Rebalancing: Keep or liquidate international holding?

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Nowizard
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Rebalancing: Keep or liquidate international holding?

Post by Nowizard » Mon Dec 02, 2019 6:40 pm

We need to rebalance from stocks to bonds. Currently, bonds are held in Total Bond Index and stocks in Total Stock Market index and Global Equity. It would simplify our portfolio to liquidate GE and transfer to Total Bond. There are numerous discussions about whether to hold an international allocation or simply a total stock market fund. What considerations are appropriate in making a decision to make transfers from both Total Stock Market and Global Equity funds to Total Bond Market, keeping allocations in both funds, or to liquidate Global Equity? All funds are in retirement accounts.

Tim

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Hector
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Re: Rebalancing: Keep or liquidate international holding?

Post by Hector » Mon Dec 02, 2019 6:50 pm

You are going to hear both side of arguments the way we have seen in dozens of similar threads.
I hold international stock.

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Re: Rebalancing: Keep or liquidate international holding?

Post by MotoTrojan » Mon Dec 02, 2019 9:59 pm

Did you have a previous allocation between US and ex-US equities? If so, you’d withdraw whichever is overweight or potentially both to rebalance.

The decision on whether to abandon international equities is another story. Selfish me says yes because as soon as you sell, they will start rallying :).

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oldcomputerguy
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Re: Rebalancing: Keep or liquidate international holding?

Post by oldcomputerguy » Tue Dec 03, 2019 6:05 am

This topic is now in the Personal Investments forum.
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Valuethinker
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Re: Rebalancing: Keep or liquidate international holding?

Post by Valuethinker » Tue Dec 03, 2019 6:47 am

Nowizard wrote:
Mon Dec 02, 2019 6:40 pm
We need to rebalance from stocks to bonds. Currently, bonds are held in Total Bond Index and stocks in Total Stock Market index and Global Equity. It would simplify our portfolio to liquidate GE and transfer to Total Bond. There are numerous discussions about whether to hold an international allocation or simply a total stock market fund. What considerations are appropriate in making a decision to make transfers from both Total Stock Market and Global Equity funds to Total Bond Market, keeping allocations in both funds, or to liquidate Global Equity? All funds are in retirement accounts.

Tim
Without knowing your percentages it is a hard call.

The evidence is that of a 100% equity portfolio for a US investor, a weighting of 20-30% in international equities has reduced volatility. Because US stocks have outperformed so much in the long run, it almost certainly has also reduced return.

If your international weighting is going to be less than 20% of your equity portfolio, you might well eliminate it on the grounds it won't make a big difference to your final portfolio value.

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nisiprius
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Re: Rebalancing: Keep or liquidate international holding?

Post by nisiprius » Tue Dec 03, 2019 7:51 am

The prime directive is "stay the course." Rebalancing is usually interpreted as rebalancing the whole portfolio, so that you bring all of the assets in it back to your target percentages.

You are rebalancing in order to bring your bond percentage back to your target. I can't think of any good reason why that fact would suggest that this is a time to change your targets for US and international.

If you wrote it down, now is the time to look back and see what you wrote down as your target for US and international stocks, and what is your plan for deciding to change it, and why. If you didn't write it down, now is the time to remember, just as well as you can, what your reasons were for choosing the allocation you chose, and what would be a reason to change them.

In my case, my "reason" was "Eh, I don't know, maybe 20%." Good or bad, that's my reason, and I don't have a reason to change. So I don't.

To put it one way, rebalancing is restoring target asset allocations, and it is just housekeeping, not a change in plan. Changing asset allocation is a change in plan. "Sticking to a plan" and "changing a plan" are really separate things that should be done separately. And deciding to change a plan should require fairly strong conviction, it shouldn't be something you do just because you happen to be on the website in order to do something trivial.
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Nowizard
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Re: Rebalancing: Keep or liquidate international holding?

Post by Nowizard » Tue Dec 03, 2019 8:49 am

Good comments. Thank you. The primary reasons for considering eliminating international would be to simplify our portfolio. Also, the percentage of international is only 5-6%. The reduction of volatility and comparison to the run-up in U.S. equities comment is intriguing. So is the one about separating rebalancing from a change in planning. After thinking about it, the key is simplification as I prepare for the probable day when my spouse will likely be managing our assets alone. We can stand any increased volatility, likely little given the small percentage of international assets.

Tim

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