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Old 05-31-2012, 09:23 AM   #21
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When do changes to your AA become market timing?
When you temporarily change it based on your gut feeling about what the market will do in the near term.

If it's a permanent or long-term reassessment of your need and willingness to take risk, independent of near-term concerns about marker performance, it's not market timing IMO.
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Old 05-31-2012, 09:29 AM   #22
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However, last week my nerve gave out and I market timed I looked at the European issues, the upcoming election and the stalling US recovery and decided to go 25/65/10 emphasising dividend stocks and US investment grade corporate bonds (psst and VFICX) along with a bigger allocation to bond market index . I also plan to move overseas in the next couple of years so I really want to reduce volatility. My plan would be to rebalance back to 45/45/10 when the swings in the market are not 1 or 2% every day.
So you knew the correct answer to begin with...but it doesn't matter, it's your money and your future - we all have to do what we think is best. I haven't succumbed to fear yet through 87, 00 or 08, but I know better than to say never. I was in accumulation then, capital preservation is on my radar now.

The right answer is always clear, in hindsight.
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Old 05-31-2012, 09:49 AM   #23
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So you knew the correct answer to begin with...
Yes I admit it..............the terrible thing now is having sold equities around DOW 12600 I'm wishing the DOW lower to validate my decision....of course my rebalancing at 12600 will surely mean that stocks will take off big time, you can all thank me later
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Old 05-31-2012, 09:54 AM   #24
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If it's a permanent or long-term reassessment of your need and willingness to take risk, independent of near-term concerns about marker performance, it's not market timing IMO.
I'd say half of my rebalancing is a long term change as I'm setting things up for income rather than accumulation and I want steady income more than capital appreciation, but the other half was fear of some dark clouds. They may pass by to be followed by sunshine, but I wanted to avoid getting too wet if they bring thunder storms.
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Old 05-31-2012, 11:36 AM   #25
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I was just surprised, if you started off at your target allocation a year ago, that they were off significantly in just a year. I didn't think the market had moved that much.
I started off in my target allocation at the beginning of 2011, but the equity market swoon and bond rise in late 2011 was enough to cause a rebalance even with my very conservative triggers, and then recovered enough a few months later to rebalance again the other way. If you look at what happened last year, from end of May to end of September the S&P dropped close to 20%, then recovered almost 27% by March of 2012. Those swings are big enough to get most people's AAs well out of balance. Now, if you rode the round trip and took no action, you might never have noticed......

Edited to add: I'm tired of these round trips in less than a year, and I sure hope we don't go through it yet again! It's not fun rebalancing under these volatile conditions.
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Old 05-31-2012, 11:59 AM   #26
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I started off in my target allocation at the beginning of 2011, but the equity market swoon and bond rise in late 2011 was enough to cause a rebalance even with my very conservative triggers, and then recovered enough a few months later to rebalance again the other way. If you look at what happened last year, from end of May to end of September the S&P dropped close to 20%, then recovered almost 27% by March of 2012. Those swings are big enough to get most people's AAs well out of balance. Now, if you rode the round trip and took no action, you might never have noticed......

Edited to add: I'm tired of these round trips in less than a year, and I sure hope we don't go through it yet again! It's not fun rebalancing under these volatile conditions.
Audrey,

The round trips is a major reason why I decided to just rebalance once a year. Instead of rebalancing after an early sharp change, why do it again during the year? Kind of like changing lanes too often in a traffic jam or flipping through the channels on a remote only to settle on the program I was watching in the first place.

I think the sound approach is to have a strategy based on a set frequency of rebalancing (or percentage of allocation drift, as you did) and stick to it. Of course, the challenge is to try to keep emotions totally out of the process. Otherwise, the second guessing of oneself takes on a life of it's own.

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Old 05-31-2012, 12:57 PM   #27
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The round trips is a major reason why I decided to just rebalance once a year. Instead of rebalancing after an early sharp change, why do it again during the year? Kind of like changing lanes to often in a traffic jam or flipping through the channels on a remote only to settle on the program I was watching in the first place.

I think the sound approach is to have a strategy and stick to it. Otherwise, the second guessing of oneself takes on a life of it's own.
My rebalancing trigger was a 10% divergence from my AA. I've done that for the last six years. After 2011's roller coaster and recovery I've decided to sit out for a while with what I hope will be a less volatile AA. With daily equity market swings of 1 or 2 % I've almost become tired and disoriented.
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Old 05-31-2012, 01:07 PM   #28
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Audrey,

The round trips is a major reason why I decided to just rebalance once a year. Instead of rebalancing after an early sharp change, why do it again during the year? Kind of like changing lanes too often in a traffic jam or flipping through the channels on a remote only to settle on the program I was watching in the first place.

I think the sound approach is to have a strategy based on a set frequency of rebalancing (or percentage of allocation drift, as you did) and stick to it. Of course, the challenge is to try to keep emotions totally out of the process. Otherwise, the second guessing of oneself takes on a life of it's own.

Easysurfer
Well, supposedly the reward for changing lanes when signaled to do so is that you come out ahead (by selling high and buying low) in addition to lowering the volatility by rebalancing your risk profile, so it's not as if you just ended up where you started. In a "round trip" you end up where you started plus a small gain.

Yep - I just stick to my plan even though it's unpleasant in times of high volatility. I don't know whether we are doomed to repeat this volatility year after year or not.
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Old 05-31-2012, 01:14 PM   #29
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Yep - I just stick to my plan even though it's unpleasant in times of high volatility. I don't know whether we are doomed to repeat this volatility year after year or not.
Me too. I review quarterly and rebalance using the 5/25 rule period. I don't pay any attention to what the market is doing or short term consequences, I may have 40 years to go. But I admit sometimes it's tempting to bend the discipline...
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Old 05-31-2012, 02:26 PM   #30
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My rebalancing trigger was a 10% divergence from my AA. I've done that for the last six years. After 2011's roller coaster and recovery I've decided to sit out for a while with what I hope will be a less volatile AA. With daily equity market swings of 1 or 2 % I've almost become tired and disoriented.
I've set my perecent to 5%. The 5% drift for me isn't a trigger, but just a target allocation to rebalance to.

But as mentioned before, I only do the rebalancing anually, so depending on how volitile the previous year was, I may have to move higher chunks around when I rebalance to get the percentages back in line.
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