How often should someone rebalance?

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tomwood
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How often should someone rebalance?

Post by tomwood » Thu Nov 07, 2019 10:53 pm

I’m Using a 3 fund portfolio. And over the last few years I rebalance twice per year. These dates are set, and are unrelated to which day the market is up or down. Is twice per year too often or too few times per year to rebalance?
I’m sure the data varies on this topic but what do the smart people here suggest? Rebalance once or twice or more times per year, so long as the date are fixed and unrelated to market movement.

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Rick Ferri
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Re: How often should someone rebalance?

Post by Rick Ferri » Thu Nov 07, 2019 11:02 pm

You'll never figure out the optimal time or number of times to rebalance. So, do at a time and in a way that you'll remember.

I can also make the case rebalancing isn't needed. Cash flows can be used for rebalancing and you don't need to sell anything.

I can also make a tax case for only rebalancing in tax-deferred accounts. Only sell stocks in tax-deferred accounts and only buy stocks in taxable accounts. This way you're maintaining some type of reasonable allocation, and the stocks go to your heirs at a stepped-up basis.

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shess
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Re: How often should someone rebalance?

Post by shess » Fri Nov 08, 2019 2:47 am

tomwood wrote:
Thu Nov 07, 2019 10:53 pm
I’m Using a 3 fund portfolio. And over the last few years I rebalance twice per year. These dates are set, and are unrelated to which day the market is up or down. Is twice per year too often or too few times per year to rebalance?
I’m sure the data varies on this topic but what do the smart people here suggest? Rebalance once or twice or more times per year, so long as the date are fixed and unrelated to market movement.
As best I can tell, there are good arguments for rebalancing more than every 5 years, and good arguments for rebalancing less than once a month. I only do a scheduled rebalance once a year. When I was working, I'd checkin in November, and set my 401k contributions according to the most-needy asset, and in most years that kept things close enough. So I've just kept up that habit, though I'm retired.

I'd say twice a year is fine, if that works for you.

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Re: How often should someone rebalance?

Post by Ferdinand2014 » Fri Nov 08, 2019 4:57 am

tomwood wrote:
Thu Nov 07, 2019 10:53 pm
I’m Using a 3 fund portfolio. And over the last few years I rebalance twice per year. These dates are set, and are unrelated to which day the market is up or down. Is twice per year too often or too few times per year to rebalance?
I’m sure the data varies on this topic but what do the smart people here suggest? Rebalance once or twice or more times per year, so long as the date are fixed and unrelated to market movement.
I never rebalance.
“You only find out who is swimming naked when the tide goes out.“ — Warren Buffett

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tomwood
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Re: How often should someone rebalance?

Post by tomwood » Fri Nov 08, 2019 5:59 am

Rick Ferri wrote:
Thu Nov 07, 2019 11:02 pm
You'll never figure out the optimal time or number of times to rebalance. So, do at a time and in a way that you'll remember.
Thank you

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tomwood
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Re: How often should someone rebalance?

Post by tomwood » Fri Nov 08, 2019 6:02 am

Ferdinand2014 wrote:
Fri Nov 08, 2019 4:57 am
tomwood wrote:
Thu Nov 07, 2019 10:53 pm
I’m Using a 3 fund portfolio. And over the last few years I rebalance twice per year. These dates are set, and are unrelated to which day the market is up or down. Is twice per year too often or too few times per year to rebalance?
I’m sure the data varies on this topic but what do the smart people here suggest? Rebalance once or twice or more times per year, so long as the date are fixed and unrelated to market movement.
I never rebalance.
Doesn’t this result in a high percentage of equities in your portfolio and a percentage of fixed income less than your age (which I understand to be a number many use)?

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Stinky
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Re: How often should someone rebalance?

Post by Stinky » Fri Nov 08, 2019 6:03 am

tomwood wrote:
Thu Nov 07, 2019 10:53 pm
I’m Using a 3 fund portfolio. And over the last few years I rebalance twice per year. These dates are set, and are unrelated to which day the market is up or down. Is twice per year too often or too few times per year to rebalance?
I’m sure the data varies on this topic but what do the smart people here suggest? Rebalance once or twice or more times per year, so long as the date are fixed and unrelated to market movement.
If it works for you, your method sounds fine to me.

