Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Old 01-13-2020, 10:29 AM   #21
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Midpack's Avatar
 
Join Date: Jan 2008
Location: NC
Posts: 14,626
Quote:
Originally Posted by OldShooter View Post
Yup. Nothing wrong with any of that, including your view of rebalancing as one of the small things. No reason for you to worry about the state of my eyebrows.

Thinking about this/this thread, maybe rebalancing thresholds ought to vary depending on AA. For example, consider a 10/90 or a 90/10. Letting things go even to 5% means that 10% slice is half of what the investor wants or one-third more. It's all kind of subjective, how you view the small slice and what the reason was for the 5% AA change. Just noodling here ...
I don't believe in rebalancing in small % increments, at least in taxable, for tax reasons. I've always used the 5%/25% rebalancing rule. I keep AA in mind when I'm making taxable withdrawals for spending, and I'm going to take a tax hit anyway, as an opportunity to correct AA.

It's a waste of time to me, but rebalancing to small % increments in tax sheltered accounts doesn't hurt anything. I knew co-workers who rebalanced all their 401k holdings to exact numbers, even holdings that were off 0.01%. Didn't occur to them the % would probably change that much daily...

https://awealthofcommonsense.com/201...alancing-rule/
__________________

__________________
No one agrees with other people's opinions; they merely agree with their own opinions -- expressed by somebody else. Sydney Tremayne
Retired Jun 2011 at age 57

Target AA: 45% equity funds / 30% bond funds / 25% cash
Target WR: Approx 2.5% Approx 20% SI (secure income, SS only)
Midpack is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 01-13-2020, 10:58 AM   #22
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
audreyh1's Avatar
 
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 23,585
Quote:
Originally Posted by donheff View Post
I read the charts as indicating the expected return (residual value) is much higher for the higher equity portfolios.
You basically get to trade-off between short-term volatility and residual portfolio. So higher equity allocation does have a likely short-term cost to offset the potentially larger long-term gain.

So it ultimately comes down to an individual’s goals and personality.
__________________

__________________
Retired since summer 1999.
audreyh1 is online now   Reply With Quote
Old 01-13-2020, 11:06 AM   #23
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
audreyh1's Avatar
 
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 23,585
Quote:
Originally Posted by OldShooter View Post
But I think concern about volatility and, in particular, conflating it with risk is really overblown. Most smart retirees, here especially, have an AA or a bucket strategy that minimizes SORR. Once that risk is covered, volatility becomes almost a don't care.
From the messages posted here from retirees, especially new retirees and those depending solely on their investments to fund their retirement, short-term volatility (annual, a few years) is often of great concern.

Each individual has to select their trade-off, but I don’t consider it overblown at all. It’s a real issue and very dependent on personality and goals. Being able to stick to a plan in the face of 2000-2002 and then 2007-2009 can be extremely challenging.
__________________
Retired since summer 1999.
audreyh1 is online now   Reply With Quote
Old 01-13-2020, 11:09 AM   #24
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
audreyh1's Avatar
 
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 23,585
Quote:
Originally Posted by Midpack View Post
I don't believe in rebalancing in small % increments, at least in taxable, for tax reasons. I've always used the 5%/25% rebalancing rule. I keep AA in mind when I'm making taxable withdrawals for spending, and I'm going to take a tax hit anyway, as an opportunity to correct AA.

It's a waste of time to me, but rebalancing to small % increments in tax sheltered accounts doesn't hurt anything. I knew co-workers who rebalanced all their 401k holdings to exact numbers, even holdings that were off 0.01%. Didn't occur to them the % would probably change that much daily...

https://awealthofcommonsense.com/201...alancing-rule/
The models are demonstrating the benefits and trade offs of simple annual rebalancing at start of year, and don’t reflect anything about using triggers for rebalancing.

