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I Got Dem Ol' Kozmic Rebalancing Blues Again Mama!
Old 05-14-2014, 12:06 AM   #1
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I Got Dem Ol' Kozmic Rebalancing Blues Again Mama!

With that title, I was going to say "My apologies to Janis"... but would it matter?

My target AA is 60/40, with rebal triggers at 55% and 65%, The 60 has been creeping up, now just over 64%.
With the S&P 500 at all-time highs, and with a psychological threshold at 1900, it would at first seem like I should do a rebal any day now.

But it would be going into an Intermediate Term bond fund (that actually is a short intermediate... or a long short-term ) in my IRA. I must admit I'm having some hesitancy with piling $ into a bond fund right now. Thoughts of "well, 60/40 was an arbitrary selection, maybe 65/35 as an AA is OK too".
See the games I'm starting to think of?

I know the "right" thing to do is to stick with my target AA and just do the rebal.

Anyone else having this problem now?
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Old 05-14-2014, 02:56 AM   #2
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Originally Posted by Telly View Post
I know the "right" thing to do is to stick with my target AA and just do the rebal.
You're right. The right thing to do is to stick with your target AA and do the rebalance when you hit your trigger percentages.

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Originally Posted by Telly View Post
Anyone else having this problem now?
No. Selling high is pretty cool, and how cool that you can rebalance now.
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Old 05-14-2014, 06:53 AM   #3
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If your hesitancy is due to interest rate risk, you can always keep the rebalance proceeds in a money market temporarily until a suitable investment opportunity arises.

If your hesitancy is because you think that after you rebalance the market may go up more and make you look like a chump, then go ahead and rebalance. While I wouldn't do it you could consider buying an at-the-money call option on the equity index if you really want.
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Old 05-14-2014, 07:27 AM   #4
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That's odd. I have already made a few rebalancing moves this year, and overall I am a net seller of bonds and REITs, and a buyer of stocks. That's because bonds (especially long term maturities) and REITs have been among the best performing asset classes since the start of the year.

I find it peculiar that two investors who are rebalancing at roughly the same time should have exactly opposite perspectives on what to buy and what to sell. It must have to do with our different rebalancing strategies and trigger points.
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Old 05-14-2014, 08:03 AM   #5
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Quote:
Originally Posted by Telly View Post
With that title, I was going to say "My apologies to Janis"... but would it matter?

My target AA is 60/40, with rebal triggers at 55% and 65%, The 60 has been creeping up, now just over 64%.
With the S&P 500 at all-time highs, and with a psychological threshold at 1900, it would at first seem like I should do a rebal any day now.

But it would be going into an Intermediate Term bond fund (that actually is a short intermediate... or a long short-term ) in my IRA. I must admit I'm having some hesitancy with piling $ into a bond fund right now. Thoughts of "well, 60/40 was an arbitrary selection, maybe 65/35 as an AA is OK too".
See the games I'm starting to think of?

I know the "right" thing to do is to stick with my target AA and just do the rebal.

Anyone else having this problem now?
Nope. AA is still 100% equities (except for a little Wellesley). Waiting for a bit more cash to buy more KMI.
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Old 05-14-2014, 09:25 AM   #6
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Rebalanced into my 401k stable value type fund(Federal TSP G Fund) last year. Hold some bonds in Wellesley, Wellington & VG Balanced (60/40) fund, just holding on to those. Lat time I checked my equities were up from 60% to 65% but they would have to go way higher for me to rebalance and since we are at a new market high I think it is less likely they will go way up. Hope equities don't fall through the floor, although that would send me out buying, holding 7% cash of emergencies and real buying opportunities.
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Old 05-14-2014, 10:36 AM   #7
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Originally Posted by pb4uski View Post
If your hesitancy is due to interest rate risk, you can always keep the rebalance proceeds in a money market temporarily until a suitable investment opportunity arises.

If your hesitancy is because you think that after you rebalance the market may go up more and make you look like a chump, then go ahead and rebalance. While I wouldn't do it you could consider buying an at-the-money call option on the equity index if you really want.
I agree with pb4uski that you can move the amount from stocks into something closer to cash which at least fits into the "fixed income" category.

Although I suspect intermediate term bonds will do just fine this year. You may be surprised. Then again, I may be surprised.

Being concerned about bonds getting hit by interest rate rises is still not a reason to leave the money in stocks.
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Old 05-14-2014, 10:38 AM   #8
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That's odd. I have already made a few rebalancing moves this year, and overall I am a net seller of bonds and REITs, and a buyer of stocks. That's because bonds (especially long term maturities) and REITs have been among the best performing asset classes since the start of the year.

