Has anyone hit their rebalancing bands lately. I use a 5% threshold. I am currently at 4% but I am a little anxious because of the powerful rally we've had so far this year. I am considering doing it now. What are others doing here?
Has anyone hit their rebalancing bands lately.
Has anyone hit their rebalancing bands lately. I use a 5% threshold. I am currently at 4% but I am a little anxious because of the powerful rally we've had so far this year. I am considering doing it now. What are others doing here?
My trades are posted over in the LOL!'s Market Timing Newsletter thread. I have rebalanced earlier this year.
But I wanted to ask about that 5%? I have thrown 5% around myself, but it can mean quite a different threshold for various folks.
For example, if one has 30% equities, it might mean rebalancing when equities get to 35% which would mean a 17% increase. Of if one has 80% equities, then 85% would be a 6.3% increase.
Or maybe one has 30% US equities and 30% foreign equities and 40% bonds. Does that mean 35% for any of those or is it really 60% equities?
I guess my point is that 5% is so arbitrary, that going at 4% would not be a problem for me.
My trades are posted over in the LOL!'s Market Timing Newsletter thread. I have rebalanced earlier this year.
But I wanted to ask about that 5%? I have thrown 5% around myself, but it can mean quite a different threshold for various folks.
For example, if one has 30% equities, it might mean rebalancing when equities get to 35% which would mean a 17% increase. Of if one has 80% equities, then 85% would be a 6.3% increase.
Or maybe one has 30% US equities and 30% foreign equities and 40% bonds. Does that mean 35% for any of those or is it really 60% equities?
I guess my point is that 5% is so arbitrary, that going at 4% would not be a problem for me.
I thought this was an interesting quote from Bogle:
But Mr. Bogle says that over very long periods, rebalancing doesn’t necessarily pay off, because investors are constantly selling out of higher-performing assets.
From my experience things always seem to go farther and longer than expected. I'm going to ride this bull for awhile.
He's the consummate buy-and-holder, which, over the long-term does maximize return. He always ignores the purpose of maintaining an AA - which is to lower volatility in the short term (at the expense of maximizing long-term gain). It's a different strategy.I thought this was an interesting quote from Bogle:
But Mr. Bogle says that over very long periods, rebalancing doesn’t necessarily pay off, because investors are constantly selling out of higher-performing assets.
From my experience things always seem to go farther and longer than expected. I'm going to ride this bull for awhile.
Well, I went ahead and rebalanced. I decided I was close enough and I've got better things to do than track the allocation over the next month. Now I can ignore it until Jan 2014.
One helluva market run! Wow! [Retirement fund is up over 9% YTD after our Jan withdrawal - mind boggling!]
He's the consummate buy-and-holder, which, over the long-term does maximize return. He always ignores the purpose of maintaining an AA - which is to lower volatility in the short term (at the expense of maximizing long-term gain). It's a different strategy.
And I don't think anyone rebalancing in Jan 2000 or 2008 ended up "selling out of higher-performing assets".
It's fine to hold on and let things run - especially during accumulation phase. Just don't try to "combine" that with maintaining an AA.
I believe the gains due to rebalancing were in portfolios that included fixed income - but that was during secular bear markets, I think. During secular bulls, rebalancing reduces the gain - like during the 80s and 90s. Not so sure about those studies, as during the 2000s, I was richly rewarded the times i rebalanced after a spectacular market crash. But anyway - it's really about managing volatility to keep it at a more "comfortable" level.Setting rebalance triggers of +/-15% or so was supposed to pick up some of that momentum gain while still keeping the AA close enough. Same thing with rebalancing once a year or less, as opposed to daily or quarterly. Though of course rebalancing into lower average gain assets like cash or bonds from equities does, on average, lose value compared to just letting the cash or bonds run out. But then you might not like the volatility. Studies I read long ago were showing rebalancing gains of about 1% per year, but that was probably just among equities.
This recent rebalance brings my cash+bonds holdings up to 21 years of current (after tax) budget. I don't think I'm willing to go above that - looks like I just discovered a "ceiling".
So - either bonds sell off some soon, or, if after withdrawals equity is still above target, I may have to let my equity allocation creep higher. I was implementing a very gradual increase in bond allocation as we get older, but I'm putting that on hold for now - basta!
[In early 2009, rebalancing brought cash+bonds holdings down to 12 years budget - I discovered that as my "floor" - I wasn't willing to draw down further to buy more equities.]
Hope I didn't just jinx anything! knock on wood
Whether "bonds are expensive right now" isn't a concern of mine at all. I will be holding bond funds for decades (I hope), and if/when/as they correct, I will simply buy more, assuming equities haven't corrected worse. I am quite OK with this scenario.I'm thinking along the same lines with bonds right now. Bonds are expensive by almost any standard now, while stocks are still at least at moderate levels. Sometimes you just have to look at the big picture and say "why would I buy something expensive when the other alternative is at average cost?" I just can't bring myself to buy bonds at this point.
Whether "bonds are expensive right now" isn't a concern of mine at all. I will be holding bond funds for decades (I hope), and if/when/as they correct, I will simply buy more, assuming equities haven't corrected worse. I am quite OK with this scenario.
It's rather that once I have X years of expenses in "steadyish" fixed income (including cash BTW), do I really need more? Seems like with 21 years expenses covered, I should be able to handle a little more stock market volatility in exchange for a bit more long-term growth.
And, again, the above sure sounds like tempting fate.