I check asset allocation each month as I post my balances into my master financial spreadsheet, and rebalance as needed. That’s what works for me.
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Re: How often should someone rebalance?

Post by neilpilot » Fri Nov 08, 2019 6:32 am

tomwood wrote:
Fri Nov 08, 2019 6:02 am

Doesn’t this result in a high percentage of equities in your portfolio and a percentage of fixed income less than your age (which I understand to be a number many use)?
I consider a fixed income allocation = your age as a generation that should often be ignored. Age is only one of several variables that should be considered when deciding on allocation.

For example, let’s say you’re 70 but your income from SS, pension(s) and other sources provides a significant percentage of you living expenses. You also have substantial retirement savings and want to grow your estate. Maybe in that case a 70% fixed income allocation is way too much?

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Re: How often should someone rebalance?

Post by nedsaid » Fri Nov 08, 2019 6:42 am

Once a year is probably plenty. My attitude on rebalancing was very relaxed for years and only started doing this in earnest starting in July 2013 with my program of mild rebalancing from stocks to bonds. Doing two things at once here, rebalancing the portfolio and also slowly de-risking over time. The act of rebalancing is more important as you get older and have a need to control risk. Younger investors should probably let their winners run and should rarely rebalance their portfolios. Part of what happened to me was that I sort of got shamed into more regular rebalancing by other forum members.
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Re: How often should someone rebalance?

Post by mmmodem » Fri Nov 08, 2019 6:59 am

I rebalance based on the market. I've decided on a +/- 5% band for my asset allocation. If my equities allocation exceeds 5% of desired, then I rebalance. So far, this has never happened.

However, I do look at my 401k account at least twice a year to set my contribution. Once to account for my projected income at the beginning of the year and again to ensure I don't overcontribute losing company match at the end of the year. I change my investments accordingly to keep within my 5% investment bands.

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tomwood
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Re: How often should someone rebalance?

Post by tomwood » Fri Nov 08, 2019 7:26 am

mmmodem wrote:
Fri Nov 08, 2019 6:59 am
+/- 5%
Does this mean, if you want 25% bonds, you won’t rebalance unless you have 30% or 20% bonds? Do you count equities as a single group or do you separate US from Intl stock funds?

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tomwood
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Re: How often should someone rebalance?

Post by tomwood » Fri Nov 08, 2019 7:28 am

nedsaid wrote:
Fri Nov 08, 2019 6:42 am
Younger investors should ....
Where would you roughly suggest this age to be?

If people aren’t rebalancing, does that offer a chance of higher returns? And also more risk. Which is why you say it’s only for the young?

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Re: How often should someone rebalance?

Post by MikeG62 » Fri Nov 08, 2019 7:41 am

OP, this is a good read on the topic.

Finding The Optimal Rebalancing Frequency – Time Horizons Vs Tolerance Bands

https://www.kitces.com/blog/best-opport ... hresholds/

I favor tolerance bands myself.
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Re: How often should someone rebalance?

Post by 22twain » Fri Nov 08, 2019 7:44 am

I started contributing to my 403(b) plan in 1984, and set my contributions to 50% stock (CREF Stock account) and 50% stable-value fund (TIAA Traditional account). I continued contributing until I retired in 2016, and never rebalanced or changed the allocation of contributions. My year-end stock allocation varied between about 66% at the end of 1999 and 41% in March 2009.

About a year ago, I set up a spreadsheet based on my year-end balances and estimated what my current balance would have been if I had rebalanced that account regularly, back to 50% stock.

If I had rebalanced annually, regardless of the amount of imbalance, I would now have about 3% more.

If I had checked annually, and rebalanced only if the imbalance was greater than 5% (i.e. stock less than 45% or greater than 55%), I would now have about 4.5% more.

I don't consider these differences to be significant in terms of my retirement lifestyle, and of course I can't reverse history anyway.
Last edited by 22twain on Fri Nov 08, 2019 9:23 am, edited 1 time in total.
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Re: How often should someone rebalance?