BTW - what investments are actually being used in the models. For fixed income and for stocks? The FIREcalc default is total stock market and long interest rate. Personally I wouldn’t touch long bonds for fixed income, and suspect they would make survival worse. I use 5 year treasuries when I run my models.
__________________
Retired since summer 1999.
audreyh1 is online now   Reply With Quote
Old 01-13-2020, 11:13 AM   #25
Thinks s/he gets paid by the post
OldShooter's Avatar
 
Join Date: Mar 2017
Location: City
Posts: 3,972
Quote:
Originally Posted by audreyh1 View Post
From the messages posted here from retirees, especially new retirees and those depending solely on their investments to fund their retirement, short-term volatility (annual, a few years) is often of great concern.

Each individual has to select their trade-off, but I don’t consider it overblown at all. It’s a real issue and very dependent on personality and goals. Being able to stick to a plan in the face of 2000-2002 and then 2007-2009 can be extremely challenging.
All true, but IMO a worthwhile candidate for education. Again completely IMO, fear of short-term volatility (assuming SORR is handled) really costs people in portfolio yield. Is that cost worth paying? Do people even understand that fear of short-term volatility costs them? Probably any cost is acceptable to some.
OldShooter is offline   Reply With Quote
Old 01-13-2020, 11:25 AM   #26
Thinks s/he gets paid by the post
street's Avatar
 
Join Date: Nov 2016
Posts: 2,923
A great thread, thanks again.

I also have seen here, and from other sources, that rebalancing comparing apples to apples, that not rebalancing has shown to be just a little better result at the end point. I really think it is a toss up but finding that if I do less means more for me.
street is offline   Reply With Quote
Old 01-13-2020, 12:03 PM   #27
Recycles dryer sheets
 
Join Date: Mar 2014
Location: Dallas
Posts: 454
I am 100% equity due to attractiveness of residual portfolio value. Actually more like 50% equity and 50% real estate!
pjigar is offline   Reply With Quote
Old 01-13-2020, 12:35 PM   #28
Full time employment: Posting here.
racy's Avatar
 
Join Date: May 2007
Posts: 615
Quote:
Originally Posted by RunningBum View Post
...Should one not rebalance at all, or wait until it is way off, like 20%?....
Funny you should say "20%" because that's what Kitces writes about in this article: https://www.kitces.com/blog/best-opp...nd-thresholds/

Quoting from it, "A 2007 study in the Journal of Financial Planning by Gobind Daryanani entitled “Opportunistic Rebalancing” studied rolling 5-year periods from 1992 to 2004 and found that the optimal rebalancing threshold was at a relative threshold of 20% of the investment’s original weighting."

But, who really knows...
__________________
The Big Lebowski: Are you employed, sir?
The Dude: Employed?
racy is offline   Reply With Quote
Old 01-13-2020, 01:14 PM   #29
Thinks s/he gets paid by the post
SecondCor521's Avatar
 
Join Date: Jun 2006
Location: Boise
Posts: 3,934
I'll point out something I discovered during my early FIREcalc exploration days about 13 years ago now: The conclusions drawn somewhat depend on the duration of the retirement period.

OP used 30 years as an example. Generally speaking, the longer the term (40 years, 50 years), the more residual values and AA will favor stocks, because stocks have historically outperformed bonds over long periods. The shorter the term (10 years, 20 years), the more it becomes an even picture and heavier bond allocations can be relatively safer, because there are a number of 10 year periods where stocks did poorly for a while but bonds did OK.

Personally I use 40 years in my analysis, because I'm 50 years old now. But older or younger retirees might want to do the same analysis as the OP with their own time frame as the conclusions change somewhat.
__________________
"At times the world can seem an unfriendly and sinister place, but believe us when we say there is much more good in it than bad. All you have to do is look hard enough, and what might seem to be a series of unfortunate events, may in fact be the first steps of a journey." Violet Baudelaire.
SecondCor521 is online now   Reply With Quote
Old 01-13-2020, 01:16 PM   #30
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
RunningBum's Avatar
 
Join Date: Jun 2007
Posts: 9,003
Quote:
Originally Posted by racy View Post
Funny you should say "20%" because that's what Kitces writes about in this article: https://www.kitces.com/blog/best-opp...nd-thresholds/

Quoting from it, "A 2007 study in the Journal of Financial Planning by Gobind Daryanani entitled “Opportunistic Rebalancing” studied rolling 5-year periods from 1992 to 2004 and found that the optimal rebalancing threshold was at a relative threshold of 20% of the investment’s original weighting."

