Rebalancing and Withdrawal Strategies

[Gotadimple]

This week's Oblivious Investor has at least two great articles.

First, Michael Kitces on Portfolio Rebalancing
https://www.kitces.com/blog/how-reb...m-returns-but-is-good-risk-management-anyway/

The takeaway: Rebalancing lowers the overall return because it is a risk mitigation strategy, but offers rebalancing bonus opportunities

and

Darrow Kirkpatrick, Best Retirement Withdrawal Strategies
New Research: The Best Retirement Withdrawal Strategies - Can I Retire Yet?

In a nutshell: evaluates 6 withdrawal strategies.

I'm still digesting, but am interested in your comments.

Rita

 

[LOL!]

The Kirkpatrick thing is being discussed: http://www.early-retirement.org/forums/f28/evaluating-various-withdrawal-strategies-80091.html

I cannot tell what's going on in it because it is poorly written, so any conclusions are dubious to me. I can write that the method that produced the best results suffered from the thing that Kitces was writing about.

Also, any study that only does rebalancing on an annual date is worthless to me. There are better ways to pick the dates to rebalance than 12/31 or your birthday each year.

 

[easysurfer]

I already initiated the transaction requests to rebalance my portfolio for 2016. Taking some poker chips off the table .

 

[Animorph]

Rebalancing stocks/bonds is risk mitigation. Rebalancing stocks/stocks, or any assets that have equal expected future gains should actually increase your gains over the years. It was about 1%/year when optimized if I remember the old studies. That's the buy low, sell high effect of rebalancing.

 

[Zorba]

A better Kitces comparison to the Kirkpatrick blog is here: http://www.kitces.com/blog/managing-sequence-of-return-risk-with-bucket-strategies-vs-a-total-return-rebalancing-approach/

Take a look at the last figure in Kitces. In retirement, equal withdrawals (without re-balancing) run down the portfolio while withdrawals with re-balancing do not. Kitces does this for just one starting year (1966), while Kirkpatrick runs some simulations, but I would favor re-balancing based on this.