Post by bogleVB » Fri Nov 08, 2019 8:02 am

tomwood wrote:
Fri Nov 08, 2019 7:26 am
mmmodem wrote:
Fri Nov 08, 2019 6:59 am
+/- 5%
Does this mean, if you want 25% bonds, you won’t rebalance unless you have 30% or 20% bonds? Do you count equities as a single group or do you separate US from Intl stock funds?
I think this typically means 5% of the desired allocation. So in your example .05*.25=.0125. If his bonds get outside of 26.25% to 23.75% that triggers a rebalance.

Sounds like a strategy of buy low sell high to me. Solid choice.

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Re: How often should someone rebalance?

Post by Cyclesafe » Fri Nov 08, 2019 8:43 am

Relevant insight from Vanguard.

https://personal.vanguard.com/pdf/ISGGBOT.pdf

Personally, I think rebalancing is over-rated. As long as one can "sleep at night", that is.

I start thinking about adjusting when I reach an incremental 5% band. But if I am not nervous about a loss at that point, I just let it ride. IMHO what is more important is years of expense coverage in fixed. If this factor is greater than 5, I'm happy enough as long as my equity allocation is no greater than 70%.

I've been FIRE'ed for nearly 20 years and I regularly test my "sleep at night" assessment with every downturn. If I were to be nervous, I would force myself to hold off until a previous equity peak was breached, then back off my equity asset allocation. But so far, through thin and thick, I have doggedly stayed the course.
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Chris K Jones
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Re: How often should someone rebalance?

Post by Chris K Jones » Fri Nov 08, 2019 8:51 am

There are no absolutes here. I have adopted a policy that will probably have me rebalancing very little. That is fine because most of my money is in a taxable account. It is a 60/40 portfolio with 20% of equities in international. I rebalance once a year on a specified day when allocations are outside of these specified bands: Equities 55-65%; bonds 35-45%; International 9-15%. Good luck. I would suggest you just pick something and stick with it. Mine is designed to minimize taxable exchanges. If most of your money is in an IRA or 401 k, you have more flexibility. Best wishes.

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Re: How often should someone rebalance?

Post by rich126 » Fri Nov 08, 2019 9:45 am

My view, maybe wrong, is that rebalancing reduces drawdowns but also reduces returns. Personally I wouldn't follow any rigid rule and just do it when things really go too far in one direction or the other, if you feel it adds too much risk to your portfolio. I see people talking about making adjustments when things are 2% off and that just seems crazy to me.

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Re: How often should someone rebalance?

Post by Ferdinand2014 » Fri Nov 08, 2019 10:08 am

tomwood wrote:
Fri Nov 08, 2019 6:02 am
Ferdinand2014 wrote:
Fri Nov 08, 2019 4:57 am
tomwood wrote:
Thu Nov 07, 2019 10:53 pm
I’m Using a 3 fund portfolio. And over the last few years I rebalance twice per year. These dates are set, and are unrelated to which day the market is up or down. Is twice per year too often or too few times per year to rebalance?
I’m sure the data varies on this topic but what do the smart people here suggest? Rebalance once or twice or more times per year, so long as the date are fixed and unrelated to market movement.
I never rebalance.
Doesn’t this result in a high percentage of equities in your portfolio and a percentage of fixed income less than your age (which I understand to be a number many use)?
I keep an X dollar amount of treasury bills on auto roll (my fixed income) to meet an X obligation. The X obligation equals 1 full year of expenses if both my wife and I can’t work or 2 years if only one of us can’t work plus an extra cushion for any large anticipated expenses over the next 1-3 years like a vehicle. Everything else I invest into equities. If equities go down I would never put my X dollar amount of fixed income at risk by rebalancing into equities. Conversely, If equities go up, I don’t rebalance into fixed income as I already have met my needed obligation for margin of safety. Keeping an X percent (60/40 for example) as opposed to an X dollar obligation (for example $150,000) at whatever random percent this happens to equal to reduce volatility or maintain a given risk for a given return has never made sense to me. Volatility is a poor measure of risk. Real risk is not meeting your retirement goals.
“You only find out who is swimming naked when the tide goes out.“ — Warren Buffett

snailderby
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Re: How often should someone rebalance?

