Poll: Rebalancing Technique

[sengsational]

Based on the posts I've read here, it seems that the typical rebalancing technique here is to get a target "constant mix" (ie 60/40) asset allocation.

Just for fun, I wanted to see what people say they're doing on a slightly more detailed level. There have been discussions about "calendar" (i.e. once a year in January), and limit-based (whenever the allocation extends beyond a defined corridor).

Let's define, for this poll, "frequent calendar" as more than twice a year.

And symmetric means that the target is the center of a corridor, like +/- 5% as opposed to, say +8% and -2%. I think most people have symmetric bands, but I could see some people saying "I don't mind having a little more than my target of such and such asset class, but I can't sleep if I'm even a little below my target".

And we can talk about what the percent represents, since variations of that is not in the poll. Let's define it as the percent of the target. So if you had $1M and you had an AA target of 40% bonds with +/-5% bands, your $ limits would be $400K*1.05 and $400K*0.95.

If the market can do anything, and you still do nothing until your scheduled date, then you're calendar. But if the market can do something that causes you to take action, then you have something beyond a calendar-based trigger.

Outsourced would probably be where you are not a part of the decision making process, for instance, if the investment you're in does it for you, whereas no rebalancing would mean you have no formal AA targets.

 

[pb4uski]

I characterize my rebalancing as "opportunistic". When I "feel" I should rebalance then I do... for example, when Brexit hit the drop in international equity prices caused me to be underweight in international... I viewed the drop as an overreaction and rebalanced. Similarly, I think the recent Trump run is a bit of an overreaction and have rebalanced a few times (I also have a wedding to pay for soon so that has been a factor as well).

Normally, I would only rebalance once a year in December, but if I "feel" that the market is too exuberant or pessimistic then I'll also rebalance. It is probably nibbling at the edges in the whole scheme of things but is entertaining as well.

 

[OldShooter]

I use the "TLAR" approach. Once a year, when my wife and I are at our lake place between Xmas and New Years, we look at our allocation. Most of the time we say "That looks about right." and that's the end of it. Once in a while we'll make a trade. I don't know where that falls among your survey options.

Advocates for fussy rebalancing, like the robot systems at Betterment and Wealthfront, only claim that frequent rebalancing is good for 0.5% and even that number is very statistically suspect because of the noisy data set we have. So I don't lose a lot of sleep over it.

I think that managing a precise rebalancing system is a very good hobby for people, though, so I am not at all against it.

 

[Cobra9777]

I characterize my rebalancing as "opportunistic". When I "feel" I should rebalance then I do...

That's sort-of my approach as well. Although right now, I'm an opportunistic non-rebalancer because I think bonds have more downside potential in the near term than stocks. But I agree the Trump run may or may not have legs. I just think the economy is pretty solid and the Fed will keep raising rates.

I don't have any bands and I follow no calendar or schedule. When I'm off the target AA and I think there's an opportunity by rebalancing, I do it.

 

[jjquantz]

We are trying to move to a larger percentage in cash and bonds as DW's retirement date approaches. So the plan was to have the AA move from 90/10 in 2014 (when I retired) to 60/40 in 2020 when she retires. So each year I rebalance to the nominal desired first of the year AA and try to guess at contributions to DW's TSP that will let us drift toward the desired AA for the next year. If there were to be a big drop in stock prices so that my bond/fixed income fraction was larger than what I wanted at the beginning of the coming year, I would first switch DW's contributions to all stock and then, if stocks continued to fall I might move some of the current fixed income holdings into stocks. So far, none of this has been necessary, the calendar year rebalancing has worked well enough.

 

[nash031]

Generally, I only look in January and July, but occasionally I look when there's a major market move (like this year). I rarely act until my calendar triggers, but I have before.

I have yet to actually move old money as I am still accumulating and my annual contribution to savings is still roughly 10% of my total savings. Instead, I reallocate my contributions to bring me back in line with where I want to be. Recently, that's been increasing the amount going to relatively depressed international indexes vs. US indexes. This may be the last year I'm able to do that as our total savings is starting to exceed the amount we can correct by contributions alone. Which is nice.

 

[Dash man]

Since I buy and sell individual stocks, I consider the fundamentals of the company and tax consequences when I trade, so there is no set schedule. I do keep a large cash/CD stash (~40%) in case there is a major downturn in the market. I also have investment real estate.

