebalancing into stocks with existing money that I oppose.

One reason stocks have fallen is that big parts of the travel and entertainment industries are being shut down. Many people will lose their jobs or have their hours cut back. If your income is stable and you are continuing to save, you can gradually rebalance into stocks by earmarking new savings for stocks.
I can relate to you as this is my first bear market and I have already lost over 200K. I have a slight edge over you because my spouse is not interested in dealing with it and I am (so far) not phased at all.

Here are my practical advices:
1. Whatever you do, do not sell and get out. That is the worst decision possible.
2. Read “Rational Expectations” by Bill Bernstein. I always remember the part were he said that when the market drops by 50%, like in 2007, 70% of investors abandon their strategy. I do not want to be in that group.
3. If you cannot sleep at night, and you really feel like selling everything, just try to NOT LOOK. Get out of the news, abandon this forum for a few months, watch more netflix, come back at predetermined dates, twice a year (june and December 30th?)
4. If this does not work, then try to reduce your AA to a less risky one 60/40? 50/50? Or try to ride the whole crash without rebalacing.
But if you can, dont get out.

SimplicityNow
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Re: Rebalancing into stocks when they fall is unrealistic

Post by SimplicityNow » Sat Mar 14, 2020 5:23 pm

It all comes down with be comfortable with your IPS. It should be drawn up when we are in calm waters, not turbulent ones. Once it is it should be followed. If you can.

Of course, once things become volatile that is the true test of your plan.

There is no sin in reevaluating but to say it is unreasonable is painting things with a broad brush.

Unreasonable for you? Obviously. Unreasonable for others? Probably. Unreasonable for everyone because you need confirmation bias? I don't buy it.

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siamond
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Re: Rebalancing into stocks when they fall is unrealistic

Post by siamond » Sat Mar 14, 2020 6:20 pm

SimpleGift wrote:
Sat Mar 14, 2020 3:55 pm
siamond wrote:
Sat Mar 14, 2020 3:43 pm
- what about withdrawals (e.g. retirees)? I assume it is acceptable to sell bonds by then? How? Proportionally to your current AA? Another way?

We're fortunate to be able to live mostly off our portfolio income in retirement (~2.0% withdrawal rate) — so other one-way rebalancers will have to chime in about they manage their withdrawals by selling assets.
Does that mean that you simply take dividends as they come (from stock funds and bond funds) and that's your withdrawal procedure?

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SimpleGift
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Re: Rebalancing into stocks when they fall is unrealistic

Post by SimpleGift » Sat Mar 14, 2020 6:29 pm

siamond wrote:
Sat Mar 14, 2020 6:20 pm
Does that mean that you simply take dividends as they come (from stock funds and bond funds) and that's your withdrawal procedure?
Right. All dividends from stock and bond funds go automatically into a money market fund, which acts as a reserve pool of cash to smooth out our monthly income and expense fluctuations. Works for us.

Wannaretireearly
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Re: Rebalancing into stocks when they fall is unrealistic

Post by Wannaretireearly » Sat Mar 14, 2020 6:43 pm

Getting used to rebalancing via TRD funds. Moved from 2035 to 2045 this week. Only done this once past 3 years.

Also bought a bit of vemax/emerging markets this week.

To the OP, in accumulation phase its easier go do all this imo.

Come closer to retirement 10 years out I want 40-50% of my portfolio in safe assets. I want dividend income and not have to really mess with my portfolio at all.

I guess this is my IPS above! Move to 60/40 at the age of 50-55. While I'm still working I'll take some over balancing risks...
Buy Low, Sell High

fortyofforty
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Re: Rebalancing into stocks when they fall is unrealistic

Post by fortyofforty » Sat Mar 14, 2020 6:49 pm

SimpleGift wrote:
Sat Mar 14, 2020 6:29 pm
siamond wrote:
Sat Mar 14, 2020 6:20 pm
Does that mean that you simply take dividends as they come (from stock funds and bond funds) and that's your withdrawal procedure?
Right. All dividends from stock and bond funds go automatically into a money market fund, which acts as a reserve pool of cash to smooth out our monthly income and expense fluctuations. Works for us.
That strategy certainly lets you ignore any market turbulence.

Explorer
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Re: Rebalancing into stocks when they fall is unrealistic

Post by Explorer » Sat Mar 14, 2020 7:00 pm

There is a poster on M* forums with the same handle "Beliavsky" who is a very knowledgeable investor - not sure if the topic author of this thread is the same person?

