for all the talk - do we really need to rebalance that often? at all?

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Needsomehelp
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for all the talk - do we really need to rebalance that often? at all?

Post by Needsomehelp » Fri Nov 15, 2019 11:30 am

Hello all,

Just want to get a sanity check here - for as much as we write about it on the forums - 5%, 25%, yearly, quarterly, etc...on rebalancing do we really need or gain much from all of the conversation about it?

I've been off and on monitoring our families accounts and even on a year like this year where the stock market is at an all time high (although bonds have done pretty darn well) my allocation of 50% total US, 20% total International and 30% bonds - has barely budget to 52%, 18% and 20%.

So, I feel a bit guilty but I can't even remember the last time I have changed - feels like years. I still do contribute and my account is fairly substantial (at least in my mind) but I would think regardless of the balance the math works the same.

Should I feel guilty that I rarely (if ever change)? It just "feels" like everybody is rebalancing constantly and have FOMO.


as always, thanks for any sharing/learning.

dcabler
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Re: for all the talk - do we really need to rebalance that often? at all?

Post by dcabler » Fri Nov 15, 2019 11:37 am

Lots of information out there showing that frequent rebalance isn't necessary. That said, it doesn't hurt that much either, unless you're frequently doing it in a taxable account and having to pay cap gains because of it. I have all stocks in taxable and both stocks and bonds in deferred. So any rebalancing I may ever need to do can take place completely inside the deferred space.

Many people around here use new deposits to move in the direction of balance by directing the money to whatever is below target.

I don't think I could ever do "never", though, since over the long haul stock returns have nearly always exceeded bond returns and would make my portfolio too stock-heavy for my taste over time.

onourway
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Re: for all the talk - do we really need to rebalance that often? at all?

Post by onourway » Fri Nov 15, 2019 11:38 am

For the last several years I’ve been monitoring our accounts closely I have found no need to rebalance at all - there have been no events that have been significant enough to move stocks and bonds in opposite directions enough to impact our AA above some base level which I consider all noise.

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Just sayin...
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Re: for all the talk - do we really need to rebalance that often? at all?

Post by Just sayin... » Fri Nov 15, 2019 11:44 am

I just today traded 5% stock for bonds because my overall stock holdings have grown so much (my second such trade since retirement - first one was about 1 yr. 3 mos. ago). Fortunately, I did this in a tax-advantaged account, so there was no tax hit. If the stock market goes up another 10%, I’ll likely repeat the process. For me, I look at it as locking in some profit and reducing my risk. When I retired, my biggest initial fear was early retirement Sequence of Returns Risk - with the past two profit-taking trades, my feared SoRR is getting close to become a non-issue. So, to answer your question, yes. I rebalance when investments move out of my targeted holding percentages.

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Cyclesafe
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Re: for all the talk - do we really need to rebalance that often? at all?

Post by Cyclesafe » Fri Nov 15, 2019 12:04 pm

I only "rebalanced" when I changed my asset allocation prior to decumulation. On the equity upside, I will rebalance only when I am not sleeping at night. On the equity downside, I will not ever rebalance due to sequence of returns risk.
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rkhusky
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Re: for all the talk - do we really need to rebalance that often? at all?

Post by rkhusky » Fri Nov 15, 2019 12:05 pm

Rebalancing can also satisfy the itch to do something (as opposed to more destructive practices like dabbling in individual stocks or market timing).

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Re: for all the talk - do we really need to rebalance that often? at all?

Post by JediMisty » Fri Nov 15, 2019 12:42 pm

I direct dividends and interest from all my accounts into the asset class that's farthest from it's goals. When and only when an AA is greater than 10% RELATIVELY from it's target goal, I exchange within my tax deferred account back to closer to the dollar value of the goal. (I don't try to hit it on the nose) I exchanged once during the year as I monitor my accounts for the dividend and interest purchases once a month or so. Studies have shown that re-balancing once per year is just as good or slightly better than monitoring that I do. However, I'm between 6 months and 2 years from retirement, so I want my AA to stay with 10% relatively of the target for each asset class.

dboeger1
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Re: for all the talk - do we really need to rebalance that often? at all?

