Do you rebalance or not?

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Doc
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Re: Do you rebalance or not?

Post by Doc »

invest2bfree wrote: Tue Jul 20, 2021 11:28 am When you re-balance out of equities won't you get hit with capital gains?
Don't let the tax-tail way the dog. :D
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Re: Do you rebalance or not?

Post by LadyGeek »

I removed a contentious interchange. As a reminder, see: General Etiquette
We expect this forum to be a place where people can feel comfortable asking questions and where debates and discussions are conducted in civil tones.
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RadAudit
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Re: Do you rebalance or not?

Post by RadAudit »

Yes and no, sort of.

The bulk of the portfolio is tax deferred in two Life Strategy funds. Together the AA works out to 50 / 50. I assume Vanguard rebalances those funds frequently keeping each of those funds at their target AA. I'll rebalance in tax deferred when that part of the portfolio gets out of whack by +/- 5%

The IPS calls for a slowly rising equity component. That is achieved by reinvesting any left over budgeted funds at year end in a taxable total world stock fund. That number is small so it hasn't triggered any rebalancing concerns yet.
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Money Market
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Re: Do you rebalance or not?

Post by Money Market »

Nope. Because I'm VTSAX and chilling, there's nothing for me to rebalance. It's the best simplicity at 0.00% cost a year or less (securities lending income).
VTSAX and chill.
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invest2bfree
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Re: Do you rebalance or not?

Post by invest2bfree »

Money Market wrote: Tue Jul 20, 2021 5:20 pm Nope. Because I'm VTSAX and chilling, there's nothing for me to rebalance. It's the best simplicity at 0.00% cost a year or less (securities lending income).
Good one, I started with 100% VT but the current valuations is giving me pause. 100% equities with 5 years expenses in cash is an elegant solution but you need watch out for Japan and 1929 scenarios.

So if you have 100% equity and happen to retire on sep, 1929 or 1989 for Japan. At a 5% withdrawal rate you will run out of money.
60% VT, 40% BND.
Marseille07
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Re: Do you rebalance or not?

Post by Marseille07 »

invest2bfree wrote: Wed Jul 21, 2021 8:04 am Good one, I started with 100% VT but the current valuations is giving me pause. 100% equities with 5 years expenses in cash is an elegant solution but you need watch out for Japan and 1929 scenarios.

So if you have 100% equity and happen to retire on sep, 1929 or 1989 for Japan. At a 5% withdrawal rate you will run out of money.
First of all, 100% equities with 5 years of expenses in cash isn't 100% equities.

Second of all, how do we "watch out" for Japan and 1929? BH philosophy is to simply mix equities and bonds that you can hold forever without panic selling.
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bertilak
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Re: Do you rebalance or not?

Post by bertilak »

Marseille07 wrote: Wed Jul 21, 2021 9:57 am
invest2bfree wrote: Wed Jul 21, 2021 8:04 am Good one, I started with 100% VT but the current valuations is giving me pause. 100% equities with 5 years expenses in cash is an elegant solution but you need watch out for Japan and 1929 scenarios.

So if you have 100% equity and happen to retire on sep, 1929 or 1989 for Japan. At a 5% withdrawal rate you will run out of money.
First of all, 100% equities with 5 years of expenses in cash isn't 100% equities.

Second of all, how do we "watch out" for Japan and 1929? BH philosophy is to simply mix equities and bonds that you can hold forever without panic selling.
That is the simplicity Bogle and others talk about.
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mikejuss
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Re: Do you rebalance or not?

Post by mikejuss »

etfan wrote: Sun Jul 18, 2021 5:44 pm My favorite solution is to buy self balancing funds (target dates, Life Strategy, etc).
+1. If simplicity is the goal, this is a good strategy.
ChiGuy
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Re: Do you rebalance or not?

Post by ChiGuy »

I do NOT think you can say that John Bogle was against rebalancing. On several occasions, he recommended that investors own Vanguard's Balanced Index Fund, which obviously engages in automatic rebalancing. In fact, I believe that he stated that he had placed his grandchildren's inheritance in that fund. As others have mentioned, John Bogle made many off-the-cuff remarks over his 50-year career, so it is unwise to put too much stock (no pun intended) in any one remark - other than his core beliefs in living below your means, buying low-cost passive index funds (including balanced/target date funds if appropriate for an investor based on their personal needs) & "staying the course" (i.e., making only gradual portfolio changes as one approached retirement, etc., (unless some unforeseen major life event occurred (e.g., serious health problems)) not knee-jerk reactions to the inevitable ups/downs in the market).
Money Market
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Re: Do you rebalance or not?

Post by Money Market »

invest2bfree wrote: Wed Jul 21, 2021 8:04 am So if you have 100% equity and happen to retire on sep, 1929 or 1989 for Japan. At a 5% withdrawal rate you will run out of money.
I would quite welcome a 1989 Japan-scenario because that would've meant I would receive a nominal 20% CAGR for the 20 years leading up to the bubble and thus require a 2% withdrawal rate to meet my goals, with the assumption of a 75% cut in SS.
VTSAX and chill.
sixtyforty
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Re: Do you rebalance or not?

Post by sixtyforty »

mikejuss wrote: Wed Jul 21, 2021 11:00 am
etfan wrote: Sun Jul 18, 2021 5:44 pm My favorite solution is to buy self balancing funds (target dates, Life Strategy, etc).
+1. If simplicity is the goal, this is a good strategy.
Agree, but I think it's a bit more than just simplicity. Self balancing funds help prevent emotional decision making when trying to re-balance during a down turn. I'm always amazed at the re-balance threads that surface when the market starts to head south. I wonder how many people get past their emotions and really get it right.
"Simplicity is the ultimate sophistication" - Leonardo Da Vinci
UpperNwGuy
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Re: Do you rebalance or not?

Post by UpperNwGuy »

jebmke wrote: Sun Jul 18, 2021 9:52 am My re-balance policy calls for re-balancing on the downside but not on the upside. ie., I don't intend to sell equity.
I have a similar rule. I try to avoid selling anything, so my rebalancing rule includes a one week waiting period after the account gets outside the 5% band. Often the out of balance condition self-corrects before that one week elapses.
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Wricha
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Re: Do you rebalance or not?

Post by Wricha »

whodidntante wrote: Sun Jul 18, 2021 9:47 am I rebalance as long as I can do so without generating a tax bill. But I agree you don't need to.

I purposely buy into higher volatility assets like SCV and rebalance into lower volatility assets if things get too far out of line. However, my annual contributions are a small percentage of my portfolio at this point. I've probably sold a minimum of 100k of SCV to put things back in line this year. I don't track it as closely as some of y'all do.
+1 relatively speaking any money added to portfolio is not going to matter (think old person). All of my taxed deferred money is in some kind of fixed income. My taxable account is SPY and muni bonds. To avoid a tax bill I don’t rebalance, so my stock allocation is drifting higher over the past few years. Buying more muni bonds would be the correct thing to do but I been just holding on to cash for no good reason.
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Toons
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Re: Do you rebalance or not?

Post by Toons »

No



:mrgreen:
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee
Nowizard
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Re: Do you rebalance or not?

Post by Nowizard »

Our rebalancing primarily occurs at the time we are taking our RMD's, a time when we evaluate changes over the period since last takin them. We may increase or decrease bond/stock ratios or, as primarily occurs, take RMD's in a form designed to get us back within 5% of our preferred allocation of stocks/bonds. So, yes, we rebalance, and taking RMD's is the time when it is done if required.

Tim
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