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Rebalancing test
Old 12-01-2014, 12:12 PM   #1
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Rebalancing test

The bucket stress test thread thats active right now got me thinking. I wonder what a back test of my current portfolio would look like if I include withdrawals and include rebalancing every year. I started with a hypothetical $1,000,000 portfolio. I withdrew 4% the first year and then increased my withdrawals 2.5% every year after that. I plan to give myself a 2.5% raise every year once I retire (which is in Jan).

I used 2004-present as the time frame since that's the data available at Morningstar. Here are the results:

SP500...7.3%
Wellington...8.3%
My 60/40 portfolio...9.0%
My 60/40 portfolio incl rebalancing yearly....9.5%

Worst year (2008)
SP500...-37.1%
Wellington...-22.2%
My 60/40 Port...-27.7%
My 60/40 port rebalanced...-20.5%

Lowest end of year balance
Sp500...$733,290
Wellington...$956,111
My 60/40 port...$955.964
My 60/40 port rebalanced...$984,591

I was surprised that rebalancing made that big a difference and I was especially happy to see that it also drastically reduced draw down in 2008.

My portfolio is a 60/40 mix of low expense index and actively managed funds.
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Old 12-01-2014, 01:56 PM   #2
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Interesting. How much international equities is included in your 60%?
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Old 12-01-2014, 08:21 PM   #3
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No reg international stocks but I do have 5% emerging markets.
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