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Rebalancing
Old 01-04-2016, 10:37 AM   #1
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Rebalancing

This might be the year that some of us may have to do some rebalancing. I wonder what approach you folks like to use. Some may do it yearly, quarterly, or perhaps a band movement. I personally like the 5% deviation.
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Old 01-04-2016, 10:45 AM   #2
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I rebalance every year during the first week in January, after taking out my year's spending money. This year for the first time, I was amazed to see that it didn't need rebalancing after I took out my 2016 spending money. That was probably due to "dollar cost averaging" reinvesting the proceeds from selling my former home, which I did from August - December according to my AA.

The other reason I rebalance, is if my equity allocation (supposedly 45%) goes above 47.5% or below 42.5%, at any time of year.

That about covers it.
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Old 01-04-2016, 11:06 AM   #3
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Originally Posted by ripper1 View Post
I wonder what approach you folks like to use. Some may do it yearly, quarterly, or perhaps a band movement. I personally like the 5% deviation.
I'll be doing it annually, probably in Feb or March when I do my taxes. And I'll take a single withdrawal from my equities/bonds and move it to a MM or savings account for dispersal to my checking account over the year.

Using bands is more in keeping with the purpose and spirit of rebalancing, but it requires monitoring of asset values. If a person was doctrinaire about it, it would have to be done on a continual basis. I only want to break out my asset %ages once per year. Anyway, it doesn't make much difference in performance on a long-term basis.

Looking at portfolio balances, re-thinking allocations--it all comes with some risk that I'll decide to "improve things" in response to my perception of the latest news/trend. Monitoring everything closely will not improve my results and increases the chance that I'll meddle with things. I think a lot of people do a lot of damage to their portfolios by such fiddling, and I recognize I am tempted sometimes to do the same, so I try not to give myself extra opportunities for mischief.
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Old 01-04-2016, 11:20 AM   #4
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Whenever they go outside of my predetermined bands. But I also do a partial rebalance in January if I make any tweaks to the portfolio (eg different funds). I try to limit rebalancing in my taxable accounts since that can often cause a taxable event, but sometimes you still need to do it. I'm not yet retired.
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Old 01-04-2016, 11:27 AM   #5
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Annually if needed. At the start of January.
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Old 01-04-2016, 11:53 AM   #6
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I use 5% +/- bands, was influenced by this post by Michael Kitces:

https://www.kitces.com/blog/how-reba...gement-anyway/
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Old 01-04-2016, 11:55 AM   #7
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Started rebalancing this am. Glad it was a down day!
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Old 01-04-2016, 12:00 PM   #8
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Originally Posted by W2R View Post
I rebalance every year during the first week in January, after taking out my year's spending money. This year for the first time, I was amazed to see that it didn't need rebalancing after I took out my 2016 spending money. That was probably due to "dollar cost averaging" reinvesting the proceeds from selling my former home, which I did from August - December according to my AA.

The other reason I rebalance, is if my equity allocation (supposedly 45%) goes above 47.5% or below 42.5%, at any time of year.

That about covers it.
This approach may work better if you do selling/rebalancing end of March beginning of May.....since historicaly May-October underperform November-April.
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Old 01-04-2016, 12:31 PM   #9
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What a day for rebalancing! I had a few small trims planned, but I'll skip those because I expect the gains already evaporated.

Just doing the equity buys and see where things settle.
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Old 01-04-2016, 12:45 PM   #10
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Originally Posted by Options View Post
I use 5% +/- bands, was influenced by this post by Michael Kitces:

https://www.kitces.com/blog/how-reba...gement-anyway/
I used that until I started drawing on the portfolio. Now that I'm drawing, it works out to rebalance after the draw, and it's usually minor. So it takes a large, short term move to drive the portfolio out of balance enough to rebalance mid-year.
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Old 01-04-2016, 01:11 PM   #11
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This approach may work better if you do selling/rebalancing end of March beginning of May.....since historicaly May-October underperform November-April.
"Work better"? I'm not sure what you mean by that. Rebalancing as I have described has been fine thus far and since my 11/2009 retirement date I haven't ever had to rebalance due to my band criterion. That criterion is just there in case market conditions get wild, and they really haven't been. Meanwhile, I have only rebalanced during the first week in January because nothing has gotten that far out of balance.