Post by dboeger1 » Fri Nov 15, 2019 1:20 pm

You don't NEED to rebalance, just like you don't NEED to think about asset allocation. You could just blindly go in 100% stocks, 100% bonds, or anywhere in between. The decision to rebalance is fundamentally no different than the decision to have a certain asset allocation. The goal is to match your portfolio to your risk tolerance. So I would say, yes, the act of rebalancing itself is every bit as important as that of setting an asset allocation.

The talk on the forums is usually around the details of how often or when to do that. Purely theoretically, it should be based on the amount of deviation, either a percentage or a set dollar amount from the desired allocation. However, practically speaking, there are plenty of other things to consider, such as taxes, different account types, fees, etc. That's why annual or other time-based rebalancing schemes exist, as a sort of happy medium between percentage-based and the impracticality of rebalancing often in a volatile market. But really, any of those schemes are subjective based on your personal preferences, and you should only decide between them once you've determined that active rebalancing is something you want to do. In other words, it's kind of like picking out a pair of running shoes after you've decided to run in a marathon.

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Re: for all the talk - do we really need to rebalance that often? at all?

Post by nedsaid » Fri Nov 15, 2019 1:23 pm

In my earlier days, I had a very relaxed attitude about rebalancing my portfolio. I sort of got shamed into rebalancing more frequently here on the forum. It is more about controlling risks than enhancing returns, older investors probably need to pay more attention to this. If you are a young investor, you don't need to be too worried about this at all. Letting your winners run, particularly when you are young, will enhance returns. Young investors can afford to be very aggressive.
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delamer
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Re: for all the talk - do we really need to rebalance that often? at all?

Post by delamer » Fri Nov 15, 2019 1:48 pm

Decide your preferred allocations.

Check your allocations once per year.

If any of your allocations are off by more than 10 percentage points, then rebalance.

It doesn’t need to be any more difficult than that.

If you don’t do any rebalancing, then why pick allocations at all?

Alternatively, use a target date retirement fund or other all-in-one-fund, and let someone else deal with it.

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2pedals
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Re: for all the talk - do we really need to rebalance that often? at all?

Post by 2pedals » Fri Nov 15, 2019 2:06 pm

No need to feel guilty for not rebalancing. Just make sure you are able to emotionally handle big stock market drops. Expect 50% drop anytime. Big investor common mistakes are made during these times. The higher stock allocation the harder that may be for someone to avoid.

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JoeRetire
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Re: for all the talk - do we really need to rebalance that often? at all?

Post by JoeRetire » Fri Nov 15, 2019 2:13 pm

Needsomehelp wrote:
Fri Nov 15, 2019 11:30 am
Should I feel guilty that I rarely (if ever change)? It just "feels" like everybody is rebalancing constantly and have FOMO.
There's no need to feel guilty. You have seen how your presumably desired asset allocation has drifted in just a year. You can expect it to continue to drift even more. If you are happy with that, then there's no need to do anything at all.

Avoid FOMO - no good can come of that.
Don't be a lemming.

dbr
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Re: for all the talk - do we really need to rebalance that often? at all?

Post by dbr » Fri Nov 15, 2019 2:18 pm

Rebalancing is without a doubt talked about a hundred times more than it is actually need to be done. Sometimes it is made to sound like some exotic magic bullet to more money, and it is not that. People talk about balanced funds being good because the investor doesn't have to rebalance, or some investment management service is a good idea because they will take care of rebalancing, but in reality it isn't that big a deal.

The only real principle to remember is that it is about risk not going way over to where you don't want to go, and that this does not happen very often. A bands rule for rebalancing expresses the real purpose of rebalancing very well. Making it an annual strategy or something like that is too fussy. You are correct that markets have to move a lot to actually cause a need for rebalancing. People who just add contributions roughly in appropriate directions may well rebalance even less. Sometimes rebalancing gets crossed-up with tax location. Unless the case is extreme don't spend money to be too fussy about rebalancing.