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Rowan Oak
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Re: Rebalancing into stocks when they fall is unrealistic

Post by Rowan Oak » Sat Mar 14, 2020 9:26 pm

longinvest wrote:
Sat Mar 14, 2020 1:33 pm
I think that many investors would be better to simply put their life savings into an all-in-one fund like LifeStrategy Moderate Growth and go do something else with their life, instead of obsessing about whether to rebalance their portfolio or not during volatile markets.
I think this makes a lot of sense.
“If you can get good at destroying your own wrong ideas, that is a great gift.” – Charlie Munger

JustinR
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Re: Rebalancing into stocks when they fall is unrealistic

Post by JustinR » Sat Mar 14, 2020 9:41 pm

Beliavsky wrote:
Thu Mar 12, 2020 10:45 pm
The common advice to decide on a stock/bond allocation and to rebalance to it periodically is unrealistic. In this market you would be selling bonds to buy stocks. VIX is 75, about 5 times its usual level. So after stocks have fallen drastically, and you have become substantially poorer, you should dial up risk? My wife is saying we need to exit stocks entirely, and I am trying to resist. If I insisted on rebalancing to get to our allocation of 2 months ago, she might divorce me.

Rebalancing out of stocks when they have outperformed bonds is feasible. There's no law saying you can't reduce risk after your investments have done well. it's the rebalancing into stocks with existing money that I oppose.

One reason stocks have fallen is that big parts of the travel and entertainment industries are being shut down. Many people will lose their jobs or have their hours cut back. If your income is stable and you are continuing to save, you can gradually rebalance into stocks by earmarking new savings for stocks.
I feel like you don't understand what an asset allocation is.

Here: https://www.bogleheads.org/wiki/Asset_allocation

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birdog
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Re: Rebalancing into stocks when they fall is unrealistic

Post by birdog » Sun Mar 15, 2020 6:59 am

Sagefemme wrote:
Fri Mar 13, 2020 10:12 am
My investment plan (which I have only had for about a year) says rebalance Jan 1 and July 1 each year, and whenever the portfolio is 6% away from the designated AA of 50-50. July 1 of 2019 and Jan 1 of 2020 there was nothing to do, as I was still at 50-50 or very close. Yesterday I was at 44-56, and went ahead and sold bonds and bought stocks. It was surprisingly easy to do; I trust the FA that made the plan with us and just followed that plan. My husband said, "Seriously, you're really buying stocks today?" And I said, yep, and did it. Luckily he is mostly uninterested in our retirement accounts and decided resistance was futile.
If your investment plan says rebalance Jan 1 and July 1 and you rebalanced yesterday, it sounds like you just violated your plan, not followed it.

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jeffyscott
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Re: Rebalancing into stocks when they fall is unrealistic

Post by jeffyscott » Sun Mar 15, 2020 10:18 am

birdog wrote:
Sun Mar 15, 2020 6:59 am
Sagefemme wrote:
Fri Mar 13, 2020 10:12 am
My investment plan (which I have only had for about a year) says rebalance Jan 1 and July 1 each year, and whenever the portfolio is 6% away from the designated AA of 50-50. July 1 of 2019 and Jan 1 of 2020 there was nothing to do, as I was still at 50-50 or very close. Yesterday I was at 44-56, and went ahead and sold bonds and bought stocks. It was surprisingly easy to do; I trust the FA that made the plan with us and just followed that plan. My husband said, "Seriously, you're really buying stocks today?" And I said, yep, and did it. Luckily he is mostly uninterested in our retirement accounts and decided resistance was futile.
If your investment plan says rebalance Jan 1 and July 1 and you rebalanced yesterday, it sounds like you just violated your plan, not followed it.
Not if you take the time to read and understand the entire sentence that ends with: , and whenever the portfolio is 6% away from the designated AA of 50-50. :)
Time is your friend; impulse is your enemy. - John C. Bogle

TheDDC
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Re: Rebalancing into stocks when they fall is unrealistic

Post by TheDDC » Sun Mar 15, 2020 10:47 am

Rowan Oak wrote:
Sat Mar 14, 2020 9:26 pm
longinvest wrote:
Sat Mar 14, 2020 1:33 pm
I think that many investors would be better to simply put their life savings into an all-in-one fund like LifeStrategy Moderate Growth and go do something else with their life, instead of obsessing about whether to rebalance their portfolio or not during volatile markets.
I think this makes a lot of sense.
Even better is 100/0 for my retirement assets. Real easy AND I get auto rebalancing twice a month! Set it and forget it. I appreciate seeing dividends go to buying more without any intervention.

