I cant "Stay the Course" - Rebalance/IPS

[gr7070]

Thanks.

That was my concern that rebal now from 68:32 to 75:25 is taking more risk, given such volatile market and black swan events

that's why I was thinking to rebal gradually (eg 2% every 2 months ) and DCA my 401K contributions to 100% stocks and review my AA quarterly

Does this sound reasonable ?

Maybe this sounds too much tinkering with my portfolio. I don't understand VIX etc technical terms.

Unconditional rebalancing out of bonds into stocks is too risky IMO, and I suggested an alternative in the thread Conditional rebalancing into stocks using VIX.

You're risking $30,000 of $1M. And that's assuming the DOW drops 50% from today! I don't think your approach is reasonable; it's not based in reason, it's based in fear and thus irrational.

The reality is if you have legitimate reason to believe this rebalance brings you great risk a 70 or 75% equities exposure is the real risk. The 30k potential loss from rebalancing shouldn't be your concern, the $700,000 in equities should be your concern.

*I* don't think it should be, but you seem to have real concern for your 70k but not the 700,000. That's irrational to me.

[L82GAME]

I appreciate the honesty of the OP's inquiry, and it echoes concepts I'm struggling with, too. I also appreciate Woodspinners' similar inquiry here: viewtopic.php?t=308117.

However, perhaps my quandary is different, in that my wife and I want to rebalance now that our AA is out of whack (target AA is 65/35 Eq/Bnd), but the question is, "When?"

Regarding the two sources cited herein as methodologies for rebalancing (i.e., Vanguard's analysis: https://www.vanguard.com/pdf/ISGPORE.pdf and the Daryanani study here: http://resource.fpanet.org/resource/09B ... yanani.pdf), here are my questions:

1) Do I understand the Daryanani study correctly in that the optimal rebalancing approach is a daily, weekly or biweekly "checking in" of one's portfolio and rebalancing when 20% bands are breached (prorated by asset class composition), but letting things ride within 10% bands of tolerance?

2) Do I understand VG's conclusion correctly that for broadly diversified portfolios including equities and bonds, that annual or semi-annual rebalancing using 5% bands should minimize costs while controlling risk within one's predetermined AA?

3) If I understand both correctly, and while minimizing one's level of effort and portfolio maintenance, would Daryanani's approach make sense once we'd find ourselves in a Bear market, and using VG's approach when in a Bull market? My logic being that the wider bands under Daryanani's model might help identify "stepped-floors" when the market's whipsawing in a selloff/purchase environment vs. the narrower bands of VG's model over a longer horizon might help to reign-in a portfolio's overallocation to equities in a Bull market.

[confusedinvestor]

You are right, but, stocks are risky assets but we may need stocks to fund our long term goals else either we have to work forever or we may not put food on the table and afford healthcare when we are old...

question is now - how much risk to take, yes, my entire $700k is at risk, so as everyone's equites but should I/we take more incremental risk now (by selling bonds and buying stocks) to rebalance per my/our IPS ?

Maybe I cant stay the course with my rebalance b/c I may have less risk tolerance vs what I thought ….given, I cant sell bonds now to buy stocks...

As I've already implemented 100% equities for my & DW 401K bi-weekly DCA contributions vs 70:30 mix, I'm thinking of not rebalance my entire portfolio now and just wait until Dec to review everything, per my IPS timeframe...What do you think ?

*I* don't think it should be, but you seem to have real concern for your 70k but not the 700,000. That's irrational to me.

[gr7070]

I'm not suggesting one should avoid equities merely some version of *your* logic would.

If you can handle the risk of 100% equities purchases you can handle the risk of a rebalance.

Again $30k at risk from rebalance, but you'll plow $39,000 (more?) of contributions into all equities over the next 12 months?

You are a mixed bag of irrational approaches all resulting in about the same results. So why not just follow the plan that you made when not under duress?

We make poor (financial) decisions when under stress. We make good ones when we use facts and reason. Follow through with plan you made using facts and reason.

I see a lot of self-justifying rationale in your posts, confirmation bias; likely to ease your fears. All of them abandoning well founded plans based upon modern portfolio theory that has been developed through decades of academic rigor and real life application.

Follow your plan.

[gr7070]

Additionally you are not DCA your monthly contributions. You're (likely) essentially lump sum investing the maximum amount you can every month from your income into your 401k.

Lump sum investing has proven to return better than DCA.

That being the case, follow your same monthly approach with your 401k of lump sum investing and rebalance in one fell swoop.

[michaeljc70]

Sorry if someone else said this already- I just skimmed the comments. You should not be afraid to rebalance because 7% of your bonds is $17.5k ($1M * .25 * .07) and compared to your portfolio value insignificant. If you skip it it is also insignificant but I would just do it to stick with your plan. You are worrying unnecessarily about 1.75% of your portfolio.

[BillyK]

micho911 wrote:

Yes but cash is even safer than bonds during this crash.
So why are you willing to invest new cash in equities while you don't accept to sell bonds to buy equity and rebalance.
I am not criticizing, just trying to understand as i always have this dilemma

Each investor's circumstances are different, but I have 5+ years of living expenses already covered in non-retirement fixed income assets comprised of cash, iBonds and the Intermediate Municipal fund (VWITX). I don't have a need to build up more cash outside of my retirement accounts by reducing my monthly contributions into both retirement and non-retirement accounts.

The only two bond funds that I hold in retirement accounts are Vanguard's Total Bond Market Index (VBTLX) and Total International Bond Index (VTABX). I consider them to be both safe for my purposes of holding bond funds. I have no desire to trade them into cash equivalents or other types of bond funds during this current market crisis.

I have read many posts and debates involving rebalancing through the years on this forum and the old Morningstar Boglehead's forum. I have never been convinced it is ultimately that important as an investor to maintain aggressive rebalancing bands. This is particularly true during markets as volatile as the current ones whereas rebalancing can feel like an effort in futility! If the markets continue to drop and you don't rebalance, the worst thing that will happen is that you end up over weighted in fixed income. If the markets miraculously recover and I missed out on buying equities on the so called cheap, it is really no big deal to me since I am ultimately a long term investor and not particularly bargain shopping in the first place.