Asset Allocation - Rebalancing when approaching ER or Retired

[Lsbcal]

I'm taking a slightly different approach to rebalancing. Originally our AA was 55/45 with a max of 60/40 and a min of 50/50. In recent years I did not let the equities get above 55% since it seemed prudent for us to take that off the table. Right now it's at about 45/55. I'm going to do a passive rebalance for now. By that I mean spend from the fixed income portion of the portfolio and so the equity portion rises at a rate of about 0.5 * spending_rate.

Part of the reason I'm doing this is because we are just at the beginning of a recession. It would be kind of unusual if equities rose in a recession. Of course, we do not have a lot of post-war recessions to go on. From the start of a recession until an SP500 bottom has been anywhere from 3 to 19 months long. If I'm wrong (actually hope I'm wrong) and equities take off then all I've missed is the rebalance bonus. If I'm right then eventually spending from FI will get me back to 55/45.

It's a conservative approach but I think it's prudent since I'm not going back to work.

 

[walkinwood]

{bump}

I did not get many responses on this one.

Are any of you that are approaching ER or in ER or Full Retirement going to use fixed to buy equities?

For example: you were 60/40... the stock market drop puts you now at something like 40/60. Are you going to rebalance to 60/40 to capture the buying opportunity? Or are you hanging onto the fixed (not taking the risk) because it is intended to provide income in bad times?

This is exactly the situation many of us face. Will you roll the dice or sit tight? And Why?

I am rebalancing from fixed to equities, but am doing so in a controlled way. 1/12th of the amount that I'm "off" each month for the next 12 months. I just couldn't stomach moving that much money from bonds to equities while the market was dropping every day.

I'm hoping that the market recovers and I reach my allocation in less than 12 months.

 

[walkinwood]

Unfortunately, my bonds have been beaten down too - just not as much. There is plenty of risk in fixed too - unless you are all US Govt bonds.

That's a big learning for me too. My fixed portion is almost entirely in ST Investment Grade Corp (the VG fund). I think it was Swedroe (or some other asset alloc guru) who argued that the fixed portion should be all treasury since it is not correlated to Equities (as opposed to corp bonds). I should have listened to him.

Once this mess settles down and treasuries become more "normally" priced, I plan to move my fixed income into a combination ST and MT treasuries and TIPS.

 

[Lsbcal]

That's a big learning for me too. My fixed portion is almost entirely in ST Investment Grade Corp (the VG fund). I think it was Swedroe (or some other asset alloc guru) who argued that the fixed portion should be all treasury since it is not correlated to Equities (as opposed to corp bonds). I should have listened to him.

Once this mess settles down and treasuries become more "normally" priced, I plan to move my fixed income into a combination ST and MT treasuries and TIPS.

I had a lot in ST Investment Grade for a short while until I saw them going down with equities. But why wait, you have an opportunity to get into TIPS at very good rates. Better then the rates I bought at. If it were me I'd move some fraction there.

Taking 12 months to rebalance sounds like a good compromise in the recession we appear to be in.