 

[audreyh1]

I listed calendar and corridor symmetric. But even in January, unless my portfolio is getting well out of whack, I don't usually bother or just trim or add to a couple of positions that are more out of whack than the rest. This reduces tax consequences. My portfolio is somewhat "self-rebalancing" in that I take distributions in cash, most of the funds pay out in December, and that usually covers my withdrawal, and since the funds that have appreciated the most usually are the ones that pay out the highest dists, they have already trimmed themselves for the most part.

After 2008/2009 I widened my rebalancing bands such that it would take a pretty good bear market to trigger a rebalance. Until then it seems only minor January tweaks after withdrawal are needed. Some volatile asset classes, like REITs occasionally zoom way ahead or falls behind the others, so those get tended to whenever they go out of bounds.

 

[W2R]

I chose calendar and corridor symmetric.

(1) I always rebalance during the first week in January after withdrawing the year's spending money, unless I am already at my 45:55 AA.

(2) Also, if my equity allocation is off by over 2.5% (that is, less than 42.5% or over 47.5%), I give myself the option of rebalancing at that time. This almost never happens in recent years, but was necessary several times in the past.

 

[RunningBum]

I characterize my rebalancing as "opportunistic". When I "feel" I should rebalance then I do... for example, when Brexit hit the drop in international equity prices caused me to be underweight in international... I viewed the drop as an overreaction and rebalanced. Similarly, I think the recent Trump run is a bit of an overreaction and have rebalanced a few times (I also have a wedding to pay for soon so that has been a factor as well).

Normally, I would only rebalance once a year in December, but if I "feel" that the market is too exuberant or pessimistic then I'll also rebalance. It is probably nibbling at the edges in the whole scheme of things but is entertaining as well.

I'm about the same. I thought that would be called "other non-constant mix" but I'm the only one who picked that, even though at least one other person said this. Maybe I picked the wrong category. Oh well, it's just an ER poll.

 

[easysurfer]

I put down calendar rebalance with the goal of setting up any rebalance transactions on 1/1.

 

[Walt34]

I use the "TLAR" approach.

That's about what I do too. (BTW "TLAR" is "That Looks About Right"). Right now I'm about 1.5% away from target AA high on stocks but that's probably not enough to bother rebalancing, but I'm thinking about it since the market is so abnormally high now. But what the hey, it might keep on going and then I'd miss out. What to do, what to do....

When it gets to 5% or more I'll definitely rebalance.

 

[Hermit]

I chose calendar and corridor symmetric.

(1) I always rebalance during the first week in January after withdrawing the year's spending money, unless I am already at my 45:55 AA.

(2) Also, if my equity allocation is off by over 2.5% (that is, less than 42.5% or over 47.5%), I give myself the option of rebalancing at that time. This almost never happens in recent years, but was necessary several times in the past.

That's pretty close to what I do. I don't have hard and fast rules, but I tend to take my annual withdrawal in January and rebalance at that time. If the allocation gets out of wack by more than 3% I start looking at rebalancing and will rebalance if it hits 5%. The annual rebalance has worked fine for quite a while now. When I turn 70 and start SS on my account, I will no longer do an annual withdrawal, but I will need to do RMDs, so I will probably rebalance if needed at that time.

 

[OldShooter]

That's about what I do too. (BTW "TLAR" is "That Looks About Right"). ...

Actually, thinking about TLAR made me smile a little bit. I first heard the term while learning to fly gliders. When approaching to land a glider, you may not know the elevation of the field so the altimeter does you no good. So it is TLAR that is taught --- learn what a good approach looks like and fly that every time. This is pretty important because, unlike a power plane, there are no go-arounds in gliders.

So, TLAR is maybe a particularly good tool for establishing the glide path of a portfolio. No go-arounds with portfolios either! I didn't think of that when I made my original TLAR post.

 

[Walt34]

Actually, thinking about TLAR made me smile a little bit. I first heard the term while learning to fly gliders. When approaching to land a glider, you may not know the elevation of the field so the altimeter does you no good. So it is TLAR that is taught --- learn what a good approach looks like and fly that every time. This is pretty important because, unlike a power plane, there are no go-arounds in gliders.

Long a fan of aviation books (I was reading those in elementary school), the first time I heard the term TLAR was that legend had it that the de Havilland Tiger Moth was preliminarily designed on the floor of a hangar in chalk using the "TLAR school of design". While I doubt that's true, it does make a good story.

 

[audreyh1]

Since my portfolio does some rough self-rebalancing due to my taking all distributions in cash (to fund withdrawals), I often end up pretty close to balanced after I take my withdrawals in January. So I usually end up doing very little. At most I'll have a couple of special asset classes like international or REIT out of whack enjoy to justify the tax consequences of selling.

