How often do Life Cycle/Target Date funds rebalance?

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tomwood
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How often do Life Cycle/Target Date funds rebalance?

Post by tomwood » Wed Mar 25, 2020 8:46 am

Do Life Cycle funds (for those with a TSP), or Target Date funds get rebalanced daily/weekly/monthly/annually?

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windaar
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Re: How often do Life Cycle/Target Date funds rebalance?

Post by windaar » Wed Mar 25, 2020 9:32 am

Following; also curious about this.
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windaar
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Re: How often do Life Cycle/Target Date funds rebalance?

Post by windaar » Wed Mar 25, 2020 10:27 am

I did a little research and this is what I found out:
1. The funds rebalance daily through their deciding where to take the money withdrawn that day and where to put money added that day by fund owners.
2. VG buys and sells to maintain allocations triggered at 2 or 3 percent changes but the exact percentage and the dates are kept secret so that investors can’t take advantage.

Source is here:

https://theinquiringinvestor.com/2012/0 ... rebalance/
Nobody knows nothing.

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tomwood
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Re: How often do Life Cycle/Target Date funds rebalance?

Post by tomwood » Wed Mar 25, 2020 12:43 pm

windaar wrote:
Wed Mar 25, 2020 10:27 am
I did a little research and this is what I found out:
1. The funds rebalance daily through their deciding where to take the money withdrawn that day and where to put money added that day by fund owners.
2. VG buys and sells to maintain allocations triggered at 2 or 3 percent changes but the exact percentage and the dates are kept secret so that investors can’t take advantage.

Source is here:

https://theinquiringinvestor.com/2012/0 ... rebalance/
Would this imply that VG target date funds have been buying equities over the past few weeks as the market has been dropping?

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windaar
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Re: How often do Life Cycle/Target Date funds rebalance?

Post by windaar » Wed Mar 25, 2020 12:51 pm

As I read it, as people have made withdrawals these last weeks from a Target fund, the money has come from the bond side. As people have bought into the fund, the money has gone into the equities side. And as the mysterious trigger bands have been hit, VG has been buying equities to keep the asset allocations of the fund. Perhaps others here have insights to add.
Nobody knows nothing.

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tomwood
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Re: How often do Life Cycle/Target Date funds rebalance?

Post by tomwood » Wed Mar 25, 2020 3:10 pm

windaar wrote:
Wed Mar 25, 2020 12:51 pm
As I read it, as people have made withdrawals these last weeks from a Target fund, the money has come from the bond side. As people have bought into the fund, the money has gone into the equities side. And as the mysterious trigger bands have been hit, VG has been buying equities to keep the asset allocations of the fund. Perhaps others here have insights to add.
Thanks for your help.

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Phineas J. Whoopee
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Re: How often do Life Cycle/Target Date funds rebalance?

Post by Phineas J. Whoopee » Wed Mar 25, 2020 7:38 pm

Furthermore, Vanguard can adjust holdings between funds, which avoids having to pay trading costs. Of course sometimes they have to do that, probably daily, but it's less than one might expect if not considering inter-fund transfers.
PJW

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Re: How often do Life Cycle/Target Date funds rebalance?

Post by tomwood » Thu Mar 26, 2020 11:50 am

Phineas J. Whoopee wrote:
Wed Mar 25, 2020 7:38 pm
Furthermore, Vanguard can adjust holdings between funds, which avoids having to pay trading costs. Of course sometimes they have to do that, probably daily, but it's less than one might expect if not considering inter-fund transfers.
PJW
Does this mean VG is rebalancing daily, if needed? I’m sure they have a margin of error for their target date funds but when we had the recent drops in previous days, we’re target date funds buying more equities at those lower prices?


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Phineas J. Whoopee
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Re: How often do Life Cycle/Target Date funds rebalance?

Post by Phineas J. Whoopee » Thu Mar 26, 2020 5:37 pm

tomwood wrote:
Thu Mar 26, 2020 11:50 am
Phineas J. Whoopee wrote:
Wed Mar 25, 2020 7:38 pm
Furthermore, Vanguard can adjust holdings between funds, which avoids having to pay trading costs. Of course sometimes they have to do that, probably daily, but it's less than one might expect if not considering inter-fund transfers.
PJW
Does this mean VG is rebalancing daily, if needed? I’m sure they have a margin of error for their target date funds but when we had the recent drops in previous days, we’re target date funds buying more equities at those lower prices?
Vanguard has publicly said, but without providing financial statements to prove it, but I see no reason why they would lie, that in the course of normal business they're able to maintain target date allocations out of daily cashflows.

It must include the inter-fund transfer effect. Nothing else makes economic sense.

PJW

Count of Notre Dame
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Re: How often do Life Cycle/Target Date funds rebalance?

Post by Count of Notre Dame » Thu Mar 26, 2020 7:18 pm

I work for a mutual fund complex and we rebalance to the target asset mix daily, based on net sales/redemptions into these fund of funds.

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Re: How often do Life Cycle/Target Date funds rebalance?

Post by bertilak » Fri Mar 27, 2020 12:01 pm

Count of Notre Dame wrote:
Thu Mar 26, 2020 7:18 pm
I work for a mutual fund complex and we rebalance to the target asset mix daily, based on net sales/redemptions into these fund of funds.
To a first level of approximation, they don't re-balance. The nature (and beauty) of index funds is that as prices change the fund's allocation, simply due to the math, follows the change with no need for manual intervention.

The above needs to be managed manually as new money is added to the fund or existing money is taken out. The fund must buy and sell in the same percentages as the index.