But, who really knows...
Interesting article, as usual, from Kitces.

I don't like to put too much stock in back testing. One could tailor an approach to best fit past data. One might say, "only rebalance in months starting with J" and go on to come up with explanations why the beginning or middle of the year is best, only to find out in the future that the month to convert was random and didn't hold up for the Js. So keeping things in a 20% range might have worked in those years, but a 10% or 30% range might work better in the future.

Even the whole theory on how far to let the market run (up or down) before adjusting is questionable. The market could swing 9% in each direction, causing no rebalancing yet missing some nice opportunities to buy a little low, and sell a little high. Or a 15% run could come after a 6% drop, still not quite enough to trigger anything even after a nice run you might want to back off of. But of course you can just easily construct scenarios where you adjusted too early and missed a better run, or got hit harder by a downturn.

I think I agree with your last statement, "who knows?".
RunningBum is offline   Reply With Quote
Old 01-13-2020, 01:47 PM   #31
Recycles dryer sheets
Dd852's Avatar
 
Join Date: Jul 2013
Location: London/UK
Posts: 310
This has been one of the most thoughtful and interesting threads we’ve had in a while. Many thanks for all the good contributions
Dd852 is offline   Reply With Quote
Old 01-13-2020, 06:14 PM   #32
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
NW-Bound's Avatar
 
Join Date: Jul 2008
Posts: 26,266
Quote:
Originally Posted by Midpack View Post
... staying out of equities altogether (0% on chart) requires a portfolio 43% larger than being 60% in equities - that's a lot of extra years working, or considerably less spending. And with the current outlook for fixed income, the premium to exclude equities is even greater. I remember one very persistent zero equity member, but I don't know if we have any zero equity allocation investors left here?
I know whom you talk about. He has not posted in quite a few years.

There are at least two currently active posters who are mostly in fixed-income assets. They don't seem to mind missing out on the bull run of the market.

The husband of my sister-in-law is like that. He bailed out of the market in the market crash of 2008, and has not looked back. To him, the extra return provided by the market is not worth the aggravation. I guess it is like me who took ER and bailed out at the top of my work life, when I drew the highest pay. How did I refuse money?


Quote:
Originally Posted by OldShooter View Post
I always raise eyebrows/cock head when I read someone here talking about rebalancing in small increments like 1% or even 5%. It has seemed to me that adjustments that small would have little or no effect. Your charts confirm this for at least the middle AA range. Good post. Thanks.

Well, some people keep track of their expenses down to the penny. That's a lot smaller than 1% of their stash. No way they will let their AA be out of balance by that much.

By the way, 1c is 1/1000000 (1 millionth) of 1% of a $1M portfolio. Or looking at it another way, 1% of a $1M stash is 1 million pennies.
__________________

__________________
"Old age is the most unexpected of all things that can happen to a man" -- Leon Trotsky
NW-Bound is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Equity dividend investing vs equity index investing galeno FIRE and Money 16 01-01-2015 04:51 AM
Asset Allocation / Portfolio Recommendation for Soon to Be Early Retiree aim-high FIRE and Money 17 07-05-2014 11:15 AM
Asset allocation for a Lazy Portfolio Trix55 Hi, I am... 11 03-06-2014 10:03 AM
Extremely aggressive asset allocation to a target portfolio balance aerohokie FIRE and Money 36 07-15-2012 04:17 PM
What is your portfolio asset allocation? Contrarian FIRE and Money 78 12-23-2010 07:28 PM

» Quick Links

 
All times are GMT -6. The time now is 12:12 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2020, vBulletin Solutions, Inc.