What AA rebalancing percentage do you use?

[goshenBogle]

To maintain asset allocation (AA), rebalancing decision is usually based on some percentage. So if the AA changes by more than that percentage, rebalancing is triggered so as to maintain the desired AA.

What percentage do you use?
And more importantly, how did you decide on that particular percentage?

[bombcar]

Some rebalance if it gets uncomfortable (e.g. if you are 80/20 and considered 75/25 through 85/15 but 90/10 was right out) then rebalance at those bounds.

Or just do it once a year and forget about it. The key is to define it so you don’t time it.

[enad]

Some rebalance if it gets uncomfortable (e.g. if you are 80/20 and considered 75/25 through 85/15 but 90/10 was right out) then rebalance at those bounds.

Or just do it once a year and forget about it. The key is to define it so you don’t time it.

The OP is asking what triggers a rebalance

To maintain asset allocation (AA), rebalancing decision is usually based on some percentage. So if the AA changes by more than that percentage, rebalancing is triggered so as to maintain the desired AA.

What percentage do you use?
And more importantly, how did you decide on that particular percentage?

Larry Swedroe's "5/25 rule" suggests rebalancing an investment portfolio when an asset class deviates from its target allocation by either an absolute 5% (for allocations of 20% or more) or a relative 25% (for allocations less than 20%), whichever is less.

With the 5/25 rule, rebalancing is purely mechanical

[connor]

I treat the absolute 5% guideline as a helpful suggestion. And by suggestion, I mean I'm pretty casual about it. How did I decide on that particular percentage? It's just something I've heard about from various sources. It sounds kind of reasonable and "about right."

[livesoft]

I use RBDs to decide whether to look to rebalance or not. These so-called Really Bad Days occur very infrequently, sometimes less than once a year on average, but sometimes more. They are not to be ignored, but one doesn't have to take action after they at least look.

[prioritarian]

The key is to define it so you don’t time it.

My rule has always been that I rebalance when I feel like it. In practice, this means that I rebalance around 4-7 times a year. I fail to understand why this is market timing.

[mkc]

5% and I only do so annually if needed. This is actually the time of year (right after filing taxes) that I look at the accounts and decide what, if anything, needs to be done.

[rkhusky]

1% bands because I don’t like to make large dollar transactions. And I am fairly strict to prevent rebalancing based on emotion or gut feeling.

[windaar]

For decades I have just rebalanced on or near my birthday. If I have an excess in stock funds I rebalance right away. If stocks are down I rebalance with new money over the next few months to avoid selling TIAA TRAD and messing up the vintages.

[GrumpyFarmer]

I am sure this is going to go against the grain here…

I do not worry about the %…sure you can calculate the percent but what does that mean? I also could care less about daily market close…why even look unless a day trader which I stopped that after tech bubble burst. I am also not retired (yet) but I am well past my FI target. I just recently added bond fund at first of the year…but for now it’s based on minimum dollars I want in bond fund. My goal was to get to a total dollar (asset value) amount before I added bond fund. When I achieved it, then I added bond fund. Now maybe my plan will change when I stop working, but for now its based on minimum dollars I want in bond (I have a plan how I will increase the dollar value in bond annually up until I stop working…and that is based on growth strategy vs protection strategy…for the other buckets I just want more…sure there is a percent there if you want to do the math, but it’s not a target.

I think % could be used as a guage of sorts but it doesn’t really make sense based on the difference in total amounts we have. Same with the withdrawal %…how does that help? It wouldn’t help me…but I also don’t watch a pot of water waiting for it to boil…why watch the market and fret over a percentage? Purchasing power (what you can buy/spend) is what matters not a percentage. Goal for me is not run out of what I will spend…not a percent. (40% of my couple dollars is not relevant to 40% of someone else’s total dollars)

I can only control what I save and what I spend, percent matters not to me. (Percent is the result of a calculation…if that helps you sleep and makes you feel like you are in control, then set a percent, it changes not what the market does or what will be distributed or how much you can buy)

YMMV.

[grabiner]

Since I have a lot of asset classes in my portfolio, I use a variant of the 5%/25% rule. If my allocation to a major asset class (US stocks, international stocks, bonds, REITs) is off by 25% of the target allocation to that class, I will rebalance; if my allocation to either a major asset class or subclass is off by 5% of my total portfolio, I will rebalance.

For example, in 2007, my target allocation to emerging markets (a subclass) was 10%. It had reached 14%, but I did not sell to rebalance. (New money went elsewhere, and I was able to incidentally fix the imbalance when the market crashed in 2008 and I sold some emerging markets for a capital loss to buy other stock funds.) But in October 2008, my target allocation to bonds was 10%, and after the market crashed, it reached 13%, exceeding the 25% rule, so I sold bonds to buy more stock.