What triggers your rebalance?

[kgtest]

I understand some auto-rebalance, but what is your trigger for it? Is it on specific days that you re balance, or just willy nilly, or is it when a certain allocation mean is hit?

Right now I will be perfectly honest I have been manually re balancing twice a year, and at no particular time...but usually when I do a roth contribution...

Of course the DCA throughout the year and things like this recent downturn could prompt a rebalance but obviously some timing can be controlled for a rebalanced and likely probably should. I'm interested to hear others thoughts.

I feel like the best "auto magical" way would be to setup all funds in one account that has an auto-re balance feature. I have too many accounts right now but that might be a future strategy of mine once I get everything under one roof.

 

[Walt34]

Prior to now, the 457 was in a target date fund but closed that and moved to an IRA in a Vanguard couch potato fund (2nd grader portfolio) but now I am torn between rebalancing once a year and sensing a buying opportunity now.

 

[NW-Bound]

My whim. My fancy. I buy/sell when I feel like it, and it does not have to be on the first trading day of the year or anything like that.

Oh, and I varied my AA too, but it has been around 70% equities the last few years. I am getting old, and trade even less now.

 

[sengsational]

I have arbitrarily selected 20% bands (10% over and 10% under my target). So if my target is 5.1%, for instance, then I've got 5.6% and 4.6% as my bands. But I usually end-up rebalancing once or twice a year and get each line smack in the middle. That means I rarely need to rebalance on a band exceeded trigger. As to when those once or twice a year rebalances happen, it's whenever I feel motivated or get interested, so usually after a big run-up or a big run-down. Since I have several different accounts that I either can't combine or don't want to combine (due to giving up some flexibility), tIRA, rIRA, 401k, etc plus and spouse versions of those, rebalancing can be really tedious sometimes, so that keeps me from tinkering with it too often.

 

[tuixiu]

I am torn between rebalancing once a year and sensing a buying opportunity now.

Same. I rebalance once per year in early January, but every time there is a dip in the market I struggle mightily with the urge to buy under the guise of a rebalancing.

 

[brewer12345]

I shoot for equities between 60 and 65%, split roughly evenly between domestic and foreign. When the allocation gets out of the bands, I nudge it back. When I think things are cheap, I will make sure I am on the high side. When I think things are expensive, I nudge it to the lower end of things.

 

[ejman]

I have a nominal 50/50 split with a 10% band so I rebalance from equities to bonds when the equity split hits 55% and conversely from bonds to equities when the split hits 45%. I should mention that 33% of my liquid NW is in Wellesley which rebalances automatically. My portfolio has much lower volatility than say the SP500 so I hardly ever have to do anything.

 

[W2R]

My planned asset allocation is 45:55 (equities:fixed).

I rebalance during the first week in January every year, after withdrawing that year's spending money.

Also I may rebalance at other times during the year. According to the plan I wrote down years ago, I should rebalance if my equity balance is off by over 2.5%, that is, less than 42.5% or over 47.5%. I have found that this doesn't happen often. Still, I pretty much stick to my plan in order to avoid market timing.

This is in retirement, of course. In accumulation phase, I just invested new money in such a way as to balance things. Much easier.

 

[travelover]

I wait for a Wheee! signal from W2R.

 

[donheff]

I shoot for equities between 60 and 65%, split roughly evenly between domestic and foreign. When the allocation gets out of the bands, I nudge it back. When I think things are cheap, I will make sure I am on the high side. When I think things are expensive, I nudge it to the lower end of things.

I use a similar approach. I am not very analytical about it and do my nudges when my gut tells me things have dropped or risen enough that it is time to take a look.

 

[scrabbler1]

I have actually slightly dropped my range in my IRA to rebalance. It was around 5% but I have cut it to 3% this year. I also tend to look at how much money it would take to get me back into a 50-50 desired AA. This year, I moved $5,000 from the stock fund to the bond fund to get me back to near 50-50, whereas in prior years I usually required a move of $10,000 to rebalance. Even with that higher limit last year, I still rebalanced 5 times in 2013 although the first time was merely to move my AA from 55-45 to 50-50 once I turned 50.

In my taxable account, I dion't use this rather simple criteria because I use the income from the bond side to cover my expenses so I don't move money away from the bond funds to meet a target AA. In fact, because the (big) bond fund has not been paying as much in monthly dividends, I moved some money from the stock fund into the (big) bond fund earlier this year.

