Rebalanced on the "way up" 8-4-09!

[Bikerdude]

I've been selling equities into the recent rally. I learned my lesson. When you have more than you need, are not getting any younger and want to spend while you can, take some off the table. New allocation = 38/62 per Bogle.

 

[TromboneAl]

So why are you waiting until January to rebalance down to 55% stock? Why not do that now?

Audrey

I'm basing that on the research that shows that rebalancing works best if you don't do it too often. It's not totally clear-cut, but I guess the idea is that if you do it only once a year, or once every two years, you will be taking advantage of trends.

Also, by forcing myself to do it only on Jan 2, I remove emotion or attempts at market timing from the decisions.

I'm kind of suspecting a big drop in the fall, when the recovery doesn't happen as fast as expected. But I'm not acting on that.

 

[audreyh1]

I believe the bit about not rebalancing too often, under NORMAL MARKET CONDITIONS. In many 12 month periods, asset classes barely diverge enough to justify rebalancing. That's probably why 18 months to 2 years gives better performance (in a taxable account).

I think the reason for that "at least 12 months" between rebalancing rule is so that asset classes have time to sufficiently diverge to gain benefit from rebalancing. But what if asset classes diverge very quickly?

I believe in an apocalyptically (wow - it's really a word!) volatile 2 years like we've just had with such scary extremes, it's a good idea to rebalance when the allocation gets well out of whack. These are unusual times.

This time I let my equity allocation get almost to 60% before rebalancing back to 55%. IMO, that is good enough. And if we are going through several years of rollercoaster, like I believe is likely, then I'd rather rebalance according to the rollercoaster than some fixed time frame. I mean, if the trends accelerate, then maybe the rebalancing should accelerate. Anyhow, I know I'll "feel" better that way.

But that's my instinct, intuition and opinion. I cannot point to any studies to back me up. But that was why I adopted and "out of balance" trigger strategy when I first set up my AA.

Under "normal" market conditions I will only rebalance annually or every 2 years depending on how far things have diverged between asset classes.

Audrey

P.S. Ah! I see Larry Swedroe favors my approach.