Do ppl who rebalance annually do anything different in this type of market?

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need403bhelp
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Do ppl who rebalance annually do anything different in this type of market?

Post by need403bhelp » Wed Mar 25, 2020 6:40 pm

Thank you for your past help!

I am asking on behalf of my parents.

My own rebalancing strategy is a complex one with a spreadsheet and 5/25 rebalancing bands.

I helped my parents change their high-fee retirement plans (we both work for same large state-wide system) to Fidelity a few years ago, and tried to make things as simple as possible so we just rebalance once year around the holidays when they come.

I wanted to make sure - people who rebalance annually, do they do anything different with large market moves like this? In other words, should I encourage my parents to rebalance now because of market movements, or just wait until December like we normally do?

They don't have a written IPS, and I think they'll die before they ever have one (investments NOT a priority for them). FWIW, my father and mother both say they don't plan to retire. I definitely believe my father in this regard, not 100% sure about my mother and whether she might change her mind at some point. Their AA is 50/50 stocks and bonds, but now is closer to 40/60 with the market movements.

Thanks!

The Broz
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Re: Do ppl who rebalance annually do anything different in this type of market?

Post by The Broz » Wed Mar 25, 2020 6:46 pm

I am a re-balance annually guy. I thought about doing an ad hoc re balance, but decided not to - at least not yet. I thought I may move to a semi-annual re balance, with the thought that I will see what the situation is in June.

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David Jay
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Re: Do ppl who rebalance annually do anything different in this type of market?

Post by David Jay » Wed Mar 25, 2020 6:52 pm

I wouldn’t change the plan on the hope of doing “a little better” which could happen if one rebalanced into this recovery. Stay the course. This is a really good educational exercise for your parents if they are relatively new (since 2009) to DIY investing.
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need403bhelp
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Re: Do ppl who rebalance annually do anything different in this type of market?

Post by need403bhelp » Wed Mar 25, 2020 6:58 pm

The Broz wrote:
Wed Mar 25, 2020 6:46 pm
I am a re-balance annually guy. I thought about doing an ad hoc re balance, but decided not to - at least not yet. I thought I may move to a semi-annual re balance, with the thought that I will see what the situation is in June.
Got it. Thanks for sharing your thoughts.

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need403bhelp
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Re: Do ppl who rebalance annually do anything different in this type of market?

Post by need403bhelp » Wed Mar 25, 2020 7:00 pm

David Jay wrote:
Wed Mar 25, 2020 6:52 pm
I wouldn’t change the plan on the hope of doing “a little better” which could happen if one rebalanced into this recovery. Stay the course. This is a really good educational exercise for your parents if they are relatively new (since 2009) to DIY investing.
Got it, thanks for the suggestion. It is more an exercise for me as I am basically their financial advisor. They were previously in a balanced active fund with high fees that was supposed to roughly maintain a 50/50 stock bond split, and the asset allocation didn't seem particularly bad for them (probably a little conservative if they really don't plan to retire) so we just left it be.

I just want to make sure I'm not somehow screwing them over by not rebalancing their portfolio when I am rebalancing mine based on 5/25 bands.

It sounds, based on your posts, like I am not doing that, which is good.

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Re: Do ppl who rebalance annually do anything different in this type of market?

Post by grabiner » Wed Mar 25, 2020 10:19 pm

I do rebalance out of cycle if I notice that I have hit a rebalancing limit. This is only the third time it has happened to me, in 23 years of investing. In October 2008, just as in March 2020, the market crash left me with too much in bonds, so I sold some bonds in my employer plan to buy more stock And in September 2009, the rapid recovery (following my regular rebalancing in January 2009) left me with too much in REITs, so I sold some REITs in my IRA to buy other stock.
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birdog
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Re: Do ppl who rebalance annually do anything different in this type of market?

Post by birdog » Thu Mar 26, 2020 4:01 am

Personally, I have never understood rebalancing according to a calendar. Markets don’t follow a calendar. It has always made more sense to me to rebalance when needed (when AA gets out of balance and predetermined balancing bands are hit).

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Re: Do ppl who rebalance annually do anything different in this type of market?