To avoid wash sales in the taxable account's stock fund, I began this year to take my stock fund dividend in cash so I am not buying back shares via reinvestment.

 

[jerome len]

Truthfully I never rebalance. I do, however, use dividends and interest payments to balance my intended allocations between stocks and bonds. That way, since I seldom have to sell my index funds, I don't trigger many capital gains which helps contain taxes. Right now I have too many muni bonds......boy, they have made me money! So, I'm investing my monthly interest payments into total stock index......not paying taxes by selling the actual muni fund in which I have a major gain at this time. I've saved, keep a years living expenses in cash and collect SS......LBYM really worked well for me.

 

[pb4uski]

From my investment policy document:

Our intent is to rebalance where actual asset allocation differs substantially from target asset allocation. Rebalancing is typically done late in each calendar year and is done in concert with annual year end tax planning. Rebalancing is also sometimes done opportunistically during the year if stock markets seem particularly under or overvalued but only if the overall asset allocation differs substantially from target asset allocation. Our policy discourages market timing.

When we were in accumulation phase, I just changed the allocations of new money to drift from actual to target.

 

[jIMOh]

I understand some auto-rebalance, but what is your trigger for it? Is it on specific days that you re balance, or just willy nilly, or is it when a certain allocation mean is hit?

Right now I will be perfectly honest I have been manually re balancing twice a year, and at no particular time...but usually when I do a roth contribution...

Of course the DCA throughout the year and things like this recent downturn could prompt a rebalance but obviously some timing can be controlled for a rebalanced and likely probably should. I'm interested to hear others thoughts.

I feel like the best "auto magical" way would be to setup all funds in one account that has an auto-re balance feature. I have too many accounts right now but that might be a future strategy of mine once I get everything under one roof.

I tend to rebalance twice per year.
On Dec 31 or Jan 2 I rebalance by buying/selling
I enter information into my spreadsheet for tracking purposes, then rebalance.

In June or July, I look at balances of my individual mutual funds. If something is underperforming, I adjust contributions so I buy more.

For example, in my 401k, I have 10 investments, 10% each with a 60-40 allocation. When I see 2 of the funds with only 8% of the balance (when each holding should be 10%), I will reduce the 3-4 best funds in June to 5% contributions, and up the two underperfomers to 20%. This suggests I am buying more low and buying less of what just went up.

Most of my rebalances are minimal because tweaking in June usually means I don't have to buy or sell much in December.

 

[kgtest]

I wait for a Wheee! signal from W2R.

The tride and true way

 

[Live And Learn]

I love the idea of having a pre-written policy to use during retirement. I did a search and found this on Bogelheads:

Investment policy statement - Bogleheads

I'll be drawing one of those up in the next week or two !

 

[2B]

I used to do it on my birthday but because of year end events that seemed to always happen I moved it to late January into early February - whenever the mood strikes me. I also rebalance when an "event" happens where cash suddenly appears in an account. I recently rolled over a large chunk of my assets from ETrade to Vanguard. I rebalanced. My wife's TRS account is being rolled over to her Vanguard IRA. I'll position this new cash as part of a mini-rebalancing.

A major shifting of assets will occur when I retire in early 2015. I'll roll my 401k over and then get hit with a pile of SERP money. Right now my SERP is in an S&P500 Index fund so I'll need to move money into Vanguard Total Stock Market Index ASAP.

 

[pb4uski]

I love the idea of having a pre-written policy to use during retirement. I did a search and found this on Bogelheads:

Investment policy statement - Bogleheads

I'll be drawing one of those up in the next week or two !

I did it more if something were to happen that DD (my CPA daughter) would understand what I am doing and why) and carry on managing the nestegg for DW.

 

[Midpack]

There are pros and cons to various methods, but the 5/25 rule always made more sense to me than "time" (annual, quarterly, monthly, etc.), so I use 5/25. Since I track our portfolio in Excel, the band calcs & alerts are done automatically. When I exceed a band, I then look at the tax impact of selling our funds and choose accordingly to minimize taxes long term where possible.

