rebalance bands

[tdv2]

Disciplined re-balancing is not market timing whatsoever. If you have a trigger point, for me it's 5%, when I hit it I re-balance. If I held, for example, Vanguard Wellington or Wellesley it would be automatic. I choose to just keep index funds and have so far been able to do my re-balancing in IRA's to mitigate taxable events, even though more than half of my assets are in taxable accounts. I have the understanding that re-balancing does not improve returns.....all it does is decrease volatility in the portfolio.

Not saying it's wrong, but I don't understand how rate of change in the markets has anything to do with re-balancing.

 

[audreyh1]

Not saying it's wrong, but I don't understand how rate of change in the markets has anything to do with re-balancing.

It doesn’t. But some of us prefer to operate on wider intervals than daily. My “normal” method has me looking at the situation monthly, end of month, or even quarterly is fine if I’m very busy or traveling, etc.

 

[bloom2708]

I went from 60/40 to 53/47 after yesterday's big plummet. I'm not ready to rebalance yet.

Testing out new mixes of stocks and bonds daily. See how they fit.

 

[tdv2]

It doesn’t. But some of us prefer to operate on wider intervals than daily. My “normal” method has me looking at the situation monthly, end of month, or even quarterly is fine if I’m very busy or traveling, etc.

That makes sense. A time table may be a better approach.

 

[DrRoy]

I am halfway to my rebalance band of 5%. Anybody here going to rebalance when they hit their mark or are some of you going to sit tight and avoid catching the falling knife.

I just sit tight as I have an aversion to cutting off a finger.

 

[denstl]

Not going to even going to look for a few months. Things change daily and I have no crystal ball. Nor does anyone else who might recommend me to do something. I rebalance once a year in January. No plans to do anything different this year.

 

[Jeb-NY]

I look regularly but don't panic. I was letting my AA drift to more aggressive with the high market, I didn't need more safe money stashed away. Using the same thoughts I'm now letting my accounts drift more conservative since I don't need to build more wealth to be happy (sorry son, not building a bigger inheritance for you). I would be trying to decide when to buy back in if I was trying to build wealth and I may dump some of the cash sitting on the side at some point, but I may just ride back up with what is already invested.

I almost made an error, My wife has two fairly small IRAs, one personal one inherited that are setup for auto RMD once a year in March and April (thought it would be nice to have a little extra cash if needed for taxes). I almost forgot them and just this week moved them out to late in the year in the hopes that the market will be up some by then from now. One has enough cash for the RMD so I changed that one to use the cash, the other is proportional across the investments because there is little cash.

 

[mijoy]

Please pardon the obviously greenhorn question.

Sorry to deviate the main theme of this thread. But reading through this the question is haunting me a bit. Maybe someone can point me to a relevant thread that deals with my question.


When you speak of re-balancing you'all are speaking a stock/bond ratio. Although I feel I have a pretty good grasp on stock investment options (individual, mutual funds, ETFs and all flavors of each), bonds, on the other hand mystify me.

So, generally speaking, are the 'bonds' you refer to bond funds? Individual bonds? Bond ETFs? For example in my recent selling panic (I am clearly not as level headed as most of you - but so far through this huge downturn it has worked in my favor. I'm 9% down total portfolio) I bought Fidelity US Bond Index Fund instead of going to cash for some of my investment choice FXNAX. It has only contributed to my losses (it's down over 2% in a few days). Clearly that choice was bad timing.

Is FXNAX a poor choice bond fund? If so any recommendations for the bond illiterates?

 

[audreyh1]

It can be any of these types of bond vehicles.

If you happened to buy last Monday when 10 year treasuries dropped below 0.5%, then you might have just caught a weird credit panic which quickly resolved.

 

[big-papa]

Please pardon the obviously greenhorn question.

Sorry to deviate the main theme of this thread. But reading through this the question is haunting me a bit. Maybe someone can point me to a relevant thread that deals with my question.


When you speak of re-balancing you'all are speaking a stock/bond ratio. Although I feel I have a pretty good grasp on stock investment options (individual, mutual funds, ETFs and all flavors of each), bonds, on the other hand mystify me.

