Crowd-sourcing when to Rebalance

[LOL!]

It seems to me that no matter what kind of asset allocation that one has that one would want to rebalance their portfolios occasionally.

Also, the best time to rebalance into stocks is the low of the year and the best time to rebalance out of stocks back into bonds is the high point of the year for stocks.

Of course, folks do not usually know if the day is the high point or the low point of the year unless the day is lower than the high point or higher than the lower point.

So one is left to rebalance when one's portfolio is out of balance because of normal market action.

It seems to me that lots of folks should feel their portfolio is out of balance and needs rebalancing all at about the same times. If that is true, could there be a "rebalancing meter" which showed something like number of folks in the past few days who rebalanced their portfolios because they felt they were out-of-balance?

Yes, I understand that lots of folks rebalance based on a date on the calendar, so I would expect the Rebalancing Meter to spike around 12/31 to 1/4 each year. That might serve as an internal positive control, too.

If everyone else is rebalancing, then maybe it would be a good time to rebalance, too?

 

[HFWR]

I have an allocation based on [-]drunken dart throws[/-] carefully researched criteria, with rebalance bands of +/-10%, which doesn't result in much rebalancing.

 

[donheff]

I feel compelled to take withdrawals and re-balance based on guesstimates that temporary bottoms and highs have been reached. So far those guesses have worked out OK but I recognize that I am doing some uniformed market timing and it probably is no better than using a fixed date for withdrawals or a specified band for re-balancing decisions. I suspect any "meter" we might try to implement here would be all over the place.

 

[audreyh1]

I have an allocation based on [-]drunken dart throws[/-] carefully researched criteria, with rebalance bands of +/-10%, which doesn't result in much rebalancing.

Same here, except that I was usually rebalancing in Jan as it was easy to do in conjunction with my withdrawal. I'm thinking of not rebalancing even then, other than putting any excess distributions back to work. But no sales unless the bands are breached.

 

[petershk]

As I'm getting closer to RE I'm really buckling down on this. I think you've got a really good idea and if it was simple to use I'm in .

That said... I think my withdrawal strategy will be "monthly as needed" and I'll withdraw funds to rebalancingq simultaneously. Then at end of year I'll do any "major" rebalancing.

My guess is most years it'll be minor and then like 2008/2009 it'll be less minor .

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[Urchina]

Or you could not sell and just direct new money to asset classes that are outside of the bands you set, which is what we do (but we've still got a decade or more left in the accumulation phase...)

 

[target2019]

I think the buy and hold advice for re-balancing is to set an interval, such as once a year. Then establish bands, such as 5% in case there are dramatic swings. Then ignore everything else that occurs.

Pretty hard to do, though. I've been measuring monthly and watching AA for about 10 years. I found that new contributions could be directed to wherever to keep things balanced.

Just wondering if dividends could be treated as new contributions, and then you direct them to assets as needed to push allocation back into band.

 

[LOL!]

Right now I take most dividends in cash and do not automatically reinvest them in the same funds.

I do, however, manually reinvest them or I spend them as needed. When I manually reinvest them, I will add to the asset class that either (a) is underweighted according to my asset allocation plan or (b) has had a big drop in the past 10 or so days.

Otherwise, I seem to have an unusual rebalancing algorithm. I find that with "bands", that my 60/40 asset allocation never gets enough out of whack because of the way I manually treat dividends. Therefore, I overallocate to equities when they have dropped signifcantly even if my asset allocation does not fall below a so-called trigger point.

While I have my own personal definition of what "dropped significantly" means, I was thinking that I could use what others might be doing to enhance that trigger point. Hence the crowd-sourced Rebalancing Meter idea.

 

[GrayHare]

To me rebalancing is itself crowdsourcing. After the crowd has bid up the prices on some of your assets relative to others, such that you are pushed out of your AA range, you rebalance.

 

[target2019]

LOL!
Is all data in a spreadsheet? Excel has a lot of features to conditionally format with color.

 

[LOL!]

LOL!
Is all data in a spreadsheet? Excel has a lot of features to conditionally format with color.

I don't do spreadsheets. I typically use Fidelity GPS which shows asset allocation much like Morningstar Portfolio X-ray.

I am not anal about asset allocation numbers like some folks. If I am in the ballpark, then I am fine. Also, there is no way to get out-of-whack unless something really major happens in the stock market, so I don't even have to use Fidelity GPS unless headlines say the sky is falling or perhaps best-day-in-5-years.

Or maybe you were asking about some other kind of data?

 

[target2019]

I don't do spreadsheets. I typically use Fidelity GPS which shows asset allocation much like Morningstar Portfolio X-ray.

I am not anal about asset allocation numbers like some folks. If I am in the ballpark, then I am fine. Also, there is no way to get out-of-whack unless something really major happens in the stock market, so I don't even have to use Fidelity GPS unless headlines say the sky is falling or perhaps best-day-in-5-years.

