Reducing risk after reaching retirement goals

[ERD50]

Well, how about the guy above who "rebalanced" to 90% cash. Do you suppose that this is his long term, stable asset allocation?

Seems unlikely. So in this case, I would say that confusion is added, or if it is clarity it's a murky form of clarity. ...


Ha

I agree with you in any case like that.

Minor, strategic adjustments over a long time period could still qualify as re-balancing, like someone saying they want to move from 80/20 to 40/60 as they age from 50 to 70 or something.

But that's not the case of a sudden move to 90% cash- I'd also call that market timing. Calling it 're-balancing' is confusing it with the adjustments people make to a stable AA.

What I do is "dynamic rebalancing", which in fact is market timing. I can go and have gone from 100% equity to 100% cash, sensitive only to valuations and my tax position. I always have a margin account if I need emergency cash when I have a high equity allocation.

I don't have enough conviction or testicular fortitude to go all in or all out of the market! But I do keep my margin account open for things like that. I can recall once, I really wanted to buy something, but didn't want to sell something else as it was weeks away from turning from short to long term gain. Margin is handy, and pretty cheap for that.

-ERD50

 

[Swamp Fox]

Well, I assumed it was a re-balance, going from 100% stock. But those trailing stop losses started popping and when the smoke cleared, I was about 90% cash. Guess I had them set too close. Good to know now it was really market timing

 

[clifp]

Well, how about the guy above who "rebalanced" to 90% cash. Do you suppose that this is his long term, stable asset allocation?

Seems unlikely. So in this case, I would say that confusion is added, or if it is clarity it's a murky form of clarity.

I realize that the terms are conceptually different, but in reading the board I think there is also an element of using an acceptable term for an activity that is thought to be unacceptable.

IMO, asset allocation and rebalancing is only that when you are always going to a stable, unchanging allocation, sensitive only to your age or perhaps job/retirement status.


Ha

I'm with Ha here. It seems a lot of board members do a form of market timing (probably even bogleheads although I don't follow the forum that close). Unless you have fixed allocation, perhaps with an increase bond allocation as you age and then on set schedule rebalance back to that AA you are doing market timing.

I am curious has anybody actually rebalanced on the same day for the last 5+ years (e.g. Jan 15 or the first trading day afterwords.) to the exact same AA.

Instead a see a lot of comments along the line, "after that nice rally I decided to rebalance."

My concern about guessing the wrong day of the year (stocks typically vary by 50% in a given year) was part of my rational for adopting an equity income strategy.

 

[M Paquette]

I am curious has anybody actually rebalanced on the same day for the last 5+ years (e.g. Jan 15 or the first trading day afterwords.) to the exact same AA.
.

That's almost what I do. Once a year, on Feb 14 or the nearest business day, I check my asset allocation against my investment plan. If any of the items are off by more than 25% (0.75 to 1.25 of the desired allocation) I rebalance to the planned allocation. The bands are there to keep me from having to reallocate too often.

This year was the first time in a while that I had to actually Do Something...

I designed it this way because I'm lazy.

 

[MDJO]

I used to be 100% stock, up to age 55. Now 59, my asset allocation is 70% stock, 30% short term bonds. Total portfolio is around 1.6 M. Home, other assets bring net worth to 2.0M. No debt. Planning to w**k until 65....unless I can't stand it anymore or I get fired.....

 

[ERD50]

I'm with Ha here. It seems a lot of board members do a form of market timing (probably even bogleheads although I don't follow the forum that close). Unless you have fixed allocation, perhaps with an increase bond allocation as you age and then on set schedule rebalance back to that AA you are doing market timing.

I am curious has anybody actually rebalanced on the same day for the last 5+ years (e.g. Jan 15 or the first trading day afterwords.) to the exact same AA.

Instead a see a lot of comments along the line, "after that nice rally I decided to rebalance."

My concern about guessing the wrong day of the year (stocks typically vary by 50% in a given year) was part of my rational for adopting an equity income strategy.

But there are different methodologies among what I would still call 'pure re-balancers' Some do it by the calendar, others do it when the AA gets off kilter by X%.

So if you are in the '% off-kilter' group, it would make sense to say you were looking to re-balance after a rally. The rally is what got you off-kilter.

None of this is to say that some who call themselves re-balancers aren't just closet DMT's. I just don't think those examples clinch it for all.

-ERD50

 

[haha]

I just don't think those examples clinch it for all.

-ERD50

As best I can see, nobody said they did.

Ha

 

[ScottishCanadian]

Just a thought. Given the age profiles of some, wouldn't it be prudent to lower the risk and equity allocation to ensure success. I can get almost double the inflation returns from a Canadian gov bonds/dividend mix with low to moderate risk.


Is the real reason for maintaining higher levels of risk deep into retirement the requirement for growth to maintain purchasing power over the long haul? Does this fortify the case to ensure one has more than sufficient means to retire vs. retiring on minimum amounts?


ScottishCanadian

 

[ERD50]

As best I can see, nobody said they did.

Ha

You are right, poor wording on my part.

Let me try again - if someone says "after that nice rally I decided to rebalance.", it might just be because they re-balance when their AA gets out of whack, and the rally triggered that.

It could also be because they are market timing. No way to tell w/o more info.

-ERD50

 

[scrabbler1]

Let me try again - if someone says "after that nice rally I decided to rebalance.", it might just be because they re-balance when their AA gets out of whack, and the rally triggered that.

It is often after a rally or series of rallies that I the boundary of my AA, resulting in a rebalancing move. But there are plenty of rallies which don't pierce my AA boundary so I just stay put.

 

[clifp]

That's almost what I do. Once a year, on Feb 14 or the nearest business day, I check my asset allocation against my investment plan. If any of the items are off by more than 25% (0.75 to 1.25 of the desired allocation) I rebalance to the planned allocation. The bands are there to keep me from having to reallocate too often.

This year was the first time in a while that I had to actually Do Something...

I designed it this way because I'm lazy.

Interesting those are some wide bands. I call myself a market timer because my equities in retirement have been as low as 55% and as high as 90%, and I think of my default AA as 75% (e.g. default for FIRECalc). If your default is say 60/40% than you could get to as high as 75% equities and as low as 45%, if I understand you correctly, almost the same.

I'm assuming you bought stocks around Valentines day in 2009 and sold some this year.

Well it does show there are lots of approaches to retirement withdrawals.