Balancing vs. Momentum Investing:

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Nowizard
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Joined: Tue Oct 23, 2007 5:33 pm

Balancing vs. Momentum Investing:

Post by Nowizard » Wed Oct 11, 2017 5:51 pm

As the stock market has continued to move forward and bond funds have languished, many of us have reached a point where rebalancing is typically recommended. Though it is direct and, possibly, a situation where KISS applies, the disparity between stock and bonds makes it challenging to rebalance, particularly when there are numerous "experts" who recommend momentum investing. Our portfolio is ideally a 60/40 one, but it is now approximately 67/33. Doe anyone consider moving funds to create, for example, a 65/35 ratio rather than moving totally to a 60/40 one in an effort to capitalize on momentum? Note: Our portfolio is reasonably significant, and we have greater MRD's than we actually need at this time.

Tim

livesoft
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Joined: Thu Mar 01, 2007 8:00 pm

Re: Balancing vs. Momentum Investing:

Post by livesoft » Wed Oct 11, 2017 6:02 pm

One can do anything they want with rebalancing.

If you have rebalancing bands of plus-or-minus 7%, then 67/33 could be OK.

Or maybe you have bands of plus-or-minus 5%, and 67/33 means rebalance, but only to the top of the band, namely 65/35.

Or maybe you maybe you have a rule that says go down to 65/35 at market highs, but if the market is 3% below the high do something else.

Or maybe ....

Anyways, lately, I've just been trimming down to the top of my rebalancing band, but also buying to above my band on ReallyBadDays. But all this is specified in my IPS.
Last edited by livesoft on Wed Oct 11, 2017 6:11 pm, edited 1 time in total.
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aristotelian
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Re: Balancing vs. Momentum Investing:

Post by aristotelian » Wed Oct 11, 2017 6:03 pm

No. If anything, I shift a couple points toward bonds when valuation is high.

rkhusky
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Joined: Thu Aug 18, 2011 8:09 pm

Re: Balancing vs. Momentum Investing:

Post by rkhusky » Thu Oct 12, 2017 1:08 pm

Nowizard wrote:
Wed Oct 11, 2017 5:51 pm
Our portfolio is ideally a 60/40 one, but it is now approximately 67/33. Doe anyone consider moving funds to create, for example, a 65/35 ratio rather than moving totally to a 60/40 one in an effort to capitalize on momentum? Note: Our portfolio is reasonably significant, and we have greater MRD's than we actually need at this time.
Or you could let the market do the rebalancing for you by, for example, waiting until the market drops, such that your portfolio becomes 55/45. Then you can buy stocks on the cheap.

Market timing is full of risk. If your plan calls for rebalancing back to 60/40, then rebalance to 60/40. If your plan calls for rebalancing to 65/35, then rebalance to 65/35.

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David Jay
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Re: Balancing vs. Momentum Investing:

Post by David Jay » Thu Oct 12, 2017 1:19 pm

I would not listen to any "expert" who recommends holding more stocks than your IPS specifies, but especially at this point in the market cycle.

If 60/40 is your target allocation, rebalance to 60/40.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

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