Using 212 Trading Pie function for re-balancing?

[UKLearning2024]

Hi all,
First time poster here, and pretty new to investing, though I've done a lot of reading and learning in a fairly short time and I'm getting pretty comfortable with my portfolio choice, preferred platforms and my asset ratios.

For my ISA I use 212 Trading, and use their Pie function with Auto invest daily, transferring my Cash to assets every day to reduce risk and pound cost average my investments. There are no fees for purchasing on any of the instruments, as they are all ETFs.

The Pie auto invest function gives two options.
1) Invest the funds according to the ratios that I have specified.
2) Invest the funds to the target ratios, so purchasing more of anything that is underweight and balancing them.

On the face of it the second option seems sensible. It will essentially as I understand it help me to buy whatever is growing the slowest, meaning I keep buying lower?
Or, perhaps by taking the first option and then re-balancing manually less often, I'll end up making larger purchases of whichever assets are more undervalued at that point in time?

The maths here seems complicated to me, though perhaps I am missing something obvious!

Hopefully I'm making sense here, but if not let me know, and I'll try to explain this better!

FYI I'm 44yrs old and my portfolio is 70% equities and 30% bonds. Mostly an all-world ETF and a Global bond ETF with a couple others in there at much lower sizes/slices of the Pie.

[pennywiser]

People usually have target asset allocations they want their portfolio to be at. So when you say 70% equity and 30% bonds, I would assume that's the ratio you want to end up with. In that case you should use option two of the pie.

Option one would be good for always buying investments at that ratio and ending up with a random portfolio ratio of equity and bonds, which would be unconventional. Unless you have specific reason to go with option one, you should go with option two - targeting a certain portfolio ratio rather than targeting an investment purchase ratio. When your makes a purchase, your platform will invest so you end up with 70:30.

[UKLearning2024]

Thank you. And yes that's the one I'm tending towards.

What I'm wondering though s whether rebalancing say every 6 months might give a better return, as you keep buying (potentially) while something goes up, rather than the function always steering you towards whatever is falling. Essentially it feels like the different between following small/daily trends when rebalancing, or following longer trends, say every 6 months or every year.

As I'm managing both mine and my wife's ISA accounts I've currently done one with each option. Obviously hardly scientific as each approach might do differently in different market conditions, but it's my compromise for now.

I guess as we continue to pay in, one option is to move between the two. Use option 1 until a gap of a certain size opens up, and then switch to option 2 so that it then allocates all daily capital to levelling up the portfolio.

And, now I've successfully confused myself further by creating a third option!

[pennywiser]

What I'm wondering though s whether rebalancing say every 6 months might give a better return, as you keep buying (potentially) while something goes up, rather than the function always steering you towards whatever is falling.

Short answer: Maybe in short term if you get lucky, not in a long term.

Long answer: https://www.bogleheads.org/blog/2020/08 ... us-part-1/

[y2kcamaross]

Hey! It’s great to see you getting into investing—I've been at it for a bit too and know it can feel overwhelming. For the Pie function, I think it really depends on your strategy. When I started using auto-investing, I leaned towards the first option because I liked the idea of not overthinking my moves and just sticking to my plan. But I’ve seen friends who swear by the second option, especially when the market’s rocky, since it helps them snag those underperforming assets at a discount. Ultimately, it’s all about what feels right for you and how actively you want to manage your investments.

[HKexpat]

The second option because you should have a target allocation that you are comfortable with and stick to that. If you want 70% stocks and 30% bonds, there's no reason to have 75% stocks and 25% bonds for part of the year. Also, since stocks have higher returns, the share of your portfolio consisting of stocks will increase over time. You need to buy more bonds because they fall behind in value.

There's a widespread (but erroneous) belief that you are buying things at a "discount" when they are lagging behind another asset. But if a stock goes from $100 to $200, then the company misses earnings targets and the stock drops to $120... are you getting a "discount" relative to the $200 price? No: that price was based on earnings growth that didn't happen and you shouldn't expect the price to jump back to $200. You're not getting a good deal just because the people who paid $200 got an even worse price.