Rebalancing Question

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Topic Author
NestEggLove
Posts: 73
Joined: Thu Jul 05, 2018 9:22 am

Rebalancing Question

Post by NestEggLove » Fri Jul 31, 2020 10:38 am

Hello all,
I was looking for some advice. I decided a few years or so ago that I would set up a rebalancing band of +/- 5% between my stocks and bonds. For a while now I’ve been hovering between 3-4% underfunded on the bond side, even with 403B contributions and IRAs (maxed out). I guess I have a large enough balance now where it’s harder to move the needle.
Would it be a bad idea to just rebalance at this point ? Drives me a little nutty (though probably shouldn’t) that I’m not naturally getting closer to “zero”.
And of course there is the uncertainty of the market/world now.
Thanks in advance !

lakpr
Posts: 5711
Joined: Fri Mar 18, 2011 9:59 am

Re: Rebalancing Question

Post by lakpr » Fri Jul 31, 2020 10:53 am

I guess this is where writing an IPS (Investment Philosophy Statement) comes in handy.
Within the IPS, set yourself strict guidelines on when to re-balance. Re-balance only if the limits you set yourself are breached. Not before.

That removes the entire "drive myself nutty" heartache. You can always refer to your IPS and say you executed your philosophy well.

Impatience
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Joined: Thu Jul 23, 2020 3:15 pm

Re: Rebalancing Question

Post by Impatience » Fri Jul 31, 2020 10:55 am

If you want to rebalance at 4%, your band should be set at 4%. If it’s set at 5% then you should not rebalance.

You might enjoy rebalancing quarterly more. It will let you scratch that itch without worrying about the details.

Topic Author
NestEggLove
Posts: 73
Joined: Thu Jul 05, 2018 9:22 am

Re: Rebalancing Question

Post by NestEggLove » Fri Jul 31, 2020 11:24 am

Thanks to you both —— will think about that, Impatience ! :thumbsup Yes, I’m your handle name :happy

retiredjg
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Re: Rebalancing Question

Post by retiredjg » Fri Jul 31, 2020 11:33 am

NestEggLove wrote:
Fri Jul 31, 2020 10:38 am
Hello all,
I was looking for some advice. I decided a few years or so ago that I would set up a rebalancing band of +/- 5% between my stocks and bonds. For a while now I’ve been hovering between 3-4% underfunded on the bond side, even with 403B contributions and IRAs (maxed out).
Did you mean that all your new money is going to bonds?

Would it be a bad idea to just rebalance at this point ?
It probably would not hurt anything, but the fact that it is driving you nutty may be something to pay attention to. In theory, you decided that any number in your 10% wide ban was good. Now it is bothering you. Why is that?

And of course there is the uncertainty of the market/world now.
This has nothing to do with rebalancing. It might have something to do with your comfort level with your chosen AA

Topic Author
NestEggLove
Posts: 73
Joined: Thu Jul 05, 2018 9:22 am

Re: Rebalancing Question

Post by NestEggLove » Fri Jul 31, 2020 11:53 am

Thanks retired —- well I’m comfortable with with my AA . It’s just anticipated volatility in the near future ?
I have been putting new 403B money in bonds, since that’s underfunded at the moment, but it’s not moving the needle much.
I’m thinking the 5% is too wide for me, and now thinking just maybe quarterly ? So if it’s out of whack, just wait a few months and fix it.
Good point you made:”why is that ?”

dbr
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Joined: Sun Mar 04, 2007 9:50 am

Re: Rebalancing Question

Post by dbr » Fri Jul 31, 2020 11:58 am

It is perfectly reasonable to use contributions and/or withdrawals to direct to target without having crossed a band. I see no harm in rebalancing sooner if you want as long as it doesn't cost in transaction costs or taxes. It is probably better psychology to adhere to a plan rather than let an itchy trigger finger get out of your pocket.

A larger dilemma is should you rebalance when the gap is 4.99% instead of 5.01%. I guess you just toss a coin on that one.

The actual danger that rebalancing is intended to address is letting a portfolio drift to way too much risk without reining it in. It does not sound like you are in danger of that.

Disclaimer: For a combination of reasons I have not done a sell and buy to rebalance since 2009. I have also not had an opportunity to tax loss harvest since about then, but those threads seem to have died away.

Topic Author
NestEggLove
Posts: 73
Joined: Thu Jul 05, 2018 9:22 am

Re: Rebalancing Question

Post by NestEggLove » Fri Jul 31, 2020 12:12 pm

Thanks for the thoughts, DBR. Yes, no transaction costs/taxes —— if there were, I’d likely wait it out or be far less inclined to tinker.