2retire
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Re: for all the talk - do we really need to rebalance that often? at all?

Post by 2retire » Fri Nov 15, 2019 2:25 pm

Here is a good link that shows you just how munch the market has to go up or down for you to rebalance.

https://thefinancebuff.com/5-percent-re ... -band.html

The article assumes bonds earn nothing, which isn't realistic. Obviously, if bonds are making money, then stocks have to go up even more to outpace the bonds.

If you are the kind of person that always puts new contributions into the under weighted buckets, then again, stocks need to go up even more.

livesoft
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Re: for all the talk - do we really need to rebalance that often? at all?

Post by livesoft » Fri Nov 15, 2019 2:58 pm

The rebalancing studies that I have read typically use month-end or monthly, quarterly, or annual data. So they miss things like the bottom in December 2019 because it didn't happen on a magic date captured by the studies.

But in the same way that paying 0.5% to 1% a year to a roboadvisor or even a non-roboadvisor does not doom one to a future life of poverty, neither does rebalancing help one become enormously wealthy.

See also from earlier this year: If you are old, why bother with rebalancing!!?

"52%, 18% and 20%." = 90%
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Re: for all the talk - do we really need to rebalance that often? at all?

Post by almostretired1965 » Fri Nov 15, 2019 3:13 pm

I keep a fairly aggressive portfolio for my age (mid-50s, mostly likely will be retiring in 2 to 3 years), roughly 80-15-5, about a quarter in tax advantaged accounts and the rest in a taxable account. Frankly I don't pay too much attention to it. I check it every once in a while, but I can't remember the last time I deliberately re-balanced. Part of it is that a disproportionate portion of new 401K money go into bonds so that naturally balance things out. The cash part is emergency money and is roughly 3 years of living expenses (can be stretched to 5 if we cut out frills) where the absolute value is what matters any way.

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Re: for all the talk - do we really need to rebalance that often? at all?

Post by bertilak » Fri Nov 15, 2019 4:30 pm

I am not a fan of active rebalancing. By "active" I mean selling one asset to buy another.
  1. Normal cash flow (new money -- if any -- reinvesting dividends, paying expenses) is enough to keep things on track, or close enough to it, if done thoughtfully.
  2. An AA is somewhat arbitrary to begin with so it's no big deal if the actual drifts around a bit. Who's to say if a few percentage points one way or the other is better or worse.
  3. Active rebalancing can create a tax hit so one needs a good reason to do so and rebalancing is not a good enough reason. See A and B above.
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Ferdinand2014
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Re: for all the talk - do we really need to rebalance that often? at all?

Post by Ferdinand2014 » Fri Nov 15, 2019 4:42 pm

Needsomehelp wrote:
Fri Nov 15, 2019 11:30 am
Hello all,

Just want to get a sanity check here - for as much as we write about it on the forums - 5%, 25%, yearly, quarterly, etc...on rebalancing do we really need or gain much from all of the conversation about it?

I've been off and on monitoring our families accounts and even on a year like this year where the stock market is at an all time high (although bonds have done pretty darn well) my allocation of 50% total US, 20% total International and 30% bonds - has barely budget to 52%, 18% and 20%.

So, I feel a bit guilty but I can't even remember the last time I have changed - feels like years. I still do contribute and my account is fairly substantial (at least in my mind) but I would think regardless of the balance the math works the same.

Should I feel guilty that I rarely (if ever change)? It just "feels" like everybody is rebalancing constantly and have FOMO.


as always, thanks for any sharing/learning.
You do not need to rebalance. In fact I do not have an asset allocation at all and therefore do not rebalance. My fixed income (T-bills in my case) matches my liability 'must have' needs (emergency expenses, large known expenses). Everything else goes into equities (S&P 500 index fund). Why would I rebalance my fixed income (T-bills) into equities and take the risk of not enough fixed income (T-bills) in order to meet some arbitrary asset allocation?
Last edited by Ferdinand2014 on Fri Nov 15, 2019 4:50 pm, edited 2 times in total.
“You only find out who is swimming naked when the tide goes out.“ — Warren Buffett

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Re: for all the talk - do we really need to rebalance that often? at all?