Post by snowox » Thu Mar 26, 2020 4:42 am

I re-balance when I am off 5% in my taxable account. I hold alot of quality bonds in our 401ks so I could in theory go to all stocks in my taxable accounts if I wanted to with my 60/40 portfolio.

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Re: Do ppl who rebalance annually do anything different in this type of market?

Post by windaar » Thu Mar 26, 2020 6:50 am

I rebalance in my birthday month. Doing it this way stops me from monkeying around and messing things up. It keeps me from watching the Dow every day and being obsessed with my performance each month. It is something I have chosen as a part of my psychological “stay the course” plan, which I have kept for 20 years.
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Re: Do ppl who rebalance annually do anything different in this type of market?

Post by dknightd » Thu Mar 26, 2020 7:27 am

birdog wrote:
Thu Mar 26, 2020 4:01 am
Personally, I have never understood rebalancing according to a calendar. Markets don’t follow a calendar. It has always made more sense to me to rebalance when needed (when AA gets out of balance and predetermined balancing bands are hit).
Some fund managers will automatically rebalance for you once a year. For instance TIAA will automatically rebalance for me on my birthday. It is convenient. Once set up I can do nothing. A once a year rebalance usually keeps me pretty near my desired asset allocation. Easy peasy. It is harder to figure out what asset allocation I want ;)

I personally am using band rebalancing now, in addition to the annual automatic rebalance.
I do this mostly so I can feel like I'm doing something (I'm retired).

To the OP. I think leaving your parents on automatic cruise control is a fine solution. Unless they feel like they should be doing something.
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Re: Do ppl who rebalance annually do anything different in this type of market?

Post by 3funder » Thu Mar 26, 2020 7:41 am

Honestly, I've both re-balanced and re-allocated aggressively, and, reflecting on this, I'd be willing to bet that I merely spent too much time and mental energy trying to find a slightly better mousetrap for enhancing my returns in a modest fashion. My new AA isn't inappropriate; I just think I should have stayed the course. Oh well, at least I'm a stock buyer when the going gets tough, rather than a stock seller.

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Re: Do ppl who rebalance annually do anything different in this type of market?

Post by Lou354 » Thu Mar 26, 2020 7:51 am

I normally rebalance once yearly, in January, which I did. Now I’m thinking of rebalancing a second time in 2020 when the number of new covid-19 cases plateaus, assuming my AA is still way off at that time. In the meantime all new contributions to my 401k are in equities. This has revealed a gap in my IPS, so I’ll also be thinking how to revise it for future wild markets.

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Re: Do ppl who rebalance annually do anything different in this type of market?

Post by tadamsmar » Thu Mar 26, 2020 8:23 am

My plan (not written down) is to rebalance in November around my birthday.

I have not rebalanced so far in this bear market. I have estimated what rebalancing would entail. I would have to move about 5% of my nest egg out of Total Bond and put it into Total Stock Market, Total International, and REIT Index. Rebalancing now vs November would not have any real impact on my retirement goals even if the market fully recovers by November.

I did an early rebalance during the 2008 downturn and I would have been better off waiting until November.

I manage my MIL's nest egg. I put it in Vanguard's Target Retirement Income Fund. I don't plan to change that,

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Re: Do ppl who rebalance annually do anything different in this type of market?

Post by ryman554 » Thu Mar 26, 2020 9:22 am

I rebalance every month as my new bolus of taxable money comes in. I buy what I am low on in taxable.

Sometimes I rejigger a bit in my 401(k) where I hold all of my asset classes (as in buying bonds like hotcakes as stocks went up and up and up the past couple of years), but I have a spreadsheet all setup for how much I need to move. If its' not much, I don't. If it's a lot, I do.

TO keep it germane to what is in this thread: I rebalanced once out of step with my usual plan when we had the first >10% loss day. I have since become disinterested in it, choosing to wait for the end of March. Even with all the volatility, things seems close to what they were after that initial drop.

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Re: Do ppl who rebalance annually do anything different in this type of market?

Post by grabiner » Thu Mar 26, 2020 9:29 am

birdog wrote:
Thu Mar 26, 2020 4:01 am
Personally, I have never understood rebalancing according to a calendar. Markets don’t follow a calendar. It has always made more sense to me to rebalance when needed (when AA gets out of balance and predetermined balancing bands are hit).
My reason for the calendar is that my allocation changes every year (when I give my portfolio its annual checkup in January). Even if the market doesn't move, I want to sell some stock in January to meet the new target,
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Re: Do ppl who rebalance annually do anything different in this type of market?