Since in "normal" years it seems to work this way, I'm expecting that in later years, 70+ or whatever, I'll just let the retirement portfolio run open loop and not mess with rebalancing. I expect the equity funds will continue grow in spite of paying out capital gains distributions, so equity allocation won't drop too much. And my annual withdrawals will probably use up most of the paid out distributions. So, when I am "old enough" - revisit the portfolio allocation after outlier years like 2008 or 2013, but otherwise hands off.

 

[gcgang]

Since I buy and sell individual stocks, I consider the fundamentals of the company and tax consequences when I trade, so there is no set schedule. I do keep a large cash/CD stash (~40%) in case there is a major downturn in the market. I also have investment real estate.

+1

Except for the investment real estate, that's me.

I've been making new portfolio highs while just lately writing covered calls. A few I've let get called away. Others I've been rolling up&out, realizing short term losses.

 

[OldShooter]

Long a fan of aviation books (I was reading those in elementary school), the first time I heard the term TLAR was that legend had it that the de Havilland Tiger Moth was preliminarily designed on the floor of a hangar in chalk using the "TLAR school of design". While I doubt that's true, it does make a good story.

Funny. I actually got an hour of dual instruction in a Tiger Moth a few years ago. I commented to the instructor that it was flying crooked. He said it wouldn't be hard to retension all the wires to get it to fly straight, but tomorrow it would fly crooked again anyway. I guess that TLAR didn't make the wings stiff enough.

 

[Scuba]

That's sort-of my approach as well. Although right now, I'm an opportunistic non-rebalancer because I think bonds have more downside potential in the near term than stocks. But I agree the Trump run may or may not have legs. I just think the economy is pretty solid and the Fed will keep raising rates.



I don't have any bands and I follow no calendar or schedule. When I'm off the target AA and I think there's an opportunity by rebalancing, I do it.

+1
My approach is also not very precise or scientific. I'm mostly in equities and am more focused on long-term portfolio growth than short-term ups and downs.

 

[target2019]

We rebalance with new money. That has worked for 10 years. This year we're making small monthly adjustments to stay closer to 55% equities. Cash is accumulating at a quicker pace, too.

 

[Lsbcal]

For us there are no tax consequences to rebalancing.

If portfolio goes to 61/39 then it is rebalanced to 60/40.
If it goes below 60% equities, I just let it ride.

For extreme economic periods like 2008, there is some extreme repositioning (market timing) based on well defined rules. Has not happened since 2009 when I did rebalance upward into 60% equities.

 

[Blue Collar Guy]

i think i got a handle on this re-balancing thing. That being said every December when i look at whats what i decide if new money is going into stocks or bonds, a few years ago i decided the bonds interest and capital gains instead of reinvesting into the bonds i would put into the stocks, im mostly in a taxable account so only new money gets put into the re-balancing act. im not selling and getting hit with more taxes just to re-balance. Im also not withdrawing anything so my situation isnt typical retirement drawdown.

 

[sengsational]

For us there are no tax consequences to rebalancing.

If portfolio goes to 61/39 then it is rebalanced to 60/40.
If it goes below 60% equities, I just let it ride.

For extreme economic periods like 2008, there is some extreme repositioning (market timing) based on well defined rules. Has not happened since 2009 when I did rebalance upward into 60% equities.

Yes! Asymmetric!

 

[rayinpenn]

Rebalancing Technique

I do not balance the portfolio, we are still in accumulation mode (at least for a few more months) - mainly low cost diversified funds.

My thinking...
1. I have enough in cash equivalents to carry me for a couple years of a down cycle.
2. Our portfolio is heavy in dividend funds - dividends have not proved to be quite as variable as price. Even if they dropped by 50% I could use them to stretch item #1 to last even longer.
3. We are debt free, stretch every dollar and are happily divesting ourselves of a costly 21 year old graduate. In other words spending just decreased significantly.

 

[Scuba]

I do not balance the portfolio, we are still in accumulation mode (at least for a few more months) - mainly low cost diversified funds.

My thinking...
1. I have enough in cash equivalents to carry me for a couple years of a down cycle.
2. Our portfolio is heavy in dividend funds - dividends have not proved to be quite as variable as price. Even if they dropped by 50% I could use them to stretch item #1 to last even longer.
3. We are debt free, stretch every dollar and are happily divesting ourselves of a costly 21 year old graduate. In other words spending just decreased significantly.

Sounds like you're in great shape!