rebalance bands

[atmsmshr]

Quote:

Originally Posted by tdv2 I hit my 5% re-balance point and made a change to get back to nominal (60-40). I have a policy and I'm sticking to it.....sometimes it doesn't feel right but so be it. I am making changes in my IRA accounts only at this point. Here is my list of things to do: 1. Do half my Roth conversion for the year today. 2. Consider tax loss harvest--I have an international fund that is -5%. Was thinking I would sell in taxable and add back in IRA. (make sure I don't violate wash sale rule) 3. Stay vigilant and don't make decisions based on emotion.

Very Good advice = any rebalancing should be done with consideration of tax implications.

[scrabbler1]

My rebalance band is only 3% but it applies just to my tIRA. I made one small rebalancing move last week to get me back into range. I shift a little from stocks to bonds every year, so this downturn sorta took care of that anyway.


My taxable account is more geared to generate income from the big bond fund, so as long as it keeps generating its usual income I don't do any rebalancing there. I don't have any specific rebalancing bands.

[ripper1]

This is falling way too fast.....not rebalancing nothing

[audreyh1]

Me neither. I don’t like to do things in a rush and like to take my time. I don’t normally even look at my AA except on Fridays, and sometimes only monthly. I’ve never been in a situation where the markets have gone down almost 30% in less than a month. As devastating 2008 was, it unwound much more slowly.

However, I probably will rebalance at quarter end.

I do attribute the crash (because I think it will qualify) to the markets being so wildly overvalued IMO. They were priced for perfection+, so a giant whoosh is not unexpected.

[Dtail]

Quote:

Originally Posted by ripper1 This is falling way too fast.....not rebalancing nothing

Same here. I have saved 1.5% returns with my small bond allocation and just not ready to put it back to equities yet.

[BeachOrCity]

Quote:

Originally Posted by Dtail Same here. I have saved 1.5% returns with my small bond allocation and just not ready to put it back to equities yet.

agree with everyone that they MAY rise a bit quickly at some point but no way they will fully recover as quickly as they fell.

My personal opinion is this will only quickly recover if somehow this virus fizzles out which is not expected at this point. Otherwise some lasting damage.

For those of us retired or near retirement our risk is much more of losing a lot than missing out on a sharp uptick.

[foxfirev5]

IMHO rebalancing is just another form of market timing. I'm guilty as I allocate my cap gains, dividends and interest to help maintain my 40+ % equity stake. However it is not doing the job at all in the current situation. In a couple of months I've got a big chunk of CD's maturing.
With about 25 years expenses in cash, st bond funds and CD's I could afford to put some more in equities. Tempting but I know I'll continue to plod along dripping dividends until the market turns up.

[Mark1]

I was basically at my rebalancing bands at market open yesterday, so after another 10% drop yesterday I went ahead and rebalanced at closing. I figured the point of the bands are to take the emotions out of the decision, so I went ahead and pulled the trigger. I still have a large amount of safe money that is more than enough to live on, so the risk seemed minor.

[big-papa]

Quote:

Originally Posted by foxfirev5 IMHO rebalancing is just another form of market timing. I'm guilty as I allocate my cap gains, dividends and interest to help maintain my 40+ % equity stake. However it is not doing the job at all in the current situation. In a couple of months I've got a big chunk of CD's maturing. With about 25 years expenses in cash, st bond funds and CD's I could afford to put some more in equities. Tempting but I know I'll continue to plod along dripping dividends until the market turns up.

I've seen just about everything having to do with investing called "market timing" by one person or another, including just buy-and-hold. It's as if nobody wants to be labelled with the scarlet letters "MT"

I personally think of rebalancing as follows:
I decided long ago on a stock/bond mix. I did it because, historically, the volatility and drawdowns suited my need, ability, and willingness to accept risk. If my portfolio deviates much from my desired stock/bond mix, then it is no longer meeting my need, ability, and willingness to accept risk based on the reasons I chose the stock/bond mix in the first place. So I rebalance.

If, instead, I rebalance because I believe that in doing so, I will capture some sort of "rebalancing bonus" because I believe there is an immenent recovery, then, yes, I personally would call that market timing. Or if I change the exact mechanism of how I rebalance because of recent events, then, again, I would call that market timing. To me, at least, intentions matter.

This has been debated a few times over on bogleheads. The whole thing could just be semantics as we humans seem to have an innate need to categorize things, even when our particular language fails us in precision.

Here's an example thread for your reading enjoyment:
https://www.bogleheads.org/forum/vie...04932#p3141881

Cheers,
Big-Papa

[lem1955]

I've been retired (mostly) since 2015 and living partly on tIRA investments. I rebalance once per year when I move mutual funds to Vanguard Prime MM for living expenses for the new year. This is the first time I've seen my AA shift more than my +/- 5% tolerance after the yearly rebalance. I just calculated a rebalance that will take me most but not all the back to my 56/44 AA. I printed the Portfolio Tester sheet and then came here to see what people more experienced than me were doing. I appreciate audreyh1 recommendation to take it slow. I felt some urgency to respond immediately. I think I will wait a couple of days to see if there is enough rebound to bring me back to inside the band. But if it doesn't soon, I'll go ahead with the rebalance - no new money, just selling Total Bond and buying Total Stock and Total Intl Stock.

[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]

Quote:

Originally Posted by tdv2 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]

Quote:

Originally Posted by audreyh1 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]

Quote:

Originally Posted by ripper1 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]

Quote:

Originally Posted by 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?

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-ce...-vs-bond-funds
https://www.thebalance.com/how-bond-funds-work-2466568