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Old 06-27-2008, 07:19 PM   #21
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You just want to apply the most restrictive number to the item you are trying to rebalance
That's the key.

One thing to keep in mind (and an easy source of confusion) is that the 5% rule is just 5 points or 'counts' of movement - the 25% rule is a 25% change in balance.

5 points is going from 10 to 15, or from 80 to 85. But 10 to 15 is a 50% change, and 80 to 85 is a 6.25% change. So for the change from 10 to 15, would have already exceeded the 25% rule, the 80 to 85 change is just touching the 5 point rule.

So, the 5% (points) rule will be the most restrictive for funds with allocations larger than 20%, and the 25% (movement) rule kicks in for funds with allocations less than 20%. Because 25% movement on a fund allocated at 20% is 5% or 5 'counts'. So that is the point where the rules meet.

I think he is just trying to weight things to their size and use just two numbers, not an equation.

So, 5 points of change, or a 25% change, whichever comes first.

Clear as mud?


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Old 06-27-2008, 10:27 PM   #22
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There is a thread over at Bogleheads on this topic that may interest some. Bogleheads :: View topic - Bogle's View: Limited Value of Rebalancing

FWIW I use the 5%/25% rules to target new money to the lagards. My take on the various strategies whether it is bands or time of year or annual vs every 2-3 yrs is that it doesn't really matter alot. It is not about increased return either (it can but only by a small amount), its greatest benefit is in maintaining your AA and therefore your level of risk.


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Old 06-28-2008, 03:31 AM   #23
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Unless you think your basic investment approach is flawed and needs adjustment... stick with the plan! I am assuming your planned allocations are sound.

I intend to rebalance as normal to the targets. If I am heavy in bonds... then I will be buying stock... the market rebound will occur. Of course, I am still in the accumulation phase. If I were in the distribution phase my approach will be a bit different. I would rebalance, but only if I were able to preserve a certain number of years of living expenses in fixed securities (e.g., 7 years).
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Old 06-28-2008, 05:57 AM   #24
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Some points to clarify for my situation. I have no new money going in as I am FIRE'd. As mentioned, I rarely have had to rebalnce the AA except when I had to take money out to supplement our pensions. So other than that, rebalancing will always be market driven. As I have gleaned from the posts, some will rebalance frequently, even when the market is in turmoil and there are many dips and jumps. Others wait for particular calendar times to do the job, and Mr Bogle says it doesn't matter. I'm just trying to find my own path with the help of your input.

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