So, generally speaking, are the 'bonds' you refer to bond funds? Individual bonds? Bond ETFs? For example in my recent selling panic (I am clearly not as level headed as most of you - but so far through this huge downturn it has worked in my favor. I'm 9% down total portfolio) I bought Fidelity US Bond Index Fund instead of going to cash for some of my investment choice FXNAX. It has only contributed to my losses (it's down over 2% in a few days). Clearly that choice was bad timing.

Is FXNAX a poor choice bond fund? If so any recommendations for the bond illiterates?

First, I'd stop trying to time the market. Nobody knows where this is headed. Make a plan and stick to it.

FXNAX is a perfectly good total bond market index fund.

"Bonds" can be ETFs or Mutual funds or even holding individual bonds.
Some like to hold the "total market". For them, a total bond fund fits the bill as it holds both government issued bonds and corporate bonds.
Others, like myself, prefer Treasury Bond funds. The bonds inside the fund are backed by the full faith and credit of the US govt, so default risk is as close to zero as you're going to get.
Still others hold individual bonds, often in a bond ladder. If each bond is held to maturity, then you know exactly what the income stream will be with the only question being what inflation might do, unless you choose TIPs bonds.

With index bond funds (either ETFs or mutual funds), just remember how they work. The fund itself is always buying and selling underlying bonds to target a range of maturities. This means that it's possible that they lose money during a sale. If they're holding an older bond and interest rates are rising, then the value of the older bonds will drop because the purchaser of the older bond will demand a lower price-otherwise they'd just buy new bonds at the higher rate. This is also true if you're holding individual bonds yourself and sell them before maturity. So, bond funds can lose money. Vice versa can happen in times of economic stress when there is a flight to safety for some bond types, such as what happened in 2008. No guarantees, though.

A couple of good articles on bonds vs funds
https://www.fidelity.com/learning-center/investment-products/mutual-funds/bond-vs-bond-funds
https://www.thebalance.com/how-bond-funds-work-2466568

 

[ripper1]

I was right around 43/57 Thursday and my personal contract calls for 50/50. After yesterday's bounce I'm a hair inside my rebalancing band of 5%. I know it calls for me to buy back to 50/50. This time just feels different to me....I know...I know....This time is different..the four most costly words. Anyone else having a hard time with this? The thing is I can stop pulling from my investments because my pension and DW social security is more than enough for us. The 2% yearly draw for us is icing. We are both in our mid 60's and self insuring for LTHC. So I am thinking this money would pay for our eventual healthcare if needed. If not I am thinking this money could be generational and the kids would get it. Wait, did I just answer my own question

 

[big-papa]

I was right around 43/57 Thursday and my personal contract calls for 50/50. After yesterday's bounce I'm a hair inside my rebalancing band of 5%. I know it calls for me to buy back to 50/50. This time just feels different to me....I know...I know....This time is different..the four most costly words. Anyone else having a hard time with this? The thing is I can stop pulling from my investments because my pension and DW social security is more than enough for us. The 2% yearly draw for us is icing. We are both in our mid 60's and self insuring for LTHC. So I am thinking this money would pay for our eventual healthcare if needed. If not I am thinking this money could be generational and the kids would get it. Wait, did I just answer my own question

There are a couple of ways people deal with this
1. Change you personal contract (known as an IPS or Investment Policy Statement over on bogleheads) such that you only consider a rebalance after looking once per month, once per quarter, whatever. Reduces the odds that it goes beyond your bands on exactly the day you're looking.
2. If you must look daily, require that it be beyond your rebalancing bands for N number of days/weeks. It's to make sure there's some consistency that it's solidly beyond your rebalancing bands.

Cheers.

 

[trumpeting_angel]

I'm relieved I don't have to sell bond funds right now. I retired at the end of June, and in the process of moving the old 401(k)s etc. to one big Vanguard account, I have a fairly good-sized chunk left in cash. (10%) The day I tried to allocate it to various funds the Vanguard site was giving me trouble, and I hadn't gotten to it yet.


So I'm indulging in some market timing, buying stock index funds in small increments on days the market tanks. It's a form of play, actually, because Vanguard (undoubtedly very busy right now) doesn't always get it bought before the next bounce. But it feels satisfying, as I need to get the cash into an actual investment.