-TheDDC
Rules to wealth building: 90-100% VTSAX piled high and deep, 0-10% VIGAX tilt, 0% given away to banks, minimize amount given to medical-industrial complex

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birdog
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Re: Rebalancing into stocks when they fall is unrealistic

Post by birdog » Sun Mar 15, 2020 12:08 pm

jeffyscott wrote:
Sun Mar 15, 2020 10:18 am
birdog wrote:
Sun Mar 15, 2020 6:59 am
Sagefemme wrote:
Fri Mar 13, 2020 10:12 am
My investment plan (which I have only had for about a year) says rebalance Jan 1 and July 1 each year, and whenever the portfolio is 6% away from the designated AA of 50-50. July 1 of 2019 and Jan 1 of 2020 there was nothing to do, as I was still at 50-50 or very close. Yesterday I was at 44-56, and went ahead and sold bonds and bought stocks. It was surprisingly easy to do; I trust the FA that made the plan with us and just followed that plan. My husband said, "Seriously, you're really buying stocks today?" And I said, yep, and did it. Luckily he is mostly uninterested in our retirement accounts and decided resistance was futile.
If your investment plan says rebalance Jan 1 and July 1 and you rebalanced yesterday, it sounds like you just violated your plan, not followed it.


Not if you take the time to read and understand the entire sentence that ends with: , and whenever the portfolio is 6% away from the designated AA of 50-50. :)
I actually did take the time to read the post three times and I still got it wrong. My mistake. Thanks for the correction.

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nedsaid
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Re: Rebalancing into stocks when they fall is unrealistic

Post by nedsaid » Sun Mar 15, 2020 1:24 pm

SimpleGift wrote:
Thu Mar 12, 2020 11:13 pm
Beliavsky wrote:
Thu Mar 12, 2020 10:45 pm
Rebalancing out of stocks when they have outperformed bonds is feasible. There's no law saying you can't reduce risk after your investments have done well. it's the rebalancing into stocks with existing money that I oppose.
There are many Bogleheads, mostly in retirement (including myself), who are one-way rebalancers such as you describe. When stocks do well, we rebalance into bonds. When stocks sell off, we sit tight with our large allocation to high-quality bonds and do nothing.

However, personally, we are in retirement with a portfolio value that we consider "enough" — so safety of our nest egg is more important to us than achieving the highest returns. For young accumulators, the rebalancing decision is likely to be different.
This is what I am doing. I am a one way rebalancer as SimpleGift said above. No plans to sell bonds to buy stocks.
A fool and his money are good for business.

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LilyFleur
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Re: Rebalancing into stocks when they fall is unrealistic

Post by LilyFleur » Sun Mar 15, 2020 1:49 pm

HomerJ wrote:
Fri Mar 13, 2020 12:41 am
SimpleGift wrote:
Thu Mar 12, 2020 11:13 pm
Beliavsky wrote:
Thu Mar 12, 2020 10:45 pm
Rebalancing out of stocks when they have outperformed bonds is feasible. There's no law saying you can't reduce risk after your investments have done well. it's the rebalancing into stocks with existing money that I oppose.
There are many Bogleheads, mostly in retirement (including myself), who are one-way rebalancers such as you describe. When stocks do well, we rebalance into bonds. When stocks sell off, we sit tight with our large allocation to high-quality bonds and do nothing.

However, personally, we are in retirement with a portfolio value that we consider "enough" — so safety of our nest egg is more important to us than achieving the highest returns. For young accumulators, the rebalancing decision is likely to be different.
I'm a one-way rebalancer as well at this point as well... I only sell stocks and buy bonds to get myself back to my target Asset Allocation.

Back in 2008, I rebalanced the other direction a few times, but stopped once my bonds were at certain level. I didn't want to sell any more bonds to buy stocks. I had a floor that I wanted to keep in cash/bonds just in case the Great Depression II did happen.

But, so far, anyone who has rebalanced the other direction all the way down has done well. Selling bonds and buying stocks back to your target AA in 2000 and 2008 (and 2011 and 2018) made you richer.

But who knows if the future will repeat the past? I have a much higher floor in bonds/cash now (since I'm close to retirement), and I'm not going below it.

I completely understand why you don't want to do it, but I think you're being a little harsh on other people who do rebalance in both directions. I can see both sides.
I am 60, and my AA changed from 55% stocks/45% bonds and cash to 50/50. I figure I can last 14 years pulling out of bonds and cash for living expenses (I also have a pension). I am just not feeling like I should be buying more stock at my age. I have had a very aggressive AA in the past, but this is different.