The second school of thought is to follow the 5/25 rule. This rule has you rebalance using bands. The downside to this is you actually have to pay some attention to the market occasionally to know if you’ve gone outside your bands. The upside is that it ensures your asset allocation stays within bounds that you set. The “5″ portion of the rule means that if an asset allocation deviates by an absolute percentage of 5% of the portfolio then you rebalance it. This refers to the big blocks in your portfolio. For example, if your portfolio calls for 30% international stocks you’ll rebalance when that percentage hits either 35% (selling some) or 25% (buying some more.) It may also refer to the overall stock:bond ratio. For example, a 50% stock portfolio may need to be rebalanced if it becomes a 45% stock portfolio, even if none of the individual stock asset classes have fallen enough to justify a rebalancing event. For example, a portfolio that is 25% US stocks and 25% international stocks where both components have fallen to 22.5% of the portfolio.

The “25″ portion of the rule refers to the smaller asset classes in the portfolio, for example, those chunks that may make up only 5-10% of the portfolio. This refers to a change in the asset class that is a relative 25% of that asset class. If your asset allocation calls for a 10% allocation to gold, for instance, then you would rebalance when it hit 12.5% (sell) or 7.5% (buy). Likewise, a 5% position to emerging market stocks would be rebalanced at 3.75% and 6.25%.

 

[RetireAge50]

I have never done any portfolio rebalances (nearly all stock).

But if I am about to tip over I do rebalance.


Sent from my iPhone using Early Retirement Forum

 

[easysurfer]

I rebalance once a year if the allocation differs from my target allocations by 5%.

Target allocation based on my age.

 

[Cobra9777]

I've not been at this very long, so I'm still learning. As others have said, in the accumulation phase, you just redirect new money to keep things balanced. Since retiring last year, I just rebalance as part of other unrelated tweaks to the portfolio. For example, I made two small changes in the last year to reduce ER and improve tax efficiency. Each time, I also brought the allocation back into balance at the same time. Currently, I'm not happy with a small position in BNDX (international bonds, high duration, low yield). I may use this little correction, to dump BNDX and buy some more international stock, where I'm lower than my target.

 

[Huston55]

I love the idea of having a pre-written policy to use during retirement. I did a search and found this on Bogelheads:

Investment policy statement - Bogleheads

I'll be drawing one of those up in the next week or two !

I did it more if something were to happen that DD (my CPA daughter) would understand what I am doing and why) and carry on managing the nestegg for DW.

+2

I developed our IPS recently to be there for DW in case I'm incapacitated or die, and to guide discussions with the FIDO rep.

edit: I also have to say that the IPS exercise, the necessity to have to write it, helped crystalize some details for me.

 

[LOL!]

I have written about how I rebalance in the LOL!'s Market Timing Newsletter thread.

I have relatively tight rebalancing bands for equities of about +2% on the positive side and -3% on the negative side. These percentages are not cast in stone since I require the market to have big one-day moves when my portfolio is near one of these percentages before I act.

Yes, I have asymmetric rebalancing bands. If things are going down, then I tend to rebalance into equities on a big down day in the market or the day after.

If things are going up, I tend to rebalance on-the-fly with the dividends paid out every quarter from stock funds. Since mutual funds drop in value when a dividend is paid out, this means that they are held in check on the high side anyways. Or since I need to withdraw from my portfolio, I just sell equities and spend the money. I try to do selling on big up days or on a less-big up day shortly thereafter.

I certainly do not rebalance based on a calendar. So I look often and make decision every day. The decision is usually trivial: "Nothing big happened today, so I will do nothing."

My last major rebalancing into equities was last month when the stock market dropped 5% to 10%.

 

[LOL!]

Also note that the market has to move pretty far to trigger some rebalancing bands since one's portfolio usually is not 100% equities. For example, suppose one is $60K equities and $40K fixed income, then the stock market drops 17% and the bond market stays the same. One might then have $50K equities and $40K fixed income. That means (normallizing back to 100%) one is 56% equities and 44% fixed income.

With a 5% rebalancing band, one would not trigger a rebalancing move, but with a 4% (or 3% or 2%) band, then a 17% market drop would trigger a rebalancing move.

One would need to do the math for their particular ratio of stocks to bonds to see what market activity would hit their personal rebalancing bands.

Also, one can have different rebalancing bands for different subasset classes. For instance, a volatile subasset class such as REITs or emerging markets equities could have higher magnitude trigger points.