Beyond that, the indexes do change as companies come and go and as companies (due to growth, etc.) move in and out of the categories the fund tracks. This is much less an issue for "total" indexes.
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker (aka S.O.B.), the Cowboy Poet

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tomwood
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Re: How often do Life Cycle/Target Date funds rebalance?

Post by tomwood » Fri Mar 27, 2020 2:08 pm

bertilak wrote:
Fri Mar 27, 2020 12:01 pm
Count of Notre Dame wrote:
Thu Mar 26, 2020 7:18 pm
I work for a mutual fund complex and we rebalance to the target asset mix daily, based on net sales/redemptions into these fund of funds.
To a first level of approximation, they don't re-balance. The nature (and beauty) of index funds is that as prices change the fund's allocation, simply due to the math, follows the change with no need for manual intervention.

The above needs to be managed manually as new money is added to the fund or existing money is taken out. The fund must buy and sell in the same percentages as the index.

Beyond that, the indexes do change as companies come and go and as companies (due to growth, etc.) move in and out of the categories the fund tracks. This is much less an issue for "total" indexes.
Thank you.
Rather than discussing index funds individually, could you explain how life cycle or target date funds work? For example if it’s for target date 2030 then maybe 60% would be in fixed income while 40% is in equities. As the equities drop by 20-30%, what is happening within the life cycle or target date fund? Is it rebalacing back to rightly 40/60 every day or week or month or quarter?

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Re: How often do Life Cycle/Target Date funds rebalance?

Post by bertilak » Fri Mar 27, 2020 2:56 pm

tomwood wrote:
Fri Mar 27, 2020 2:08 pm
bertilak wrote:
Fri Mar 27, 2020 12:01 pm
Count of Notre Dame wrote:
Thu Mar 26, 2020 7:18 pm
I work for a mutual fund complex and we rebalance to the target asset mix daily, based on net sales/redemptions into these fund of funds.
To a first level of approximation, they don't re-balance. The nature (and beauty) of index funds is that as prices change the fund's allocation, simply due to the math, follows the change with no need for manual intervention.

The above needs to be managed manually as new money is added to the fund or existing money is taken out. The fund must buy and sell in the same percentages as the index.

Beyond that, the indexes do change as companies come and go and as companies (due to growth, etc.) move in and out of the categories the fund tracks. This is much less an issue for "total" indexes.
Thank you.
Rather than discussing index funds individually, could you explain how life cycle or target date funds work? For example if it’s for target date 2030 then maybe 60% would be in fixed income while 40% is in equities. As the equities drop by 20-30%, what is happening within the life cycle or target date fund? Is it rebalacing back to rightly 40/60 every day or week or month or quarter?
Ah, good question. Life cycle and target date funds are a mix of funds so they would need some re-balancing between the constituent funds. I believe they need to keep the fund at it's advertised AA on a daily basis so buyers get the advertised AA no matter what day customers buy. The fund manager would have to do whatever it take to maintain the balance. I suspect normal flow of money into and out of the fund allows for easy re-balancing as the money comes and goes.

Vanguard has a couple of balanced funds that are NOT a mix of index funds: Wellington and Wellesely, and the managers would have much more freedom in what they actually do as they only advertise an approximate AA.
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker (aka S.O.B.), the Cowboy Poet

Count of Notre Dame
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Re: How often do Life Cycle/Target Date funds rebalance?

Post by Count of Notre Dame » Fri Mar 27, 2020 3:34 pm

bertilak wrote:
Fri Mar 27, 2020 12:01 pm
Count of Notre Dame wrote:
Thu Mar 26, 2020 7:18 pm
I work for a mutual fund complex and we rebalance to the target asset mix daily, based on net sales/redemptions into these fund of funds.
To a first level of approximation, they don't re-balance. The nature (and beauty) of index funds is that as prices change the fund's allocation, simply due to the math, follows the change with no need for manual intervention.

The above needs to be managed manually as new money is added to the fund or existing money is taken out. The fund must buy and sell in the same percentages as the index.

Beyond that, the indexes do change as companies come and go and as companies (due to growth, etc.) move in and out of the categories the fund tracks. This is much less an issue for "total" indexes.
I wasn't talking about index funds, I'm talking about fund of funds that own underlying funds that are actively managed. Let's say a FOF owns 50% growth mutual fund and 50% bond mutual fund, then the FOF will rebalance to those target percentages each day as new money is collected.

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bertilak
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Re: How often do Life Cycle/Target Date funds rebalance?

Post by bertilak » Fri Mar 27, 2020 3:46 pm

Count of Notre Dame wrote:
Fri Mar 27, 2020 3:34 pm
bertilak wrote:
Fri Mar 27, 2020 12:01 pm
Count of Notre Dame wrote:
Thu Mar 26, 2020 7:18 pm
I work for a mutual fund complex and we rebalance to the target asset mix daily, based on net sales/redemptions into these fund of funds.
To a first level of approximation, they don't re-balance. The nature (and beauty) of index funds is that as prices change the fund's allocation, simply due to the math, follows the change with no need for manual intervention.

The above needs to be managed manually as new money is added to the fund or existing money is taken out. The fund must buy and sell in the same percentages as the index.

Beyond that, the indexes do change as companies come and go and as companies (due to growth, etc.) move in and out of the categories the fund tracks. This is much less an issue for "total" indexes.
I wasn't talking about index funds, I'm talking about fund of funds that own underlying funds that are actively managed. Let's say a FOF owns 50% growth mutual fund and 50% bond mutual fund, then the FOF will rebalance to those target percentages each day as new money is collected.
So what's the question?
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker (aka S.O.B.), the Cowboy Poet

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