Post by snailderby » Fri Nov 08, 2019 10:19 am

Here is the conclusion from one Vanguard paper on this topic:
As our analysis has shown, the risk-adjusted returns are not meaningfully different whether a portfolio is rebalanced monthly, quarterly, or annually; however, the number of rebalancing events and resulting costs increase significantly. As a result, we conclude that a rebalancing strategy based on reasonable monitoring frequencies (such as annual or semiannual) and reasonable allocation thresholds (variations of 5% or so) is likely to provide sufficient risk control relative to the target asset allocation for most portfolios with broadly diversified stock and bond holdings, without creating too many rebalancing events over the long term.
And here is the conclusion from another Vanguard paper on the same topic:
Although a strong case exists for regularly rebalancing your portfolio to improve its risk-adjusted return, no specific rebalancing frequency and/or threshold is optimal for all investors. Generally, more frequent rebalancing will limit the risk in a portfolio to a level suitable for the investment goal, but this potentially comes at the cost of lower returns, increased turnover, and a heavier tax burden in the current period.

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Re: How often should someone rebalance?

Post by Random Musings » Fri Nov 08, 2019 10:39 am

I utilize bands. However, I really don't see systematically doing it over a specific period (quarterly, yearly) being a problem too.

However, one has to take taxes into consideration if there taxable accounts in the equation.

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Re: How often should someone rebalance?

Post by goingup » Fri Nov 08, 2019 10:55 am

22twain wrote:
Fri Nov 08, 2019 7:44 am
If I had rebalanced annually, regardless of the amount of imbalance, I would now have about 3% more.

If I had checked annually, and rebalanced only if the imbalance was greater than 5% (i.e. stock less than 45% or greater than 55%), I would now have about 4.5% more.
Try running it through Portfolio Visualizer if you care to double check your conclusions. My recollection is that rebalancing lowers returns over time because you usually paring back the over performing asset (stocks) and adding to lower performing bonds. Your conclusion of a 3%-4.5% difference in favor of rebalancing over a 30 year period really counters my understanding of rebalancing mechanics.

I personally favor rebalancing rarely and only with new contributions.

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Re: How often should someone rebalance?

Post by Casper » Fri Nov 08, 2019 11:09 am

I don't rebalance, but rather just direct new money toward what I would otherwise be rebalancing into. So for example, I recently decided that my 85/15 AA was a little too high for me, so I'm directing new money into fixed income more than I usually do. As a side benefit, this prevents me from making any overly hasty changes to my AA, though it also means the "rebalancing" takes some time.

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Re: How often should someone rebalance?

Post by rkhusky » Fri Nov 08, 2019 11:34 am

As long as it’s free, as often as you want. You would run into Vanguard’s frequent trading policy if you tried to do it weekly.

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Re: How often should someone rebalance?

Post by aristotelian » Fri Nov 08, 2019 11:39 am

tomwood wrote:
Fri Nov 08, 2019 6:02 am
Ferdinand2014 wrote:
Fri Nov 08, 2019 4:57 am
tomwood wrote:
Thu Nov 07, 2019 10:53 pm
I’m Using a 3 fund portfolio. And over the last few years I rebalance twice per year. These dates are set, and are unrelated to which day the market is up or down. Is twice per year too often or too few times per year to rebalance?
I’m sure the data varies on this topic but what do the smart people here suggest? Rebalance once or twice or more times per year, so long as the date are fixed and unrelated to market movement.
I never rebalance.
Doesn’t this result in a high percentage of equities in your portfolio and a percentage of fixed income less than your age (which I understand to be a number many use)?
See the threads on "rising equity glide path". There is a case to be made that as long as you have X years expenses in bonds, you do not need a higher %. At that point, the percentages favor investing in equities, so you may as well as long as you have the risk tolerance for it.

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Re: How often should someone rebalance?

Post by teelainen » Fri Nov 08, 2019 11:55 am

tomwood wrote:
Thu Nov 07, 2019 10:53 pm
I’m Using a 3 fund portfolio. And over the last few years I rebalance twice per year. These dates are set, and are unrelated to which day the market is up or down. Is twice per year too often or too few times per year to rebalance?
I’m sure the data varies on this topic but what do the smart people here suggest? Rebalance once or twice or more times per year, so long as the date are fixed and unrelated to market movement.
I find rebalancing to be a very stressful task. Every year when the time comes to rebalance, I am tempted to "time" the market. Does anyone else have this problem?

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Re: How often should someone rebalance?

