Changes to AA vs market timing

[easysurfer]

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.

Easysurfer

 

[nun]

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.

 

[audreyh1]

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.

 

[Midpack]

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...

 

[easysurfer]

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.