Re-balancing challenge....

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Topic Author
big bang
Posts: 42
Joined: Mon Jul 25, 2016 8:33 pm

Re-balancing challenge....

Post by big bang » Wed Jul 10, 2019 10:46 am

Hi fellow bogleheads,
Both stocks and bonds are going up, which is causing me a challenge of re-balancing. With the new highs, I feel that I want to scale back a bit. However, I do not have room to do that.
How you are all addressing this?
Just let it ride, till something changes?
Here is my current AA (55/45):
S&P 500 - 30%
Mid Cap - 5%
Small Cap - 5%
International - 15%
Bonds (Intermediate) - 35%
Bonds (Short term - in taxable, serves as an emergency fund, immediate access cash reserve etc.) - 10%
(1) save a lot, (2) select an asset allocation containing both stock and bond asset classes, (3) buy low cost, widely diversified funds, (4) allocate funds tax-efficiently, and (5) stay the course.

livesoft
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Re: Re-balancing challenge....

Post by livesoft » Wed Jul 10, 2019 10:55 am

Not enough info. I don't see from your info why you cannot rebalance IF you have hit a triggering band.
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WhiteMaxima
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Re: Re-balancing challenge....

Post by WhiteMaxima » Wed Jul 10, 2019 10:56 am

big bang wrote:
Wed Jul 10, 2019 10:46 am
Hi fellow bogleheads,
Both stocks and bonds are going up, which is causing me a challenge of re-balancing. With the new highs, I feel that I want to scale back a bit. However, I do not have room to do that.
How you are all addressing this?
Just let it ride, till something changes?
Here is my current AA (55/45):
S&P 500 - 30%
Mid Cap - 5%
Small Cap - 5%
International - 15%
Bonds (Intermediate) - 35%
Bonds (Short term - in taxable, serves as an emergency fund, immediate access cash reserve etc.) - 10%
You AA is very conservative and good already (Bond 45%, equity 55%). I will do:

S&P 500 - 30%
Mid Cap - 10%
Small Cap - 5%
International - 15%
All Bonds - 20%
Gold 5%
Reit:5%
Cash 5%
Emerging market 5%

Topic Author
big bang
Posts: 42
Joined: Mon Jul 25, 2016 8:33 pm

Re: Re-balancing challenge....

Post by big bang » Wed Jul 10, 2019 11:04 am

Hi livesoft,
I did not hit a triggering band. I feel that I want to scale back a bit and have some protection form the recent highs.
However, the fact that both stocks and bonds high, I don't have room to do that.
Unless I decide to change my AA to 50/50....
(1) save a lot, (2) select an asset allocation containing both stock and bond asset classes, (3) buy low cost, widely diversified funds, (4) allocate funds tax-efficiently, and (5) stay the course.

Topic Author
big bang
Posts: 42
Joined: Mon Jul 25, 2016 8:33 pm

Re: Re-balancing challenge....

Post by big bang » Wed Jul 10, 2019 11:09 am

Hi WhiteMaxima,
We are in a semi retired mode 61 yrs old couple. I feel that, your suggested AA of 65% stocks it just might be too aggressive for us....
(1) save a lot, (2) select an asset allocation containing both stock and bond asset classes, (3) buy low cost, widely diversified funds, (4) allocate funds tax-efficiently, and (5) stay the course.

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747driver
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Re: Re-balancing challenge....

Post by 747driver » Wed Jul 10, 2019 11:12 am

Other than changing your AA, what does "scale back a bit" mean?

There have been recent highs for many decades; imo, this time shouldn't be any different.
A clear conscience is a great pillow.

pkcrafter
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Re: Re-balancing challenge....

Post by pkcrafter » Wed Jul 10, 2019 11:30 am

big bang wrote:
Wed Jul 10, 2019 11:04 am
Hi livesoft,
I did not hit a triggering band. I feel that I want to scale back a bit and have some protection form the recent highs.
However, the fact that both stocks and bonds high, I don't have room to do that.
Unless I decide to change my AA to 50/50....
Ok, so you don't want to rebalance, you want to change AA based on current market. This is not good, but if you want to change due to nearing retirement and you will stay with it, then do it.

How long until retirement?
What AA do you want in retirement?
It would be helpful if you posted account types, current funds, and %
What is your withdrawal rate going to be?
What do you mean, you don't have room?
Any other issues?

Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.

Jack FFR1846
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Re: Re-balancing challenge....

Post by Jack FFR1846 » Wed Jul 10, 2019 11:34 am

Go to your online account.

Write down a randomized new password that you can't possibly remember on a small piece of paper.

Change your password.

Eat the paper.
Bogle: Smart Beta is stupid

Topic Author
big bang
Posts: 42
Joined: Mon Jul 25, 2016 8:33 pm

Re: Re-balancing challenge....

Post by big bang » Wed Jul 10, 2019 11:42 am

Hi Jack FFR1846,
Yep.....stay the course, right?
Those new highs are scaring me. Especially that both stocks and bonds are up. There is nothing lower in the portfolio that I can move some money to.
(1) save a lot, (2) select an asset allocation containing both stock and bond asset classes, (3) buy low cost, widely diversified funds, (4) allocate funds tax-efficiently, and (5) stay the course.

livesoft
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Re: Re-balancing challenge....

Post by livesoft » Wed Jul 10, 2019 11:46 am

Bonds have pulled back from their highs of a few days ago, so I don't understand the sentiment here. I bought more bond fund shares in the past week (including today) in a rebalancing move.

Furthermore, international stocks are still down from 1 year ago when looking at VTIAX Vanguard Total Int'l Stock fund. That's right: You can buy today at last year's prices! So sell your high-performing US funds and buy low-performing international funds is a way to rebalance, too.
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Socrates
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Re: Re-balancing challenge....

Post by Socrates » Wed Jul 10, 2019 11:52 am

So if you are wanting a more conservative portfolio and more of a bond allocation, you have a few choices.

First and foremost, I personally would keep the 30% in TSM:

1. Rebalance the small cap and buy more bonds. The small cap may have the greatest upside for return, but probably will be the most volatile.

2. Eliminate some or all of you international. Yes it allows more diversification, but returns have been poor.

I would go #2. Just my opinion.
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retiredjg
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Re: Re-balancing challenge....

Post by retiredjg » Wed Jul 10, 2019 12:06 pm

big bang wrote:
Wed Jul 10, 2019 11:04 am
I did not hit a triggering band. I feel that I want to scale back a bit and have some protection form the recent highs.
What you are really saying is that 55% stock and 45% bonds is no longer a comfortable place to be. You want to reallocate, not rebalance. And that is exactly what you should do.

I'd move to a lower stock allocation today - maybe 50% stock and 50% bonds and see if that relieves the stress you are feeling. Wait a few weeks and go even lower if there is a need. Keep in mind that this absolutely should be a 1 direction move. You should NEVER go back to 55/45 again under ordinary circumstances.

Ignore the fact that "there is no room" or "both stocks and bonds are high". All of that is completely irrelevant. The fact is you are no longer comfortable where you are and you need to fix that.

Edited - to put in the right numbers.
Last edited by retiredjg on Wed Jul 10, 2019 12:55 pm, edited 1 time in total.

livesoft
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Re: Re-balancing challenge....

Post by livesoft » Wed Jul 10, 2019 12:12 pm

Socrates wrote:
Wed Jul 10, 2019 11:52 am
2. Eliminate some or all of you international. Yes it allows more diversification, but returns have been poor.

I would go #2. Just my opinion.
And now we have a challenge: Socrates recommends ditching international and I recommend buying international. What to do?
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cashboy
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Re: Re-balancing challenge....

Post by cashboy » Wed Jul 10, 2019 12:32 pm

big bang wrote:
Wed Jul 10, 2019 10:46 am
Hi fellow bogleheads,
Both stocks and bonds are going up, which is causing me a challenge of re-balancing. With the new highs, I feel that I want to scale back a bit. However, I do not have room to do that.
How you are all addressing this?
you have received some good advice here.

in general, the best advice is always 'stay the course'. but, if the 'course' you have 'set' is no longer comfortable then you might consider 'adjusting' course (your AA).

me, i readjusted my overall AA step by step until i got to 50/50. at that point i no longer had any anxiety about current market conditions 'noise' and stopped there. I updated my IPS and on my new 'course'.


(I have the 3-fund portfolio, which made it easier for me. )

WhiteMaxima
Posts: 1887
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Re: Re-balancing challenge....