Post by anil686 » Thu Mar 26, 2020 9:33 am

No - I have most of my accounts in tax deferred and they are in balanced funds. I started to become more equity heavy in my balanced funds a couple of weeks ago (too early) but felt at some point the selling will end. My taxable account is all equities and have just kept them the way they were except for getting rid of small sector ETFs that I had before I decided on a 3 fund approach. I found it a good opportunity to clear out the clutter so to speak and simplify more. 5 years ago, I probably would have split my US equities 50 TSM/50 value index and I feel that would be stronger today but as I age, I really do fall back on simplicity. JMO though and hope it helps...

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Re: Do ppl who rebalance annually do anything different in this type of market?

Post by Wiggums » Thu Mar 26, 2020 9:37 am

grabiner wrote:
Thu Mar 26, 2020 9:29 am
birdog wrote:
Thu Mar 26, 2020 4:01 am
Personally, I have never understood rebalancing according to a calendar. Markets don’t follow a calendar. It has always made more sense to me to rebalance when needed (when AA gets out of balance and predetermined balancing bands are hit).
My reason for the calendar is that my allocation changes every year (when I give my portfolio its annual checkup in January). Even if the market doesn't move, I want to sell some stock in January to meet the new target,
I do the same thing. I try not to tinker with my accounts outside of the annual changes. That works best for me.

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Re: Do ppl who rebalance annually do anything different in this type of market?

Post by chevca » Thu Mar 26, 2020 9:42 am

birdog wrote:
Thu Mar 26, 2020 4:01 am
Personally, I have never understood rebalancing according to a calendar. Markets don’t follow a calendar. It has always made more sense to me to rebalance when needed (when AA gets out of balance and predetermined balancing bands are hit).
Read all the MANY recent threads asking if folks should rebalance today, tomorrow, pre-rebalance (?), and many other versions of what to do. To me, it proves most folks SHOULD rebalance according to a calendar to take their brain and emotions out of it.

There's also the momentum part of it, how much of a rebalance bonus there really is, and how rebalance bands aren't hit without a big swing most of the time anyway.

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Re: Do ppl who rebalance annually do anything different in this type of market?

Post by muddgirl » Thu Mar 26, 2020 10:10 am

I rebalance annually in December when completing tax planning. I did not rebalance during this crunch (exceptI am reconsidering TREA which is a special case IMO). To me, the purpose of rebalancing is to make sure my AA matches my risk. Because I'm still accumulating, my AA deviates mainly due to new contributions, not due to market fluctuations.

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Re: Do ppl who rebalance annually do anything different in this type of market?

Post by birdog » Thu Mar 26, 2020 10:38 am

muddgirl wrote:
Thu Mar 26, 2020 10:10 am
I rebalance annually in December when completing tax planning. I did not rebalance during this crunch (exceptI am reconsidering TREA which is a special case IMO). To me, the purpose of rebalancing is to make sure my AA matches my risk. Because I'm still accumulating, my AA deviates mainly due to new contributions, not due to market fluctuations.
Shouldn't contributions keep your AA from deviating? As in, you just buy whatever is under allocated to bring it back into balance? My monthly contributions keep my AA from getting out of balance.

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Re: Do ppl who rebalance annually do anything different in this type of market?

Post by muddgirl » Thu Mar 26, 2020 10:42 am

birdog wrote:
Thu Mar 26, 2020 10:38 am
Shouldn't contributions keep your AA from deviating? As in, you just buy whatever is under allocated to bring it back into balance? My monthly contributions keep my AA from getting out of balance.
No because our primary contribution is still 401k and changes have to be made up to two weeks before they are executed. Too much lag to be worth the time it takes to calculate what the new contribution should be. Plus with 8 accounts spread over two people, some which are accumulating and some which aren't, we don't match our AA in every account. I've never been too far off at the end of the year but then again it's been 10 years of relatively steady growth until now. We do lump sum our IRA contributions per our AA.

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