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Had to rebalance for the first time
Old 02-13-2017, 03:16 PM   #1
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Had to rebalance for the first time

Before joining this forum I had zero clue about rebalancing. When planning my ER I decided I wanted a 50/40/10 AA. When I hit 55/30/15 I decided that I would allow a 10% variance either way before rebalancing (mostly because I didn't want to rebalance !!). Today I am (was) at 60/37/8 AA. I could no longer put off rebalancing. I did enough to get me back to 55% equities. I couldn't bring myself to go all the way down to 50%. Maybe I'll do more in a few more days. This was alot more nerve wracking than I thought it would be!
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Old 02-13-2017, 03:39 PM   #2
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Before joining this forum I had zero clue about rebalancing. When planning my ER I decided I wanted a 50/40/10 AA. When I hit 55/30/15 I decided that I would allow a 10% variance either way before rebalancing (mostly because I didn't want to rebalance !!). Today I am (was) at 60/37/8 AA. I could no longer put off rebalancing. I did enough to get me back to 55% equities. I couldn't bring myself to go all the way down to 50%. Maybe I'll do more in a few more days. This was alot more nerve wracking than I thought it would be!
It's not easy, I agree! I think it was hardest for me to rebalance during the 2008-2009 recession, because I had to buy equities and they weren't doing well. I wasn't able to do it all at once either, but just kept chipping away at it.
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Old 02-13-2017, 03:55 PM   #3
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I rebalance pretty much just once a year. I say pretty much because I may do so more just the get my capital gains numbers right for the ACA subsidy. Mostly, I also rebalance with IRAs so there isn't a big tax event. The first few times was nerve wracking but now my rebalancing is pretty much a New Year's Day routine.
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Old 02-13-2017, 04:15 PM   #4
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No question that it can be hard sometimes to rebalance. I try to keep it easy for myself by rebalancing when any of my four components gets more than 5% away from its target.
My four components are US equities (45%), foreign equities (5%), fixed income (45%), and cash (5%). I just did some adjustments last month, and now they are all within their 5% tolerance bands.

I think 5% is easier psychologically on me, because it means I don't have to do such big rebalance transactions.
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Old 02-13-2017, 05:53 PM   #5
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LOL - I understand. It's all in how you look at it though.....

A couple weeks ago, I decided to rebalance. So gave it a lot of thought and sold one stock that didn't meet my longer term goals and was at a high price vs it's recent history. Turns out that stock was Apple and I sold at $120/shr. It's now up around $133/shr.

The pessimist in me says I missed out on 10% gain in a few days. Of course I could have waited.....but that would be trying to time the market which we all know is a bad thing ....

The optimist in me says that if I had kept Apple and sold something else, all that extra gain would just mean I had to do MORE rebalancing!

Ok, I really feel like the pessimist but it's water under the bridge now. You win some, you lose some.
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Old 02-13-2017, 06:11 PM   #6
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I rebalance aggressively and don't look back. Serves me well. Takes all (most?) of the emotion out of the process.
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Old 02-13-2017, 06:20 PM   #7
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I'm trying to get where I rebalance less - certainly no more than once a year. In Jan after I take my withdrawal, I do usually trim a little off a couple of funds that have done super well, and add to a few funds that have fallen far behind. But in most Januaries I could just do nothing, and my portfolio would still be pretty close to the target allocation. Maybe one of these days I will be able to be completely hands off unless there is a huge move in the markets up or down like 2008/9. It is certainly more tax efficient in a taxable account.

Taking the distributions in cash tends to already do some rebalancing anyway, as the funds that appreciate the most seem to pay the largest distributions, and the funds that have underperformed tend to pay very low if any distributions.

I am tempted, as I get older, to just let the allocation run "open loop". See how many years it takes to really get out of balance. My current out of balance triggers are pretty broad - 8 to 10% move which for equities would mean going from 53% up to 57-58% before needing to rebalance. Or, who knows, at some point even stopping to care how large my equity allocation gets?
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Old 02-13-2017, 07:11 PM   #8
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Selling high is tough. Buying low is equally tough.

No wonder some people prefer to sell low/buy high.

Or they do not invest at all.

Problem solved.
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Old 02-13-2017, 07:58 PM   #9
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It's not easy, I agree! I think it was hardest for me to rebalance during the 2008-2009 recession, because I had to buy equities and they weren't doing well. I wasn't able to do it all at once either, but just kept chipping away at it.
+1 I was like a deer in the headlights back then... I believed in my AA enough not to sell... but I lacked the courage to sell bonds and buy equities... if I had I would be a lot richer today.

