Rich_by_the_Bay
Moderator Emeritus
For those of you who rely heavily on target funds (Target 2015, Strategic funds, etc.), how do you account for yearly rebalancing?
That is, say bonds are up and stocks are down. At year's end under the typical diversified fund holdings, you would sell off bonds for income, then rebalance the remainder. Next year maybe just the opposite. Or international is up, domestic is down, etc.
With a balanced or target fund, aren't you always selling off in a fixed proportion as set by the fund? If a fund is 60:40, you are selling 60:40 even if you'd otherwise sell mostly bonds in a given year. Isn't "pruning the winners" an important nvestment strategy?
Does automatic rebalancing within such funds correct for this? I can't convince myself that this is the case - in fact, it feels like autobalancing does almost the opposite: great in the accumulation phase, but counter productive in the draw-down phase.
Can anyone help me out with this, or is my concern valid?
That is, say bonds are up and stocks are down. At year's end under the typical diversified fund holdings, you would sell off bonds for income, then rebalance the remainder. Next year maybe just the opposite. Or international is up, domestic is down, etc.
With a balanced or target fund, aren't you always selling off in a fixed proportion as set by the fund? If a fund is 60:40, you are selling 60:40 even if you'd otherwise sell mostly bonds in a given year. Isn't "pruning the winners" an important nvestment strategy?
Does automatic rebalancing within such funds correct for this? I can't convince myself that this is the case - in fact, it feels like autobalancing does almost the opposite: great in the accumulation phase, but counter productive in the draw-down phase.
Can anyone help me out with this, or is my concern valid?