Post by asset_chaos » Fri Nov 15, 2019 4:44 pm

Rebalance somewhere between never at all and not that often. I check a couple of times a year, but my experience over nearly 30 years has been that redirection of dividends and fresh money has taken care of almost all rebalancing needs. Only market moves that are both extreme and swift have activated my plan's provisions to actually sell something to buy something else. Last time it happened was February 2009. And that was a big enough stock market crash that it was a little scary for me to sell a big chunk of bonds to buy stocks.

Maybe that should be a rebalancing criterion: if it's not a big enough rebalance to scare you a little, then it's not worth doing.-)
Regards, | | Guy

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Re: for all the talk - do we really need to rebalance that often? at all?

Post by dharrythomas » Fri Nov 15, 2019 5:36 pm

Rebalancing is about risk control. As much as people here obsess, a difference of 2 or 3 percent on your asset allocation makes no real difference. A longer time between rebalancing takes advantage of the trend in the market.

That said, we use mostly balanced funds so we rebalance daily.

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Needsomehelp
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Re: for all the talk - do we really need to rebalance that often? at all?

Post by Needsomehelp » Fri Nov 15, 2019 6:37 pm

Amazing. Thanks for helping me get over my case if FOMO when it comes to rebalancing. And the research report. Interesting read.

Livesoft - typo on my part. 50% us 20% into and 30% bonds. (I have fomo on the international allocation too but there are plenty of threads on that. )

So cool that so many people and a couple of bogleheqd celebrities posted! Thanks.

flaccidsteele
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Re: for all the talk - do we really need to rebalance that often? at all?

Post by flaccidsteele » Fri Nov 15, 2019 6:41 pm

Needsomehelp wrote:
Fri Nov 15, 2019 11:30 am
Hello all,

Just want to get a sanity check here - for as much as we write about it on the forums - 5%, 25%, yearly, quarterly, etc...on rebalancing do we really need or gain much from all of the conversation about it?

I've been off and on monitoring our families accounts and even on a year like this year where the stock market is at an all time high (although bonds have done pretty darn well) my allocation of 50% total US, 20% total International and 30% bonds - has barely budget to 52%, 18% and 20%.

So, I feel a bit guilty but I can't even remember the last time I have changed - feels like years. I still do contribute and my account is fairly substantial (at least in my mind) but I would think regardless of the balance the math works the same.

Should I feel guilty that I rarely (if ever change)? It just "feels" like everybody is rebalancing constantly and have FOMO.

as always, thanks for any sharing/learning.
I've been investing since the 90s. I've never actively re-balanced. Not once. No issues

If Warren Buffett discussed rebalancing, it might have given me pause. If rebalancing isn't important enough for him to mention, it isn't important enough for me to do IMO

Trader Joe
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Re: for all the talk - do we really need to rebalance that often? at all?

Post by Trader Joe » Fri Nov 15, 2019 6:45 pm

Needsomehelp wrote:
Fri Nov 15, 2019 11:30 am
Hello all,

Just want to get a sanity check here - for as much as we write about it on the forums - 5%, 25%, yearly, quarterly, etc...on rebalancing do we really need or gain much from all of the conversation about it?

I've been off and on monitoring our families accounts and even on a year like this year where the stock market is at an all time high (although bonds have done pretty darn well) my allocation of 50% total US, 20% total International and 30% bonds - has barely budget to 52%, 18% and 20%.

So, I feel a bit guilty but I can't even remember the last time I have changed - feels like years. I still do contribute and my account is fairly substantial (at least in my mind) but I would think regardless of the balance the math works the same.

Should I feel guilty that I rarely (if ever change)? It just "feels" like everybody is rebalancing constantly and have FOMO.


as always, thanks for any sharing/learning.
No, I would not feel guilty. And no, I would not rebalance very often, if at all.

bck63
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Re: for all the talk - do we really need to rebalance that often? at all?