Post by shess » Fri Nov 08, 2019 12:22 pm

teelainen wrote:
Fri Nov 08, 2019 11:55 am
tomwood wrote:
Thu Nov 07, 2019 10:53 pm
I’m Using a 3 fund portfolio. And over the last few years I rebalance twice per year. These dates are set, and are unrelated to which day the market is up or down. Is twice per year too often or too few times per year to rebalance?
I’m sure the data varies on this topic but what do the smart people here suggest? Rebalance once or twice or more times per year, so long as the date are fixed and unrelated to market movement.
I find rebalancing to be a very stressful task. Every year when the time comes to rebalance, I am tempted to "time" the market. Does anyone else have this problem?
You are timing the market whether you rebalance or not, it just a matter of whether you believe it has further to run, or whether it will revert to the mean.

One of the inputs to my decision to rebalance yearly is that I figure that's the maximum amount of time I should allow my asset-manipulation skills to decay before I should practice. Like if you rebalanced every 10 years, that would be seldom enough that you might not even know what you're doing. Hopefully if you rebalanced every week, you'd get over it and just do the job. I'm not suggesting that :-).
Last edited by shess on Fri Nov 08, 2019 12:23 pm, edited 1 time in total.

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Re: How often should someone rebalance?

Post by nedsaid » Fri Nov 08, 2019 12:22 pm

tomwood wrote:
Fri Nov 08, 2019 7:28 am
nedsaid wrote:
Fri Nov 08, 2019 6:42 am
Younger investors should ....
Where would you roughly suggest this age to be?

If people aren’t rebalancing, does that offer a chance of higher returns? And also more risk. Which is why you say it’s only for the young?
One probably should be too worried about rebalancing a portfolio until age 40. A lack of rebalancing should offer a good chance of higher returns and yes, at the price of more risk. The act of rebalancing a portfolio is more about controlling risk than enhancing returns. What I am trying to say is that a young investor can take a more relaxed view about such things.

Not saying that once you are past age 40 that you should not take risk, to the contrary retirees most often will need to harvest capital gains from their stocks in retirement. Pretty much saying that one should dial down risk as they get older because their human capital decreases with age. Older investors need to think about de-risking over time while also rebalancing their portfolios. Risk control gets more and more important as one gets older and older.
Last edited by nedsaid on Fri Nov 08, 2019 7:43 pm, edited 1 time in total.
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Re: How often should someone rebalance?

Post by shess » Fri Nov 08, 2019 12:45 pm

tomwood wrote:
Fri Nov 08, 2019 7:28 am
nedsaid wrote:
Fri Nov 08, 2019 6:42 am
Younger investors should ....
Where would you roughly suggest this age to be?

If people aren’t rebalancing, does that offer a chance of higher returns? And also more risk. Which is why you say it’s only for the young?
I can't speak to the person who wrote that, but IMHO, the benefit to rebalancing when you're young are simply lower because you have a smaller portfolio and your earning potential is relatively high. When I was 25, I only had $7k in retirement accounts, when I was 30 that was $90k, when I was 40 it was $300k (in 2009, no less). Somewhere between 25 and 30 was when I started having enough cashflow to max out retirement contributions. Being super diligent about rebalancing wouldn't have done much good, because I was growing my account by double-digit percentages simply by contributions. This is consistent with FIRE forums, where the consistent advice has little to do with investment management, it is to increase your savings rate as much as possible. Which isn't to say that investment management is irrelevant, just that it's not the dominant input, you mostly need to avoid errors as opposed to making heroic saves.

I don't know where the point where you should usefully start paying more attention to the balance, since my income went to the sky and I retired early. Based on the experience of friends and relatives, I'd say starting to pay attention around 40 wouldn't be a bad decision, but waiting until 50 also wouldn't be that bad. These days peak earning years are taken to be between 40 and 50, so there's still some amount of new money dominating results going on, but then a double-whammy as your income levels out and your portfolio is (hopefully) striding ahead. Your mileage may vary, of course.

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Re: How often should someone rebalance?

Post by Gort » Fri Nov 08, 2019 12:54 pm

Rick Ferri wrote:
Thu Nov 07, 2019 11:02 pm
You'll never figure out the optimal time or number of times to rebalance. So, do at a time and in a way that you'll remember.

