Poll: Rebalancing Technique

[Fedup]

I do not balance the portfolio, we are still in accumulation mode (at least for a few more months) - mainly low cost diversified funds.

My thinking...
1. I have enough in cash equivalents to carry me for a couple years of a down cycle.
2. Our portfolio is heavy in dividend funds - dividends have not proved to be quite as variable as price. Even if they dropped by 50% I could use them to stretch item #1 to last even longer.
3. We are debt free, stretch every dollar and are happily divesting ourselves of a costly 21 year old graduate. In other words spending just decreased significantly.

Haha, regarding #3, I just thanked D2 for graduating on time because our original plan was for her to delay graduation or go to graduate school if she didn't have a job line up. Luckily she did. So the supposedly fall tuition will be going to a brand new furniture for the family room. Feel good about it.

 

[rayinpenn]

Haha, regarding #3, I just thanked D2 for graduating on time because our original plan was for her to delay graduation or go to graduate school if she didn't have a job line up. Luckily she did. So the supposedly fall tuition will be going to a brand new furniture for the family room. Feel good about it.

The daughter will be attending grad school... on her employers dime!
Let there be dancing!

 

[atmsmshr]

Still in the accumulation phase - so I have not been too concerned about balance.

 

[Christine]

Frequent Calendar

Now I'm DCA'ing in proceeds from a real estate sale. Before that I rebalanced by usually not spending all of my disability benefits investing the surplus each month. I know I should get better at spending... In addition I have the VPW-money I use for other things than day to day living. Ie a new car or travel.

Only sold to rebalance once. Combined with tax loss harvesting.

When the DCA run is completed I'll probably switch to Calendar & Corridor Symmetric.

 

[RobLJ]

I said assymetrical corridor and calendar since I use corridors but look in February. I did some balancing this year for the first time in 2.5 years, other than havesting biotech gains then and about 2 years ago. I am willing to overallocate/underallocate when I think values are out of wack. Right now I am overallocated to foreign/Europe, which hurt me last year and helped this year. I only allow an extra 5% however and do it rarely, usually gradually.

 

[Koolau]

So far in FIRE I have rebalanced by taking funds to live on from which ever asset class is up for that time period. Typically, that has been my modest stock funds as they have been up since the great recession. The other "stuff" is more plodding and predictable for the most part. YMMV

 

[sengsational]

This dynamic asset allocation video is from 2012. It's by a "professorial" kind of guy who explains how a static asset allocation can be improved upon by using the ratio between the PE's of two asset classes.

So this would fall under the "non constant mix" in the poll, but since the mix is not very dynamic, one might call it "corridor".

The beginning of the video is about a static asset allocation, but the link I posted starts at the point where he starts talking about dynamic asset allocation. The whole thing is worth watching, I think. It's 45 minutes or so, total, split about half on the topic of static and half on dynamic. There are a lot of numbers, so if you're not into that kind of thing, skip the video. But if you want to get an idea of how some of these asset allocations along the efficient frontier are arrived at, it's pretty enlightening.

Basically what you have for the static allocation is historical returns split into a Morningstar style box (growth/value on one axis and large/small cap on the other). Based on that, an allocation of ETF's is selected that optimize using the efficient frontier and Sharpe ratio (balancing risk (volatility) with reward (return)). In the dynamic allocation, the ratio between the 10 year PE of the Russel 1000 (large) and Russel 2000 (small) is used to flip/flop 1/3 of the portfolio to either large or small. Doing that improves expected return significantly over the static allocation model.

 

[OldShooter]

... Doing that improves expected return significantly over the static allocation model.

Sorry, I did not see that in the video, although admittedly I got bored and clicked off at about the 36:00 point.

What I saw was yet another scheme based on moving averages (in this case the CAPE) that backtests well. Finding those is easy.

His scheme is also based on the assumption that small and value will continue to outperform. How many of us have to tilt toward small and value, bidding prices up, before that outperformance is negated? Fama thinks the advantage is permanent; I'm betting he is right but only with a slight tilt, because he might be wrong.

I also noticed chartsmithing that made small differences in %s or Sharpe Ratio look like big deals.

Ho. Hum. Wake me when his scheme has made a statistically significant number of successful predictions. Predictions, especially about the future, are much more difficult that tuning a scheme to get a good backtest.

Grinchie, I know. Sorry.

 

[sengsational]

Nah, grinchie is ok. I certainly agree that backtesting without principles is not helpful, this one wasn't based on who won the world series, at least.

In this case, if one was interested, they could see how this idea panned-out since the video was made (over 5 years ago).

I went out to see if I could determine what the results were for 2012 through the present, but I couldn't find the historical PE10 for the Russell 1000 and 2000.

As to "significant", that's in the eye of the beholder, I suppose. First, one would need to concede that how things moved around in the past will continue to move around like that in the future. Forget about what I'm about to say if that's not something agreeable. But I'd say 0.97% per month versus 1.11% per month is significant. That's like 2% annually.

 

[OldShooter]

... As to "significant", that's in the eye of the beholder, I suppose. First, one would need to concede that how things moved around in the past will continue to move around like that in the future. Forget about what I'm about to say if that's not something agreeable. But I'd say 0.97% per month versus 1.11% per month is significant. That's like 2% annually.

2% is good. I'd like that. But it is still just another successfully backtested scheme at this point.

Interestingly, neither Sharpe's CAPM nor the Fama/French 3-factor model consider P/E as a valuation parameter.

 

[Lawrence of Suburbia]

Does just having all/most of one's portfolio(s) in balanced funds count in this poll? Is that 'outsourced rebalancing'?

 

[REWahoo]

Does just having all/most of one's portfolio(s) in balanced funds count in this poll? Is that 'outsourced rebalancing'?

That's how I see it and how I voted.

 

[gauss]

balanced fund here

That's how I see it and how I voted.

Then I too shall follow suit.

-gauss

 

[gerntz]

This is too hard.

 

[Cap_Scarlet]

I have no f**cking idea what any of those mean .....other than no rebalancing.

 

[sengsational]

Does just having all/most of one's portfolio(s) in balanced funds count in this poll? Is that 'outsourced rebalancing'?

That's what I had in mind when I wrote-up the poll. Your assets are getting rebalanced, but you're not actively involved in that process. But rebalancing is happening.

 

[mickeyd]

I don't have a name for what I do annually but if I gave it a name it would be "simplicity rebalancing." 1) Take RMD in December. 2) Is AA off 5% from 50/50? 3) Fix it, if necessary. 4) Continue important life activities.

 

[youbet]

No formal rebalancing here. I FIRE'd at about 50/50 and have let it run a bit through the bull market to 60/40. I'm thinking about s-l-o-w-l-y easing it back down a bit starting when I do my RMD later this year.

I do own some Wellesley, so I guess that part is being more actively rebalanced.

 

[jimnjana]

No rebalancing. Consider pensions fixed income. Over 90% in stock. Looking to increase preferred stock to about 10 percent of so hold GIM and a popular vanguard income fund.