Long-term, I'm a wee bit uneasy. I sold a non-performing rental and didn't recoup nearly as much as I'd hoped. I'm living off of savings now, SS in 3.5 years. I have 2 years of non-IRA savings, but I worry that we won't recover in 2 years. I am w*rking a little, and can always add more. I don't mind a little, but don't want more. I don't really want to cut down on recreation (skiing and travel for skiing) as I have a strong feeling these aches and pains are only going to increase as the years go by!

 

[scrabbler1]

After Thursday, I was outside my rather tight rebalance range. But with all the big swings, I decided to not make any (more) rebalancing moves until things settle down. Good thing, because after Friday's rise, I am now back within my rebalancing range again.

 

[mrfeh]

Please pardon the obviously greenhorn question.

Sorry to deviate the main theme of this thread. But reading through this the question is haunting me a bit. Maybe someone can point me to a relevant thread that deals with my question.


When you speak of re-balancing you'all are speaking a stock/bond ratio. Although I feel I have a pretty good grasp on stock investment options (individual, mutual funds, ETFs and all flavors of each), bonds, on the other hand mystify me.

So, generally speaking, are the 'bonds' you refer to bond funds? Individual bonds? Bond ETFs? For example in my recent selling panic (I am clearly not as level headed as most of you - but so far through this huge downturn it has worked in my favor. I'm 9% down total portfolio) I bought Fidelity US Bond Index Fund instead of going to cash for some of my investment choice FXNAX. It has only contributed to my losses (it's down over 2% in a few days). Clearly that choice was bad timing.

Is FXNAX a poor choice bond fund? If so any recommendations for the bond illiterates?

The second number people use in their AA is often referred to as "bonds", but it is really "fixed income". So, that category covers things like individual bonds, bond funds, CDs, savings accounts, etc.

FXNAX is an excellent choice for that component.

 

[steelyman]

2. If you must look daily, require that it be beyond your rebalancing bands for N number of days/weeks. It's to make sure there's some consistency that it's solidly beyond your rebalancing bands.

This is a good practice and reminds me of the “circuit breakers” that have triggered lately. With all the frenzy that accompanies volatility, it’s easy to have a knee-jerk reaction.

 

[RobLJ]

I'm sitting tight to see what next week will do, given the yuge volatility, but if stocks go down >7% I will put about 10% of cash to work, spread in increments over the next week or two. I'm doing a ranked list of stock funds in sequence. I'm used to looking 2-3 times a week.
I sold quite a bit in mid January and 3 weeks ago--have 5 years of withdrawals in cash and am down to 42% in stock funds.

 

[lem1955]

I calculated a rebalance just before the bounce up on Friday, but didn't initiate. But I did rebalance today a little less than my original calculation. I'm not all the way back to my 56/44 AA target, but much closer now. I'll have to sit tight for a month now since all those funds have the frequent trading restriction. I'm still contributing to my ROTH monthly one third to VSMGX and two thirds to VASGX, in amounts adequate to max my contribution for the year.

 

[ripper1]

I was 50/50. Now about 42/58. I was going to rebalance at 45/50....wait maybe 40/60....or maybe 35/65....or maybe.................This is getting ridiculous.

 

[themillerman]

Would appreciate confirmation of my strategy

Not sure what you mean here by falling knife.i understand the idea, but if I were set to rebalance now, past 2 weeks would have me selling bonds and buying stocks. The idea behind AA rebalance is to sell high and buy low. Please forgive me if I’m missing something here.

I was looking through this forum for what others might be thinking about re-balancing given recent sharp drops in equities over the last two weeks. My stocks and bonds have gone from 55-s / 45-b to 45-s / 55-b. A complete flip! My original AA was 50/50 and I haven't needed to re-balance for a couple of years because of the relatively high correlation between stocks and bonds for some time now along with substantial international exposure in both categories.

In this situation (these are Vanguard mutual funds), have you or would you re-balance to bring the AA back to 50/50? Wouldn't that be selling the bonds high and buying the stocks low? That's the ideal right?

Any feedback would be appreciated.

P.S. - I called Vanguard since my balance is high enough to warrant free consultation with a CFP. In the past they seemed happy to speak with me but the young man I spoke with this time tried to steer me to the client education (do-it-yourself) area of their website unless I wanted to pay for advice. I didn't challenge him at that point but I'm going to call back later to ask what has changed. Have they gotten to big or to busy to help without charging? I wasn't asking for a full blown financial plan, just a yes-no answer on whether I should rebalance.