I can also make the case rebalancing isn't needed. Cash flows can be used for rebalancing and you don't need to sell anything.

I can also make a tax case for only rebalancing in tax-deferred accounts. Only sell stocks in tax-deferred accounts and only buy stocks in taxable accounts. This way you're maintaining some type of reasonable allocation, and the stocks go to your heirs at a stepped-up basis.

Rick Ferri
What if someone is in the retirement decumulation stage? There are no cash inflows available for rebalancing.

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Re: How often should someone rebalance?

Post by atlgenxennial » Fri Nov 08, 2019 12:56 pm

mmmodem wrote:
Fri Nov 08, 2019 6:59 am
again to ensure I don't overcontribute losing company match at the end of the year. I change my investments accordingly to keep within my 5% investment bands.
Why would you lose your company match?

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Re: How often should someone rebalance?

Post by 3funder » Fri Nov 08, 2019 12:58 pm

I do it when off by 5%, which means not very often, as new contributions help keep my asset allocation in line. That, and I only rebalance in tax-advantaged accounts.

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Re: How often should someone rebalance?

Post by GerryL » Fri Nov 08, 2019 1:18 pm

I've never been very diligent about rebalancing, except when I could do push-button rebalancing in a 401k at Fidelity. Now that I am retired, I am using my personal RMD season as a time to get back to my AA. My taxable account is in a 60/40 fund, so I don't even have to worry about that.

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Re: How often should someone rebalance?

Post by emoore » Fri Nov 08, 2019 1:48 pm

I rebalance about every 5 years when I want to change my entire allocation. When I turned 40 I rebalanced to get to 80/20 stocks and bonds but I haven't done anything since. I'll probably rebalance when I hit 45 into 75/25 and call it good.

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Re: How often should someone rebalance?

Post by Lee_WSP » Fri Nov 08, 2019 2:08 pm

The only benefit I've been able to surmise from re-balancing is to ensure a drop isn't as bad, and to reap the gains on a rebound. Both are kind of like market timing, except the re-balance is supposed to be done on a schedule.

For the BH fund, I really don't see any concrete evidence of concrete benefits (other than psychological) of re-balancing vs never re-balancing.

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Re: How often should someone rebalance?

Post by Rick Ferri » Fri Nov 08, 2019 2:09 pm

Gort wrote:
Fri Nov 08, 2019 12:54 pm
Rick Ferri wrote:
Thu Nov 07, 2019 11:02 pm
You'll never figure out the optimal time or number of times to rebalance. So, do at a time and in a way that you'll remember.

I can also make the case rebalancing isn't needed. Cash flows can be used for rebalancing and you don't need to sell anything.

I can also make a tax case for only rebalancing in tax-deferred accounts. Only sell stocks in tax-deferred accounts and only buy stocks in taxable accounts. This way you're maintaining some type of reasonable allocation, and the stocks go to your heirs at a stepped-up basis.

Rick Ferri
What if someone is in the retirement decumulation stage? There are no cash inflows available for rebalancing.
1) Not everyone takes all their cash and spends it in retirement.
2) Roth conversions can be used for rebalancing.
3) RMDs could be used for rebalancing.
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Re: How often should someone rebalance?

Post by michaeljc70 » Fri Nov 08, 2019 6:10 pm

I rebalance once a year but I think twice a year is fine. Monthly is too much and from what I've read, more harmful than beneficial. Quarterly is okay, but why bother when it will probably not give you any better returns? A Vanguard study found there was no meaningful difference in risk-adjusted returns if the portfolio was rebalanced monthly, quarterly or annually. Other studies have had different results. According to this thread/study, quarterly wins (viewtopic.php?t=150611).

I definitely would use bands or have some threshold. I am not going to do anything due to things being just a little out of whack.

Another thing I avoid is rebalancing at the end of the quarter or year due to fluctuations from fund managers. This is probably less relevant due to the popularity of index funds and maybe completely meaningless but it is just as easy for me to rebalance a different day of the month.

mmmodem
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Re: How often should someone rebalance?