Post by bck63 » Fri Nov 15, 2019 8:30 pm

Asset allocation funds rebalance for me.

Ferdinand2014
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Re: for all the talk - do we really need to rebalance that often? at all?

Post by Ferdinand2014 » Fri Nov 15, 2019 9:14 pm

flaccidsteele wrote:
Fri Nov 15, 2019 6:41 pm
Needsomehelp wrote:
Fri Nov 15, 2019 11:30 am
Hello all,

Just want to get a sanity check here - for as much as we write about it on the forums - 5%, 25%, yearly, quarterly, etc...on rebalancing do we really need or gain much from all of the conversation about it?

I've been off and on monitoring our families accounts and even on a year like this year where the stock market is at an all time high (although bonds have done pretty darn well) my allocation of 50% total US, 20% total International and 30% bonds - has barely budget to 52%, 18% and 20%.

So, I feel a bit guilty but I can't even remember the last time I have changed - feels like years. I still do contribute and my account is fairly substantial (at least in my mind) but I would think regardless of the balance the math works the same.

Should I feel guilty that I rarely (if ever change)? It just "feels" like everybody is rebalancing constantly and have FOMO.

as always, thanks for any sharing/learning.
I've been investing since the 90s. I've never actively re-balanced. Not once. No issues

If Warren Buffett discussed rebalancing, it might have given me pause. If rebalancing isn't important enough for him to mention, it isn't important enough for me to do IMO

2017 Shareholder letter Berkshire Hathaway - Warren Buffett:

"Investing is an activity in which consumption today is foregone in an attempt to allow greater consumption at a later date. “Risk” is the possibility that this objective won’t be attained.
By that standard, purportedly “risk-free” long-term bonds in 2012 were a far riskier investment than a long- term investment in common stocks. At that time, even a 1% annual rate of inflation between 2012 and 2017 would have decreased the purchasing-power of the government bond that Protégé and I sold.
I want to quickly acknowledge that in any upcoming day, week or even year, stocks will be riskier – far riskier – than short-term U.S. bonds. As an investor’s investment horizon lengthens, however, a diversified portfolio of U.S. equities becomes progressively less risky than bonds, assuming that the stocks are purchased at a sensible multiple of earnings relative to then-prevailing interest rates.
It is a terrible mistake for investors with long-term horizons – among them, pension funds, college endowments and savings-minded individuals – to measure their investment “risk” by their portfolio’s ratio of bonds to stocks. Often, high-grade bonds in an investment portfolio increase its risk."

In fact, he goes out of his way to state that a ratio (asset allocation) is NOT a good way to reduce risk - which he defines not as volatility reduction, but running out of money.
“You only find out who is swimming naked when the tide goes out.“ — Warren Buffett

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Re: for all the talk - do we really need to rebalance that often? at all?

Post by danielc » Fri Nov 15, 2019 9:24 pm

Needsomehelp wrote:
Fri Nov 15, 2019 11:30 am
Hello all,

Just want to get a sanity check here - for as much as we write about it on the forums - 5%, 25%, yearly, quarterly, etc...on rebalancing do we really need or gain much from all of the conversation about it?

I've been off and on monitoring our families accounts and even on a year like this year where the stock market is at an all time high (although bonds have done pretty darn well) my allocation of 50% total US, 20% total International and 30% bonds - has barely budget to 52%, 18% and 20%.

So, I feel a bit guilty but I can't even remember the last time I have changed - feels like years. I still do contribute and my account is fairly substantial (at least in my mind) but I would think regardless of the balance the math works the same.

Should I feel guilty that I rarely (if ever change)? It just "feels" like everybody is rebalancing constantly and have FOMO.

as always, thanks for any sharing/learning.
Vanguard has an excellent paper on this question. The short answer is hat (1) yes, you should rebalance, but (2) anything even remotely half reasonable is just fine. As long as you apply a decent rule, *any* rule, you'll basically get all the benefits. The reason for having a rule is to avoid being ruled by emotion.

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