I find it peculiar that two investors who are rebalancing at roughly the same time should have exactly opposite perspectives on what to buy and what to sell. It must have to do with our different rebalancing strategies and trigger points.
S/He probably didn't rebalance late last year and you did?
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Old 05-14-2014, 02:08 PM   #9
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Being concerned about bonds getting hit by interest rate rises is still not a reason to leave the money in stocks.
+1. Stocks are riskier than bonds, and at an all-time high. So if one is concerned about a bond bubble, I think one should be even more concerned about a stock bubble. If stocks tank, they will lose a lot more value than bonds ever could. I would stay the course and rebalance to your target allocation.
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Old 05-14-2014, 03:02 PM   #10
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1966 - 2006 After forty years of hands on rebalancing/waiting to rebalance, picking a few good stocks, manually benchmarking 60/40 handgrenade wise a moment of 'the rational fueled by hindsight and chickenheartness' caused me to go full auto.

2006 - Target Retirement 2015.

heh heh heh - still cheer the Saint's in season and down to a few good stocks to medically manage male hormones. Otherwise full auto hands off.
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Old 05-14-2014, 03:20 PM   #11
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+1. Stocks are riskier than bonds, .
Not if you have a long horizon and want to stay ahead of inflation.
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Ack
Old 05-14-2014, 03:57 PM   #12
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Ack

Well,

I am at 40% equities or so, and want to move to 85% eventually, and then let it ride (no rebalancing ever again).

Only thing is, the stock market is quite high. Last time I did a major stock market entry was late 2008/early 2009 .. so may have a rather distorted frame of reference there

I'll give it two more years or so. If the bear then still hasn't come out, I'll DCA probably over the five years after that.

Yes, I am aware that is a sub-optimal strategy, why did you ask?
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Old 05-14-2014, 05:50 PM   #13
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To the OP,

If you acknowledge that you can't predict future returns over the short/medium term, and if you had reached your AA decision deliberately, you should stick to your rebalancing policy.

I simply could not get myself to rebalance & add more money into stocks at the end of 2008. I did do a bit, but not enough to fully rebalance & it cost me some return. I am determined to do better the next time. Right now, I still have a couple of percentage points to go before I have to rebalance.
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Old 05-14-2014, 08:40 PM   #14
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Got baskets.
The VA with stepups and resets-Last year I moved stock MF to cash to insure gains. The VA and FIA have locked the minimums values where as there is no maximums that get reset if I hit >5% of the previous year.

Stock MF- pretty much ignore because I am paying someone to sell hi and buy low.

Trading accounts-mostly in tax deferred accounts. I am fairly aggressive since I can not offset losses and need to hedge the pros in the VA and MF accounts.

Don't believe in bonds and the risk in bonds is not good. IMO.
Target portfolio probably 85/15
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Old 05-14-2014, 09:11 PM   #15
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Kozmic rebalancing blues? You've got to tryyyy-yyy-yy-yy just a little bit harder....
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Old 05-14-2014, 11:41 PM   #16
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Well, I bit the bullet and rebalanced today (Wed.). Of course, the S&P 500 closed down about 1/2 % from Tuesday's close. But, it's done!

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If your hesitancy is due to interest rate risk, you can always keep the rebalance proceeds in a money market temporarily until a suitable investment opportunity arises.
Yes, that was my main concern, that I would be pruning my winners, and putting the valuable trimmings into a possible lossy receptacle (I realize that there are no guarantees).
I thought hard about your MM suggestion and Audrey's closer to cash suggestion. I haven't had the best luck with temporary MM storage, as I then have the "OK, is this a good time to move?... or how about now?" Or after a week deciding that I couldn't be checking the market every early afternoon Monday through Friday and having that drive my day to day activities. Soooo, the trimmings went into the (shorter) Intermediate bond fund after all.

Quote:
....Selling high is pretty cool, and how cool that you can rebalance now.
Yes W2R, it IS cool! Feels better than a rebal down at the 55 % Eq. end (at least at the time of doing it).

I rebal'd twice in 2013 at the high trigger point. I don't think I did a full 5 points of rebal on one of them. On today's I'm estimating I did enough to push my Eq. down to 61.x %. Next month when I do a once-over on all the accounts I'll see what it looks like. Of course the market could move in the meantime, but it's all fluid. I'd just prefer not to be leaking too much fluid
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Old 05-16-2014, 09:30 AM   #17
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Not if you have a long horizon and want to stay ahead of inflation.

YMMV, past performance does not predict future returns, do not remove this tag under penalty of law, use may cause dizziness, consult your astrologer, not valid in Montana or Puerto Rico...
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