SimplicityNow
Posts: 506
Joined: Fri Aug 05, 2016 10:31 am

Re: Rebalancing Question

Post by SimplicityNow » Fri Jul 31, 2020 12:42 pm

NestEggLove wrote:
Fri Jul 31, 2020 10:38 am
Hello all,
I was looking for some advice. I decided a few years or so ago that I would set up a rebalancing band of +/- 5% between my stocks and bonds. For a while now I’ve been hovering between 3-4% underfunded on the bond side, even with 403B contributions and IRAs (maxed out). I guess I have a large enough balance now where it’s harder to move the needle.
Would it be a bad idea to just rebalance at this point ? Drives me a little nutty (though probably shouldn’t) that I’m not naturally getting closer to “zero”.
And of course there is the uncertainty of the market/world now.
Thanks in advance !
I think wanting to rebalance now has less to do with that it "drives you nutty" and more to do wth your comment, "And of course there is the uncertainty of the market/world now."

If the market was more 'certain" would you be as inclined to rebalance before you reach your bands?

An IPS exists to help with those issues. If you feel the need to increase your bond percentage because you feel the market is 'uncertain', then perhaps you should consider changing your asset allocation to one that allows you to maintain it regardless of what the market is doing.

Topic Author
NestEggLove
Posts: 73
Joined: Thu Jul 05, 2018 9:22 am

Re: Rebalancing Question

Post by NestEggLove » Fri Jul 31, 2020 1:04 pm

Thanks for the comment,Simplicity ——
What I meant by “market/world” uncertainty is that I can picture the market tanking sometime in the not too distant future (mind you, finance is not my field) and it’s possible my stock portion will go down in value enough to be closer to my IPS, naturally —— without needing to tinker.
I guess I never consider the market “certain”, but I kind of like precision —— probably the 5% band isn’t close enough for my nature ? Maybe I should make it tighter ? Though in actuality it’s probably really “good enough” ? So I’m considering rebalancing more often so nothing is “off” for too long.

User avatar
Eagle33
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Re: Rebalancing Question

Post by Eagle33 » Fri Jul 31, 2020 9:58 pm

You do realize that by putting your new contributions into the lower asset you are slowing the AA band movement. Would you have hit the 5% trigger point on bonds if you had been putting new contributions in at target AA %s?
Rocket science is not “rocket science” to a rocket scientist, just as personal finance is not “rocket science” to a Boglehead.

Outer Marker
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Joined: Sun Mar 08, 2009 8:01 am

Re: Rebalancing Question

Post by Outer Marker » Fri Jul 31, 2020 10:17 pm

NestEggLove wrote:
Fri Jul 31, 2020 10:38 am
For a while now I’ve been hovering between 3-4% underfunded on the bond side, even with 403B contributions and IRAs (maxed out). I guess I have a large enough balance now where it’s harder to move the needle.
Would it be a bad idea to just rebalance at this point ? Drives me a little nutty (though probably shouldn’t) that I’m not naturally getting closer to “zero”.
And of course there is the uncertainty of the market/world now.
If it bothers you, go ahead and rebalance. Vanguard's all-in-one funds rebalance on a close to daily basis. Its not going to move the needle much on your expected returns. You're well justified in being concerned about underweight in fixed income in this frothy market. Just rebalancing to your target allocation, but not violating it is very reasonable. I think we get a little overly dogmatic about the written IPS thing.

Topic Author
NestEggLove
Posts: 73
Joined: Thu Jul 05, 2018 9:22 am

Re: Rebalancing Question

Post by NestEggLove » Fri Jul 31, 2020 11:15 pm

Eagle33 wrote:
Fri Jul 31, 2020 9:58 pm
You do realize that by putting your new contributions into the lower asset you are slowing the AA band movement. Would you have hit the 5% trigger point on bonds if you had been putting new contributions in at target AA %s?
Thanks Eagle, but yes I do realize that. My contributions recently haven’t gotten me much closer to the desired allocation.

Topic Author
NestEggLove
Posts: 73
Joined: Thu Jul 05, 2018 9:22 am

Re: Rebalancing Question

Post by NestEggLove » Fri Jul 31, 2020 11:27 pm

Outer Marker wrote:
Fri Jul 31, 2020 10:17 pm
NestEggLove wrote:
Fri Jul 31, 2020 10:38 am
For a while now I’ve been hovering between 3-4% underfunded on the bond side, even with 403B contributions and IRAs (maxed out). I guess I have a large enough balance now where it’s harder to move the needle.
Would it be a bad idea to just rebalance at this point ? Drives me a little nutty (though probably shouldn’t) that I’m not naturally getting closer to “zero”.
And of course there is the uncertainty of the market/world now.
If it bothers you, go ahead and rebalance. Vanguard's all-in-one funds rebalance on a close to daily basis. Its not going to move the needle much on your expected returns. You're well justified in being concerned about underweight in fixed income in this frothy market. Just rebalancing to your target allocation, but not violating it is very reasonable. I think we get a little overly dogmatic about the written IPS thing.
Thanks Outer Marker —— just figuring out what works best for me, and the comments help.

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