Poll: How often do you rebalance your portfolio?

[Lusitan]

(If you don't rebalance on a fixed interval, and instead wait until the allocation percentages reach a certain value beyond your target, I'd be interested to hear what percentage difference you use as your threshold for rebalancing. Or if you've got some other strategy ...)

 

[Telly]

I rebalanced when the Equity/Fixed ratio went to about 4% off of target.

I'm in the "distribution" phase, and living expenses are coming out of the fixed side.  And with significant growth on the equities side, it's getting up there again. 
So I should be busy buying more bond funds... which I just have not been able to poke myself into doing.  So the off-the-top is now sitting in a qualified money market.  It just doesn't feel right to have $ just sitting in a MM.

 

[lazygood4nothinbum]

before i knew anything (as if i know anything now) about finance i used to "rebalance" my 401k stuff about every 6 months to a year. having no idea i was rebalancing, i thought i was just tidying things up. turns out i was buying low and selling high. who knew?

 

[Surfdaddy]

It has occurred to me that it might be important to rebalance not on a percentage deviation basis, but on a "percent off target percentage" basis. I'm sure that's confusing, let me explain:

If I target 60% for stocks, and my portfolio hits 62%, then I could rebalance if my tolerance was +/- 2% off target. I'm selling a bit higher and reallocating to lower-performing investments.

But if my target for REIT mutual funds is 8%, and I wait until it hits 10%, then the REIT fund has gone up over 20%. In the stock case above, I'm only up about 3% overall.

So it might make sense to rebalance not based upon an absolute percent difference (such as 2%), but as a percent off target percentage. For example, If I say that I don't want to be more than 10% off my target percentage, then I could let my stock allocation go to 66% (+10% of target percentage), but my REIT allocation could only go to 8.8% before I would rebalance. In that way, my rebalancing for any asset class occurs when the degree of being overvalued/undervalued is consistent within the class.

I'm still thinking this one through, I haven't seen it mentioned in any books. Anybody else considered this?

 

[audreyh1]

Most of my assets are in taxable accounts, so managing taxes has to be part of my rebalancing strategy.

I review my portfolio once a quarter to see if I need to rebalance, but I try to avoid rebalancing more than every 12 months. From what I have read, research shows the optimal frequency for rebalancing in taxable accounts is something like 18 months. I try to avoid doing minor rebalancing because rebalancing is a taxable event.

I rebalance when my allocations get a certain % out of whack. My most generic way to do this is to compare my total equities with my bonds+cash. If they are more than 5% out of whack (say equities crept up over 58%, and bonds+ cash below 42%), then I trim equities to 55% and bonds+cash back up to 45%.

But I have also looked at individual equity asset classes like REITs, and trimmed them when they exceed their allocation by say 20%. So if I hold 5% in REIT funds, and they grow to 6% of the portfolio, they are 20% overvalued, and I trim them back to 5% again - something like that!

I also use the reinvestment of distributions as part of keeping the portfolio balanced. If a fund is over allocation, I don't reinvest the distributions, but let them go to cash to invest in an undervalued asset class (and to pay taxes). If a fund is under allocation, then I make sure to reinvest the distributions in that asset class. So before december of every year I check each fund to decide whether to reinvest the annual distributions or not.

Hope this helps........

Audrey

 

[mathjak107]

usually trends run at least 2 years so generally ill rebalance every 1-1/2 years if im really really up or down or 2 years normally......i always seemed to cut myself short rebalancing every year

 

[mickeyd]

Annually in May, however it has to show me a movement of at least 5% before I take action. If less that 5%, I review it again in a month or so just to see if it has inched up to 5%. After that, it will have it wait until next May.

My belief is that one can do a lot of long-term damage by rebalancing more often  than annually and responding to changes of less than 5%. Why? Because that's the way it is according to my IPS!

 

[Lusitan]

So it might make sense to rebalance not based upon an absolute percent difference (such as 2%), but as a percent off target percentage. For example, If I say that I don't want to be more than 10% off my target percentage, then I could let my stock allocation go to 66% (+10% of target percentage), but my REIT allocation could only go to 8.8% before I would rebalance. In that way, my rebalancing for any asset class occurs when the degree of being overvalued/undervalued is consistent within the class.

Interesting approach, surfdaddy - sounds like you and audrey are both doing that. I have been using a more generic absolute 2% as my threshold, but the "percent of target percent" does seem like it better captures what I'm trying to do. Good food for thought ... thanks.