I can think back to a couple times in the last 30 years where I AA was literally screaming at me to buy equities and I lacked the courage and am poorer as a result. I have learned that rebalancing is like the Force... and you need to belin the Force.
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Old 02-13-2017, 08:15 PM   #10
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I did manage to rebalance in 2008, early 2009. It was very tough. I remember looking at my portfolio in Jan 2009, and the only way I was able to rebalance was because I could see I would have 10 year of expenses still in fixed income after rebalancing. That was the only way I could bring myself to do it. And the market took another nasty dive into March of 2009! Fortunately, that was the bottom.

I rebalanced a couple of times in 2008, because my rebalance triggers were tripped. But both cases were catching a falling knife!!! Ouch! Since then I've widened my rebalancing bands. Now they aren't likely to be triggered unless a huge market move takes place. Otherwise, the paid distributions will probably take care of some of the rebalancing - enough to mean I don't really need to actively rebalance because it will take a long time, or a pretty severe market move, to drive the portfolio out of balance. That's probably a good thing, because the less actions taken the better in terms of tax efficiency and just general busy work.
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Old 02-13-2017, 08:40 PM   #11
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I rebalanced in 2009. It wasn't hard emotionally, but I was still working. I told a broker friend I had just rebalanced and she looked at me like I was crazy.
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Old 02-13-2017, 08:57 PM   #12
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Agreed. I seem to have no trouble selling equities to re balance back to my nominal 50/50 within a 10% band. (we'll, a little - I have to have a talk with my little greed monster but I succeed).

The other way however, selling bonds to buy equities - much, much harder! I'm not exactly sure why that is but it's definitely so. Fortunately so far its usually the sell equities>buy bonds action that is required I guess because equity markets tend to go up over long periods of time. But as many have noted the real money is made when equities are bought cheap. I.e. when fear is at a maximum.
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Old 02-13-2017, 09:51 PM   #13
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It helps to know that you guys feel / felt the same way at some point. At least I was able to do the rebalance using my tax deferred account so that I didn't have to think about the tax implications. That would have made the decision even harder !
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Old 02-15-2017, 07:38 AM   #14
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Rules-based asset allocation strategies, particularly momentum-based strategies, have been discussed thoroughly on this site and elsewhere. Some examples are Herr's Dual Momentum, Grossman's GMR, Faber's GTAA, Varan's analyses, and this author's trading systems here and here. These systems generally seek diversification by applying the same rules across a broad group of asset classes. For instance, each relies on a narrow set of parameters for measuring the momentum of an asset class in the group. GTAA recommends a 10-month lookback period. Mr. Herr's Dual Momentum applies a combination of 60-day and 100-day lookbacks, along with a volatility component. Grossman used a 3-month lookback.
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Old 02-15-2017, 09:59 AM   #15
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I rebalanced in 2009. It wasn't hard emotionally, but I was still working. I told a broker friend I had just rebalanced and she looked at me like I was crazy.
Even worse, try explaining tax loss harvesting to someone. They will look at you like you are crazy selling everything at a loss.
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Old 02-15-2017, 10:01 AM   #16
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I'm not sure if this is unusual, but it does feel like it after reading forum posts. I'm in the accumulation (started full time career in 1998) phase with an 80/20 AA and I've never had to rebalance by selling. Each month I make contributions based on where they are needed to maintain target AA. Market swings haven't exceeded what I can make up for with contributions. Even during 2007-2009. Currently, my contributions are about .5% of portfolio value although back then my contributions were a much. larger percentage.
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Old 02-15-2017, 10:12 AM   #17
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I'm not sure if this is unusual, but it does feel like it after reading forum posts. I'm in the accumulation (started full time career in 1998) phase with an 80/20 AA and I've never had to rebalance by selling. Each month I make contributions based on where they are needed to maintain target AA. Market swings haven't exceeded what I can make up for with contributions. Even during 2007-2009. Currently, my contributions are about .5% of portfolio value although back then my contributions were a much. larger percentage.
Rebalancing is the act of managing your AA to keep it where you want it. That can be achieved by buy/sells or in your case managing your regular investments. It ends up being the same.
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Old 02-15-2017, 10:17 AM   #18
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I found myself to be overweight in small/ midcap stocks so I re-balanced by selling selling enough to buy a new car.
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Old 02-15-2017, 10:22 AM   #19
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I just want to point out to the OP that your stated variance of 10% is actually 20%...

It is +10% to - 10%.... so, if your band is a 20% range then great... otherwise you need to narrow it to +5% to -5%....

During the crash I did not rebalance in the sense here... I did move some from growth to value, but stayed in equities....
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Old 02-15-2017, 02:32 PM   #20
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I found myself to be overweight in small/ midcap stocks so I re-balanced by selling selling enough to buy a new car.


Haha! "I had too many appreciating assets so I balanced that out by purchasing a depreciating asset."
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