Or maybe you were asking about some other kind of data?

I was speaking to your meter idea. Maybe Fidelity will take on your challenge.

I think you meant something like a VU Meter. You just want to know when the needle is in the red area.

 

[LOL!]

I was speaking to your meter idea. Maybe Fidelity will take on your challenge.

I think you meant something like a VU Meter. You just want to know when the needle is in the red area.

Ah, right.

I think Fidelity and other brokerages sell data like this to places like Citadel and Renaissance Technologies.

 

[pb4uski]

This is what my investment policy statement says on rebalancing:

Our intent is to rebalance where actual asset allocation differs substantially from target asset allocation. Rebalancing is typically done late in each calendar year and is done in concert with annual year end tax planning. Rebalancing is also sometimes done opportunistically during the year if stock markets seem particularly under or overvalued but only if the overall asset allocation differs substantially from target asset allocation. Our policy discourages market timing.

 

[Markola]

Also, the best time to rebalance into stocks is the low of the year and the best time to rebalance out of stocks back into bonds is the high point of the year for stocks.

I'd love to know if self-rebalancing mutual funds' returns perform better of worse than investors' average attempts to time their rebalancing. Our core holding is Vanguard LifeStrategy Growth Fund (VASGX), which constantly rebalances across four domestic and international stock and bond index funds.

 

[REWahoo]

Or, one could avoid this form of attempted market timing, own balanced funds, and mow the grass or something.

+1

I mowed today - while my Wellesley and Wellington funds did their thing.

 

[LOL!]

I'd love to know if self-rebalancing mutual funds' returns perform better of worse than investors' average attempts to time their rebalancing. Our core holding is Vanguard LifeStrategy Growth Fund (VASGX), which constantly rebalances across four domestic and international stock and bond index funds.

I think those funds do a great job and no behavioral problems, too. They are a very tough benchmark to outperform.

If you believe the DALBAR folks, average investors are pretty bad at capturing market returns which the LifeStrategy funds do quite well at.

But no one around here is an average investor, so we all do better than that.

 

[Markola]

Yes, my impression around here is that all the children are above average!

 

[mickeyd]

I do rebalancing and RMD around the same time in December annually. 5% either way gets my attention.

Now that I have dumped TIPS, my general theme is simplicity.

 

[mathjak107]

i have to say i have never had a portfolio that got rebalanced by conventional standards in 30 years .

my portfolio is dynamic and the funds shift as the big picture changes . so different funds are swapped out as things change over time .

the rebalancing i do is by beta or fund volatility .

i try to keep the portfolio within a certain range . why ? because since 2000 volatility has risen a lot . if you were happy with the swings of a 60/40 mix prior to 2000 , well all of a sudden the swings started becoming more then you bargained for and may be able to sleep through .

2008 saw very high swings for allocations . a 60/40 mix of old may have the same swings today as a 40/60 or 50/50 does today .

so if i swap a fund for a more aggressive fund with a higher beta i adjust something else in the portfolio to bring the beta back in line .

i find that i get excellent results this way . the portfolio is dynamic and try's to pick up some alpha and yet the volatility stays in check .

right now my portfolio stands at .47 which is less then 1/2 the volatility of the s&p 500 , i am 32% equity's but i am capturing almost 1/2 the volatility the s&p 500 gets acting more like a 50/50 mix because of fund choices and allocations . .

usually this is how things are done via many of the newsletters out there whether the newsletters put together vanguard portfolio's or fidelity ones .

i use fidelity insight and have used them since 1987 .

so most newsletters are more dynamic then just buy and hold and they tend to have volatility goals more then set allocations .

 

[GTFan]

I think the buy and hold advice for re-balancing is to set an interval, such as once a year. Then establish bands, such as 5% in case there are dramatic swings. Then ignore everything else that occurs.

Pretty hard to do, though. I've been measuring monthly and watching AA for about 10 years. I found that new contributions could be directed to wherever to keep things balanced.

This is exactly my approach but I'm not following how it's hard to do if you accept your advice to ignore everything but out of band events. And that's going to cover most of the events that happen because the swings don't usually throw things out of whack that much.

 

[gerntz]

I have to be pretty desperate to re-balance & pay the cap gains taxes. Defeats the purpose. If that gets me out of balance due to too many winners, woe to me.

 

[mathjak107]

i never let the tax tail wag the investment dog

 

[VFK57]

I would rather keep investment for a long term unless it is a must in some cases. In 2004 DW and I purchased a rental town home. By the end of 2008 we got huge decline in cost we paid, almost 50%. Yet 7 years later it has recovered and gained almost 10%.

 

[rayinpenn]

I've never rebalanced other than to lessen my employer stock holdings a while back...
I'm mostly in large diversified low cost ETFs ... My cash equivalent holdings grow at a modest
Amount each year but will cover several years living expense so there's no need to fool with it.

So far I'm well pleased with the results ...
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