Post by mmmodem » Fri Nov 08, 2019 7:39 pm

atlgenxennial wrote:
Fri Nov 08, 2019 12:56 pm
mmmodem wrote:
Fri Nov 08, 2019 6:59 am
again to ensure I don't overcontribute losing company match at the end of the year. I change my investments accordingly to keep within my 5% investment bands.
Why would you lose your company match?
Once I reach the 401k yearly maximum, my next paycheck will have zero going to 401k. Therefore, no company match. My company does not do true up.

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nisiprius
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Re: How often should someone rebalance?

Post by nisiprius » Fri Nov 08, 2019 8:21 pm

This is what William J. Bernstein said, and it deserves attention, both because he popularized the phrase "rebalancing bonus" and also because he is a regular presenter at the annual Bogleheads' meetings.
William J. Bernstein wrote:Is there any reason to believe that, on average, rebalancing will help more than it hurts? Not if we believe that market movements are random. After all, we rebalance with the hope that an asset with past higher/lower than average returns will have future lower/higher than average returns.

Is this actually true? Probably. Recall that over short periods of time asset classes display momentum, but that over periods of time over a year or longer tend to mean-revert....

Rebalance your portfolio approximately once every few years; more than once per year is probably too often. In taxable portfolios, do so even less frequently.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

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Re: How often should someone rebalance?

Post by Lagerlover » Fri Nov 08, 2019 10:58 pm

I have stuck with a target of 35% equities for 15 years. But I'm comfortable with 30% to 40% equities, which means I don't rebalance very often. Sometimes it's several years between actions. I have no idea if it's right or wrong, but it's simple and works for me. Lagerlover

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Re: How often should someone rebalance?

Post by 22twain » Fri Nov 08, 2019 11:25 pm

goingup wrote:
Fri Nov 08, 2019 10:55 am
22twain wrote:
Fri Nov 08, 2019 7:44 am
If I had rebalanced annually, regardless of the amount of imbalance, I would now have about 3% more.
My recollection is that rebalancing lowers returns over time because you usually paring back the over performing asset (stocks) and adding to lower performing bonds.
My calculations do show the effect you describe, when stocks are rising, but the effect is opposite during downturns. So far at least, the downturns have had a larger cumulative effect, even though they're shorter than the upswings.

If I had always rebalanced annually, the cumulative "bonus" would have been about -4.7% (i.e. actually a deficit) at the beginning of 2000. Then it would have reversed and turned positive during the dot-com bust, reaching about +2.2% at the beginning of 2004. Then it would have decreased gradually to +0.8% at the beginning of 2008. Next came the Great Recession, which would have pushed it back up to about 6.5% at the beginning of 2010. Then it would have declined to about 3.1% at the beginning of 2018, which is as far as my spreadsheet goes.
My investing princiPLEs do not include absolutely preserving princiPAL.

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Re: How often should someone rebalance?

Post by ralph124cf » Sat Nov 09, 2019 6:16 pm

My IPS states 60/40, and 10% rebalance bands.

I allow stocks to go up to 70%, or down to 50% before doing anything.

Ralph

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Re: How often should someone rebalance?

Post by JustinR » Sat Nov 09, 2019 10:21 pm

tomwood wrote:
Thu Nov 07, 2019 10:53 pm
I’m Using a 3 fund portfolio. And over the last few years I rebalance twice per year. These dates are set, and are unrelated to which day the market is up or down. Is twice per year too often or too few times per year to rebalance?
I’m sure the data varies on this topic but what do the smart people here suggest? Rebalance once or twice or more times per year, so long as the date are fixed and unrelated to market movement.
Vanguard's paper on this: https://www.vanguard.com/pdf/ISGPORE.pdf

Once a year is enough.
As a result, we conclude that for most broadly diversified stock and bond fund portfolios (assuming reasonable expectations regarding return patterns, average returns, and risk), annual or semiannual monitoring, with rebalancing at 5% thresholds, is likely to produce a reasonable balance between risk control and cost minimization for most investors. Annual rebalancing is likely to be preferred when taxes or substantial time/costs are involved.

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Re: How often should someone rebalance?

Post by rkhusky » Sat Nov 09, 2019 10:47 pm

I check twice a month and rebalance if my categories are off by approximately 1%. Computing my AA takes more work than rebalancing, so why not do it when it deviates from what I want. I rebalance in tax-advantaged so there is no cost or taxes.

I suppose if you really only compute your AA once a year, rebalancing once a year is fine.

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