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lock.that.stock
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Re: Rebalancing into stocks when they fall is unrealistic

Post by lock.that.stock » Sun Mar 15, 2020 2:07 pm

LilyFleur wrote:
Sun Mar 15, 2020 1:49 pm
HomerJ wrote:
Fri Mar 13, 2020 12:41 am
SimpleGift wrote:
Thu Mar 12, 2020 11:13 pm
Beliavsky wrote:
Thu Mar 12, 2020 10:45 pm
Rebalancing out of stocks when they have outperformed bonds is feasible. There's no law saying you can't reduce risk after your investments have done well. it's the rebalancing into stocks with existing money that I oppose.
There are many Bogleheads, mostly in retirement (including myself), who are one-way rebalancers such as you describe. When stocks do well, we rebalance into bonds. When stocks sell off, we sit tight with our large allocation to high-quality bonds and do nothing.

However, personally, we are in retirement with a portfolio value that we consider "enough" — so safety of our nest egg is more important to us than achieving the highest returns. For young accumulators, the rebalancing decision is likely to be different.
I'm a one-way rebalancer as well at this point as well... I only sell stocks and buy bonds to get myself back to my target Asset Allocation.

Back in 2008, I rebalanced the other direction a few times, but stopped once my bonds were at certain level. I didn't want to sell any more bonds to buy stocks. I had a floor that I wanted to keep in cash/bonds just in case the Great Depression II did happen.

But, so far, anyone who has rebalanced the other direction all the way down has done well. Selling bonds and buying stocks back to your target AA in 2000 and 2008 (and 2011 and 2018) made you richer.

But who knows if the future will repeat the past? I have a much higher floor in bonds/cash now (since I'm close to retirement), and I'm not going below it.

I completely understand why you don't want to do it, but I think you're being a little harsh on other people who do rebalance in both directions. I can see both sides.
I am 60, and my AA changed from 55% stocks/45% bonds and cash to 50/50. I figure I can last 14 years pulling out of bonds and cash for living expenses (I also have a pension). I am just not feeling like I should be buying more stock at my age. I have had a very aggressive AA in the past, but this is different.
To the one-way re-balancers moving into bonds or those relying on bonds for living expenses - do you still feel that bonds are a safe haven for your money, given the 3-5% drop in BND and BIV on Friday?

I ask because I am starting to wonder about the safety of bonds for my own portfolio in light of the recent volatility and the inability of bonds to maintain value or act as a counterweight to stocks. According to MW, $6.6 trillion in corporate bond is in the BBB credit rating which is a touch above junk-bonds. Under the recent market conditions and the negative corporate outlook, many of the bond holdings are likely to under-deliver and depreciate in value when the average investor would expect them to at least hold their value.

It took 6 months for BND to increase by 5% in 2019, so a 5% drop in BND value in one day seemed like a shock.

Did this change your perspective on bonds?

https://www.marketwatch.com/story/how-t ... 2020-03-11

MindBogler
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Re: Rebalancing into stocks when they fall is unrealistic

Post by MindBogler » Sun Mar 15, 2020 3:08 pm

I'm not a one-way rebalancer, yet. I think while you are accumulating it makes sense to rebalance into stocks when they drop, but I can see the logic in not doing the same when you have retired or are getting close to doing so.

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birdog
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Re: Rebalancing into stocks when they fall is unrealistic

Post by birdog » Sun Mar 15, 2020 3:18 pm

I am in the accumulation phase and am probably 3-5 years from retirement. Although my asset allocation is slowly becoming more conservative I am still a two way re-balancer.

BigJohn
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Re: Rebalancing into stocks when they fall is unrealistic

Post by BigJohn » Sun Mar 15, 2020 7:18 pm

Two way rebalancing may not be your cup of tea but not sure I’d call it unrealistic. I went into retirement five years ago with an AA of 35/65. I did this to mitigate sequence of return risk. The 65 was based on an LMP type approach (liability matching portfolio) and it has allowed me to sleep well at night through this bear market. I hit my rebalancing bands last week and because of my relatively low stock allocation, my net worth hasn’t taken too big a hit. So, I sold bonds and bought stock to return to my target AA.