 

[big-papa]

I was looking through this forum for what others might be thinking about re-balancing given recent sharp drops in equities over the last two weeks. My stocks and bonds have gone from 55-s / 45-b to 45-s / 55-b. A complete flip! My original AA was 50/50 and I haven't needed to re-balance for a couple of years because of the relatively high correlation between stocks and bonds for some time now along with substantial international exposure in both categories.

In this situation (these are Vanguard mutual funds), have you or would you re-balance to bring the AA back to 50/50? Wouldn't that be selling the bonds high and buying the stocks low? That's the ideal right?

Any feedback would be appreciated.

P.S. - I called Vanguard since my balance is high enough to warrant free consultation with a CFP. In the past they seemed happy to speak with me but the young man I spoke with this time tried to steer me to the client education (do-it-yourself) area of their website unless I wanted to pay for advice. I didn't challenge him at that point but I'm going to call back later to ask what has changed. Have they gotten to big or to busy to help without charging? I wasn't asking for a full blown financial plan, just a yes-no answer on whether I should rebalance.

Many people find it useful to create an investment policy statement that includes a bunch of things, including the exact rules they wish to follow for rebalancing. Then follow it religiously to avoid any biases.

A common rebalance rule is to rebalance any time your major class deviates by more than 5%. So if you're 50s/50b, you'd rebalance if either is <45% or >55%.

Another common rule is to also use "relative" bands for any subassets. Suppose your stocks are 50% US and 50% International. Within your total portfolio you would be 25% US, 25% International and 50% bonds, for example.

25% is a common number used for relative bands. So you would rebalance one of these subassets if either were <0.75*25% = 18.75% or >1.25*25% = 31.25%

This is often known as the 5/25 rule.

Many, many variations on this
1) look only once per month to decide whether you rebalance or not. Or once a week, once a quarter, etc.
2) Some use relative bands for everything
3) Some will do rebalancing once per year regardless and rebalance bands in between.

 

[RobLJ]

I posted this on another thread(s?), but since it's directly relevant to the thread.....
On 3-17, I did a series of tax-loss harvesting of CEFs I bought in January and bought similar CEFs; it will save 300$ in taxes as well as help if I sell gains at the end of the year in the taxable brokerage account.
On 3-20, I invested about 8% of cash in VTI (Total Market) and FXAIX (Fidelity's S&P index), to bring my stock fund allocation up to 44% (from 40%). I also took a small position in PPL and PRU, but really insignificant; I intend to buy more if selling progresses (or regresses).

As/if the market goes down an additional 5-8%, I'll put another set of 5-10% of cash to work; I'm going to use 40% stocks as a trigger to put more to work, but wait on big downswings until the next day (buy if the sell-off continues; otherwise, wait for the next tick at or below the 40% stock allocation point). Hopefully I won't run out of cash!

I had intended to put 10% of cash into stock funds when I took action, but 8% made me "feel better" about the falling knife fears, irrationally. Bears are usually an elevator drop, but the speed of this bear has been startling, compared to '08/'09, and I suspect there's more to go as cases in NYC, Seattle, and Cali Bay/LA take off and the outbreak expands medium cities and eventually rural US.

I'm sitting tight to see what next week will do, given the yuge volatility, but if stocks go down >7% I will put about 10% of cash to work, spread in increments over the next week or two. I'm doing a ranked list of stock funds in sequence. I'm used to looking 2-3 times a week.
I sold quite a bit in mid January and 3 weeks ago--have 5 years of withdrawals in cash and am down to 42% in stock funds.

 

[ripper1]

I'm going to wait and see what the market does this week and may start DCA in over the next 6 months to get back to 50/50. Have a feeling this is going to be a U shaped recovery. My 2 cents.

 

[tdv2]

I have been trying to maintain my exposure to all my chosen asset classes without making any knee jerk reactions based on news headlines. It's not easy..... Someday I will know how things worked out.

 

[steelyman]

All of this market volatility has caused my rebalance bands to be exceeded and asset allocation to get way off. I’d been thinking of rebalancing on a quarterly schedule (not too far away since we’re well into March) but now I’m thinking of skipping any moves for Q1 and seeing where everything is at the end of Q2. I’d like the market to find some sort of base.