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Rebalance now?
Old 10-11-2008, 02:11 PM   #1
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Rebalance now?

At the midpoint of this year (June 30th) I put some money into bonds for the 1st time ever. I went from 100% stock to 75 / 25. In the course of just over 3 months Im now at 69 / 31. SP500 is down ~30% during that time while my bond funds are down about 5%.

I never expected to get out of balance that fast, but it seems like the perfect time to rebalance back to 75 / 25 and get some more money into stocks. Agree or disagree?
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Old 10-11-2008, 02:30 PM   #2
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If you are using 5% bands for rebalancing then you should rebalance.

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Old 10-11-2008, 02:33 PM   #3
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My DD who is in the financial industry told me that she expects retirement and endowment funds to revisit their allocations soon.
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Old 10-11-2008, 02:34 PM   #4
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I've been rebalancing on the big down days. The problem is that if the market continues to go down you will lose more. Buying at lower prices helps me to better cope with the losses in my portfolio.
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Old 10-11-2008, 02:37 PM   #5
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This is why many who rebalance use deviation boundaries rather than duration (e.g. once a year). I use 15-20% variation from the most recent rebalancing. So using a 20% deviation, if I started 50% stocks I would rebalance when they hit 60% or 40%.

If you set it too wide you might find yourself much more imbalanced than you want. Too narrow and you are rebalancing all the time. Find a number you're comfortable with.

Also remember there may be times (like now) where it really best to live off your bonds and cash long after they are out of balance just to avoid selling downtrodden stocks, so it's not a hard and fast rule.
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Old 10-11-2008, 02:42 PM   #6
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I usually rebalance once a year in January, but I just rebalanced my 401k and our taxable Vanguard account yesterday. Our Vanguard account went from 60/40 to 50/50 over the past couple of months, so I shifted cash and bond assets into equities to make it 70/30. I couldn't ignore these low equity prices any longer, and since we're 5-8 years from retirement, I think the upside is much greater than the downside risk.
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Old 10-11-2008, 02:46 PM   #7
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I agree on the rebalance. I have started rebalancing by made adjustments at 1% to 2% of a large portfolio at a time. It will take me about 5 such 'exchanges' to get back where I should be. I don't like to do it all at once because I don't think I can hit the exact market timing for the best results. So I hedge by doing it in a few steps about a week apart.
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Old 10-11-2008, 02:51 PM   #8
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I'm pretty out of whack. I should be about 70% stock and now it's 54%. I think I'll sort of "dollar cost rebalance" a little at a time, say to 60% then to 65% and then to 70%.
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Old 10-11-2008, 02:52 PM   #9
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I rebalanced on Weds. I'll consider rebalancing again if we go down another 20% or so.
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Old 10-11-2008, 03:13 PM   #10
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I've done some rebalancing this year because my triggers have been firing with huge deviations. But I can't keep doing it - I'm going to run out of bullets (cash) at some point! Actually - I mean that I will hit my limit on minimum years in cash/bonds. Now if my bonds would just quit shrinking too!!!!

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Old 10-11-2008, 06:03 PM   #11
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I was "lucky" to have shifted a chunk of VG stock mutual funds over to a VG bond mutual fund early in the year(before it the market fell).
I decided yesterday to stop looking for the bottom and moved the bond mutual funds back into the stock mutual funds...just a little rebalancing...now im back to my 70/30 mix.
Only time will tell if these moves were smart? :confused:

Personally, if my AA get 5% out of range, i'll rebalance to try and simply sell high and buy low.
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Old 10-11-2008, 11:32 PM   #12
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I'm going to wait until the Dow stops swinging hundreds of points per session...I'd be tweaking things twice a week otherwise.

I also don't think it helps matters for individual investors to move hundreds of thousands of dollars around repeatedly. I'll wait until the dust settles.

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Old 10-12-2008, 03:10 AM   #13
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I am in the same situation I was around 70/30... now close to 50/50. My target was 60/40.

But I am just a little over 3 years from ER. Since I am planning to exit the accumulation phase and enter the distribution phase (spend)... I am unlikely to move my fixed allocation into stocks.

I am purchasing stocks with my 401k, but that is it.

I am looking at reblancing my stock allocation. I am a little overweight in Large cap domestic and considering moving a little more to international and domestic small caps (about 5% each).


Anyone have suggestions on a index based allocation for stock mutual funds... % domestic LC, % D SC, % International?
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Old 10-12-2008, 08:14 AM   #14
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Current AA:

Here's what im using.
(35yrs old...hoping for ER in 10yrs)
Mostly index funds where possible.

Bonds 30%
Small 10%
Large 40%
International 10%
REIT 10%
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Old 10-12-2008, 09:00 AM   #15
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DATA wanted:

Anyone got any data on rebalancing? I was thinking of downloading weekly or monthly prices for SPY and for a 5 year bond index, and then compare rebalance versus not for volatility/return.

Somebody must have done this already. I don't really want to reinvent the wheel on this.

TIA - ERD50
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Old 10-12-2008, 10:14 AM   #16
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ERD...I think Wm Bernstein has an article on optimal rebalancing periods on his website. IIRC he found that rebalancing every 2-3 years was optimal, and that rebalancing only part of the way back to target was beneficial.

I think Gummy might even have a few rebalancing studies on his website.
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Old 10-12-2008, 10:41 AM   #17
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I plan on re-balancing in January as usual. I normally only re-balance twice a year.
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Old 10-12-2008, 10:56 AM   #18
 
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I'm also going to do my customary rebalancing in January.
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Old 10-15-2008, 02:34 PM   #19
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Quote:
Originally Posted by Cb View Post
ERD...I think Wm Bernstein has an article on optimal rebalancing periods on his website. IIRC he found that rebalancing every 2-3 years was optimal, and that rebalancing only part of the way back to target was beneficial.

I think Gummy might even have a few rebalancing studies on his website.
thanks - I'm checking out gummy's site - man a ton of info there.

gummy stuff ... about Investing (mostly)

Will report back later, but so far my studies seem to indicate that rebalancing isn't as much help as I would have thought. Some marginal advantage, but slight.

I think it still makes sense form an emotional perspective. I mean, if someone chose 60/40 for example, that is what they are comfortable with, they should stick to it. And considering how this latest drop has affected people's emotional well being - it is a very important consideration. But the numerical advantage seems to be very slight. Surprised me.

-ERD50
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