Maybe your feeling about rebalancing is just an indication of an allocation that was too high in stocks in the first place? In any case, one way rebalancing will get you to a more comfortable place and that’s a good thing. Best of luck :beer

grog
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Re: Rebalancing into stocks when they fall is unrealistic

Post by grog » Mon Mar 16, 2020 7:01 pm

I was noticing this with my taxable account. I have a target for my liquid funds of around 25% stock/75% cash. I was a little stock heavy earlier this year but now I'm around 18/82. I probably will buy in the next month or two, but I feel no obligation to do so simply to maintain a percentage. Sometimes you have to use common sense and not be overly robotic in implementation. If you feel overextended, don't buy.

pascalwager
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Re: Rebalancing into stocks when they fall is unrealistic

Post by pascalwager » Mon Mar 16, 2020 9:56 pm

I just watched the Vanguard CEO and CIO discussing investor behavior during this period of high volatility. Here's what they advise:
  • Rebalance, rebalance, rebalance...
They said it does take courage (John Bogle called it grit) to keep rebalancing. Also, Vanguard only expects a mild recession.
Retired, pension, no SS | Bond funds: TIPS, TBM | Global stocks: total market, large value, small company, emerging market funds

Jack56
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Re: Rebalancing into stocks when they fall is unrealistic

Post by Jack56 » Mon Mar 16, 2020 10:13 pm

When stocks fall you are being paid more to take on risk because the risk premium has increased. In fact, stocks were a lot more risky before this recent market fall than they are now. The risk premium is quite high with treasuries offering a negligible nominal return, and stocks seem a lot more attractive now than cash or bonds, both of which promise a negative return after taxes and inflation. The risk premium is what you are paid to assume the volatility of the stock market.

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Sandtrap
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Re: Rebalancing into stocks when they fall is unrealistic

Post by Sandtrap » Mon Mar 16, 2020 10:18 pm

SimpleGift wrote:
Sat Mar 14, 2020 6:29 pm
siamond wrote:
Sat Mar 14, 2020 6:20 pm
Does that mean that you simply take dividends as they come (from stock funds and bond funds) and that's your withdrawal procedure?
Right. All dividends from stock and bond funds go automatically into a money market fund, which acts as a reserve pool of cash to smooth out our monthly income and expense fluctuations. Works for us.
Excellent plan!
Have been meaning to do this for some time but forgot.
Thanks for the reminder.
J🏝
Wiki Bogleheads Wiki: Everything You Need to Know

saintsfan342000
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Re: Rebalancing into stocks when they fall is unrealistic

Post by saintsfan342000 » Mon Mar 16, 2020 10:38 pm

[url]
jjface wrote:
Thu Mar 12, 2020 11:35 pm
You may benefit from drawing up an IPS (investment policy statement) so you have an agreed plan if situations like these arise (and they will). Or turn to positive emotion and consider tax loss harvesting, buying cheap stocks with new money etc.
This is so true. The present is my first experience with a nasty market. But just a year ago, after I fired my worthless FA and became a Boglehead, I followed the advice of many and wrote and signed my IPS. I’m taking this current market quite well, even at 90/10. That document helps, because in it I wrote down all the rational arguments for aggressive investing. It’s easy to forget those in tough times.
Already impartial now

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siamond
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Re: Rebalancing into stocks when they fall is unrealistic

Post by siamond » Mon Mar 16, 2020 10:53 pm

pascalwager wrote:
Mon Mar 16, 2020 9:56 pm
I just watched the Vanguard CEO and CIO discussing investor behavior during this period of high volatility. Here's what they advise:
  • Rebalance, rebalance, rebalance...
They said it does take courage (John Bogle called it grit) to keep rebalancing. Also, Vanguard only expects a mild recession.
It is also called "staying the course". Glad to see Vanguard executives provide such steady guidance (instead of the ongoing flurry of totally useless PR messages from CEOs flooding our mailboxes :x).

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birdog
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Re: Rebalancing into stocks when they fall is unrealistic

Post by birdog » Tue Mar 17, 2020 10:17 am

pascalwager wrote:
Mon Mar 16, 2020 9:56 pm
I just watched the Vanguard CEO and CIO discussing investor behavior during this period of high volatility. Here's what they advise:
  • Rebalance, rebalance, rebalance...
They said it does take courage (John Bogle called it grit) to keep rebalancing. Also, Vanguard only expects a mild recession.
:happy

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birdog
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Re: Rebalancing into stocks when they fall is unrealistic

Post by birdog » Tue Mar 17, 2020 10:20 am

Jack56 wrote:
Mon Mar 16, 2020 10:13 pm
When stocks fall you are being paid more to take on risk because the risk premium has increased. In fact, stocks were a lot more risky before this recent market fall than they are now. The risk premium is quite high with treasuries offering a negligible nominal return, and stocks seem a lot more attractive now than cash or bonds, both of which promise a negative return after taxes and inflation. The risk premium is what you are paid to assume the volatility of the stock market.
I'm with Jack. I buy every month, according to the AA outlined in my IPS. The last six months my IPS directed me to add to my bond index fund to maintain my AA. This month (last week) due to the equity drop, it called for me to add to my total stock index fund in order to maintain my AA, which I did. Not rocket science here. Not always easy to do, but still so simple.

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