Talk:Rebalancing

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(Removed partial comment)

I didn't add the Portfolios sidebar here, it looked out of place. The navigation template is sufficient. --LadyGeek 13:09, 7 November 2010 (EST)

Reader feedback: I made a excel version of th...

207.148.175.132 posted this comment on 4 December 2013 (view all feedback).

I made a excel version of the optimalrebalancing.tk optimizer, using the lazy algorithm as set out on Albert's page. It can be downloaded from (link removed --LadyGeek 15:57, 5 December 2013 (CST))

It requires macro use, but the code isn't protected in any way so feel free to inspect it. Feel free to use and share it around.

-Lincoln Johnson

Any thoughts?

Blbarnitz 19:28, 4 December 2013 (CST)

I downloaded the file, but I'm running LibreOffice Calc. The macros don't appear, which is always a compatibility problem between LibreOffice and Microsoft. I'll have to check the spreadsheet in Microsoft Excel. --LadyGeek 20:20, 4 December 2013 (CST)

I have reviewed the Excel file. While the VBA code appears safe, the error messages are not family-friendly. The spreadsheet is therefore inappropriate to add to the wiki and I have removed the link from the feedback comment.

Lincoln Johnson may resubmit the Excel spreadsheet, but with appropriate error messages. VBA code to fix: MsgBox wrongAlloc, MsgBox shortData, and the MsgBox in sub Optimize().

--LadyGeek 15:57, 5 December 2013 (CST)

Rebalancing threshold

  • When an investment in an asset class deviates from its target by a certain relative percentage, typically 25%. For example, if your target equities asset allocation is 60%, composed of 40% Total Stock Market and 20% Total International, you would rebalance International if it changes by more than +/- 5% (25% of 20%).

The 25% may be misleading. My thinking is that you should rebalance whenever any asset classes moves by +/- 5%. For International, the threshold would be from 15% to 25%. It just happens to be 25% of 20%, but I don't believe that is the intent. I updated the the example:

  • When an investment in an asset class deviates from its target by a certain relative percentage, typically 5%. For example, if your target equities asset allocation is 60%, composed of 40% Total Stock Market and 20% Total International, you would rebalance International if it moves beyond the range of 15% to 25%.

--LadyGeek 20:14, 9 April 2014 (CDT)

Upon further review, I believe the example is attempting to use Larry Swedroe's 5/25 rule. It's the greater of:

  • |5 percent| of the asset allocation -or- |25 percent| of the original percentage allocation

The article's example seems backwards from what was stated. See my forum post here: Re: Rebalancing the whys and hows of it --LadyGeek 20:49, 9 April 2014 (CDT)

I updated my forum post to clarify the wording. The threshold changes at 20%; 0.20 = 0.05 / .25

  • Allocations 20% or greater will rebalance when the value goes beyond +/- 5% absolute to the original allocation.
  • Allocations less than 20% will rebalance when the value allocation goes beyond +/- 25% relative to the original allocation.

Larry Swedroe uses a "5/25 rule"[1] which can be restated:

  • For allocations 20% or greater: When asset classes deviate from their target by an absolute percentage of 5%. For example, if your target asset allocation is 60% equities and 40% fixed income, you would rebalance your portfolio when your portfolio reaches (65% equities / 35% fixed income) or (55% equities / 45% fixed income).
  • For allocations less than 20%: When asset classes deviate from their target by a relative percentage of 25%. For example, if your target equities asset allocation is 60%, composed of 45% Total Stock Market and 15% Total International, you would rebalance Total International if it changes by more than +/- 3.75% (25% of 15%).
  1. Portfolio Rebalancing: The Whys And The Hows, Larry Swedroe. Disable cookies to view article on single page, no subscription required.

--LadyGeek 21:38, 10 April 2014 (CDT)

Reader feedback: The paper "Dynamic Strategie...

98.233.84.102 posted this comment on 9 April 2014 (view all feedback).

The paper "Dynamic Strategies for Asset Allocation" written by Nobel laureate William Sharpe and Vanguard Board of Directors member Andre Perold should be included in the papers on rebalancing. IMO is the best paper written on the subject of rebalancing. Here is a link to the paper - https://www.stanford.edu/class/msande348/papers/PeroldSharpe.pdf

I have added the paper under "Academic papers" LadyGeek 20:05, 10 April 2014 (CDT)