I get the majority of my distributions, which I use for rebalancing, in December. I also withdraw my entire annual spending money the first week in January, so it seems like an ideal time to be rebalancing.
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Old 01-04-2016, 03:58 PM   #12
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I think he just means wait until March - May to do the rebalance part. Most years equities will be higher in March - May. So that assumes you will be trimming from equities and buying fixed income. The other way around - the timing wouldn't be good, and you wouldn't want to wait until Nov (the traditionally low time) to add to equities!

In my case, my equity funds are usually a bit down because of distributions taken in cash in Dec, so unless the prior year has been a blow out year (like 2013), I'm usually adding a bit to equities in Jan. Wouldn't usually do to wait until May.
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Old 01-04-2016, 05:46 PM   #13
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I think he just means wait until March - May to do the rebalance part. Most years equities will be higher in March - May. So that assumes you will be trimming from equities and buying fixed income. The other way around - the timing wouldn't be good, and you wouldn't want to wait until Nov (the traditionally low time) to add to equities!

In my case, my equity funds are usually a bit down because of distributions taken in cash in Dec, so unless the prior year has been a blow out year (like 2013), I'm usually adding a bit to equities in Jan. Wouldn't usually do to wait until May.
More less. If rebalancing is also time when one takes out his/her spending money and that involves selling equities.....then doing it at the end of April makes sense because one does it at the end of historically good performing months.

And you are right by this logic if taking out spending money means selling fixed income assets doing it in October makes sense.

I am not retired yet, but being 100% in equities I already keep in my mind that generating cash will most likely mean April selling (If dividends do not cover everything)
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Old 01-04-2016, 06:01 PM   #14
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I spend less than my distributions, which I have in cash in my money market account in January because I receive most of them in late December. So, there is no selling of anything to get my spending money. To rebalance, I may sell/buy equities and/or fixed income to get to the percentages I need. This year no selling or buying of either was necessary.
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Old 01-04-2016, 06:34 PM   #15
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More less. If rebalancing is also time when one takes out his/her spending money and that involves selling equities.....then doing it at the end of April makes sense because one does it at the end of historically good performing months.

And you are right by this logic if taking out spending money means selling fixed income assets doing it in October makes sense.

I am not retired yet, but being 100% in equities I already keep in my mind that generating cash will most likely mean April selling (If dividends do not cover everything)
Only if you reinvest your distributions. If you take your distributions in cash, it makes more sense to do things right after the big Dec payouts.
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Old 01-04-2016, 06:59 PM   #16
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I'm still in the accumulation phase and invest money every month...so I adjust where I put it each month based on what's light. Will rebalance proactively if I'm more than 5% off. Rarely happens since I'm constantly filling in the holes.
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Old 01-04-2016, 07:34 PM   #17
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We had to take our first draw this year, and that and the rebalance happened today (placed over the long weekend). Not happy that the first draw was such a down day!
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Old 01-04-2016, 07:44 PM   #18
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We had to take our first draw this year, and that and the rebalance happened today (placed over the long weekend). Not happy that the first draw was such a down day!
I was just glad my draw was based on 12/31 value and not 1/4. Already had funds set aside for the draw.
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Old 01-04-2016, 07:45 PM   #19
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Looking at portfolio balances, re-thinking allocations--it all comes with some risk that I'll decide to "improve things" in response to my perception of the latest news/trend. Monitoring everything closely will not improve my results and increases the chance that I'll meddle with things. I think a lot of people do a lot of damage to their portfolios by such fiddling, and I recognize I am tempted sometimes to do the same, so I try not to give myself extra opportunities for mischief.
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Old 01-04-2016, 10:14 PM   #20
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I usually rebalance in December. However, this year I decided to roll my former employer DC plan into my IRA and it sold the S&P 500 index on Nov 30 (2080). The cash ended up in my IRA on Dec 11 (2012). I put some of it to work on Dec 18 (2005) and another chunk today (2013) and will put the rest in on dips. So there you go.... I'm now a dirty market timer.
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