Post by WhiteMaxima » Wed Jul 10, 2019 12:46 pm

big bang wrote:
Wed Jul 10, 2019 11:09 am
Hi WhiteMaxima,
We are in a semi retired mode 61 yrs old couple. I feel that, your suggested AA of 65% stocks it just might be too aggressive for us....
At today's low interest environment, bond yield is too low to beat the inflation. That's why I suggest some high yield equity, combined with gold to against future stagflation.

Topic Author
big bang
Posts: 42
Joined: Mon Jul 25, 2016 8:33 pm

Re: Re-balancing challenge....

Post by big bang » Wed Jul 10, 2019 1:16 pm

Hi livesoft and Socrates,
Thank you for the advice. I am for sure staying with 15% international. I like the diversification and I like the fact that it allows me to buy low (that I can balance to). I don't think that I want to be heavier than that level either.

Hi cashboy,
I feel comfortable with 55/45 at this stage. However, I will admit that sometimes I do wish that I was at 50/50 and sometimes at 60/40. So I guess, 55/45 is my compromised comfort level (if there is such a thing..).

Hi WhiteMaxima,
I think that I see your point. There is something at what you are saying that I need to think about. I guess my thought is that I want to diversify to something that has not done so well, so I can move some of my winners..
I will look again at your suggested AA.

Thank you all!
(1) save a lot, (2) select an asset allocation containing both stock and bond asset classes, (3) buy low cost, widely diversified funds, (4) allocate funds tax-efficiently, and (5) stay the course.

pkcrafter
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Re: Re-balancing challenge....

Post by pkcrafter » Wed Jul 10, 2019 1:29 pm

I asked several questions earlier, but I'll try again with just one -- what do you mean when you say you don't have room?

Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.

Topic Author
big bang
Posts: 42
Joined: Mon Jul 25, 2016 8:33 pm

Re: Re-balancing challenge....

Post by big bang » Wed Jul 10, 2019 1:43 pm

Hi pkcrafter,
Sorry that I missed your questions.
Since both stocks and bonds are going up, my asset allocation did not change. I felt with the new highs, that I don't have the ability to move money out of stocks. I guess that's the first time that I am experiencing the need to scale back a bit from stocks and the regular re-balancing act is not working. I hope that I am making sense...
(1) save a lot, (2) select an asset allocation containing both stock and bond asset classes, (3) buy low cost, widely diversified funds, (4) allocate funds tax-efficiently, and (5) stay the course.

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goingup
Posts: 3580
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Re: Re-balancing challenge....

Post by goingup » Wed Jul 10, 2019 2:29 pm

I think you should resist the urge to tinker if your AA suits you. It sounds as though you like 55/45 but are having some jitters. Personally, I'd try to ignore the jitters and stick with your program. There's an old saying, "Choose right and sit tight".

We're at 60/40 including a good floor of bonds/cash. I expect to stay at that AA for the duration. We rarely rebalance as it's tough to move the needle 5-10%.

You could make a minor change by directing equity dividends to cash or bonds. This incrementally draws down your stock holdings. But basically I'd say leave your portfolio alone. :happy

Topic Author
big bang
Posts: 42
Joined: Mon Jul 25, 2016 8:33 pm

Re: Re-balancing challenge....

Post by big bang » Wed Jul 10, 2019 2:58 pm

Thank you goingup,
Yes I do direct equity dividends to cash in the taxable account. Last dividend distribution was a couple of weeks ago.
(1) save a lot, (2) select an asset allocation containing both stock and bond asset classes, (3) buy low cost, widely diversified funds, (4) allocate funds tax-efficiently, and (5) stay the course.

retiredjg
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Re: Re-balancing challenge....

Post by retiredjg » Wed Jul 10, 2019 3:03 pm

big bang wrote:
Wed Jul 10, 2019 1:16 pm
I feel comfortable with 55/45 at this stage.
If you are actually comfortable, why would you be worried about the market? The fact that you are concerned means you are not comfortable, at least to me.

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747driver
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Re: Re-balancing challenge....

Post by 747driver » Wed Jul 10, 2019 8:17 pm

retiredjg wrote:
Wed Jul 10, 2019 3:03 pm
The fact that you are concerned means you are not comfortable
Precisely. When I hear people post about "all time highs", I think that in reality they are nervous about a correction, and how much stock they have. That's my theory about Big Bang, anyway.
A clear conscience is a great pillow.

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