Time to rebalance?

[tominboise]

Currently sitting at 57/40/3 (stocks/bonds/short term). Of the stocks, sitting at 40% Domestic and 17% International (all in index funds or etfs, spread over small, mid and large sectors). I last rebalanced in October of last year (2020).

Anyway, the stocks have been doing well, as everyone knows. The bonds, not so much. Is it time to move some of the stock gains to bonds?

FWIW, I am 61, DW is 59. We both retired last September.

 

[RunningBum]

What is your planned asset allocation?

 

[walkinwood]

...and how much is your current allocation straying from your plan?

 

[easysurfer]

What is your planned asset allocation?

Was going to ask the same but you beat me to that .

 

[tominboise]

Well, that's a good question. I always aimed at 65/35 stock/bonds when I was working. (I believe that was too conservative, BTW).

Then went more towards 50/50 stock/bonds when I retired. I think that it a little too conservative as well. So I am OK with the stock allocation creeping up due to gains, probably to around where I am now.

But, pigs get slaughtered, as the saying goes. Which is why I am asking for opinions. I think the stock market looks like it will stay positive for awhile, based on stimulus spending and the economy recovering from the pandemic. But who knows for sure, right? I know bonds aren't all that great at the moment.

 

[RunningBum]

You need to figure out if you are going with a fixed allocation, or want to be a market timer. And if you're going with a fixed allocation, go with an AA you believe in and will stick to. Then act accordingly.

You could do something like 50% stocks, 40% bonds/cash, and 10% at your discretion based on your read of conditions. Or a 10% band which means you can be as high as 60% or as low as 40% in stocks.

The non-stock part doesn't have to be in bonds. It could be in savings accounts (might only get you 0.6% if you shop around, but won't drop like bonds if rates go up), or short term CDs (I wouldn't lock in a low rate long term). You can also get ultrashort term bonds which won't yield much but won't lose much either. Or TIPS. Or preferred stocks. There are a few threads around that talk about options other than bonds. I don't hold anything longer than a short-term bond fund right now.

 

[disneysteve]

You need to figure out if you are going with a fixed allocation, or want to be a market timer. And if you're going with a fixed allocation, go with an AA you believe in and will stick to. Then act accordingly.

This, 100%.


You say you are okay with your allocation being where it is now, so why would you rebalance, and to what?


Your asset allocation shouldn't be based on current market conditions or your prediction for future market conditions. In fact, that's kind of the point of having an AA.

 

[easysurfer]

I'm on a once a year rebalancing schedule in early January.

Makes things simple .

 

[ducky911]

In taxable account I never sell to rebalance. I hate taxes. I use what ever cash from dividends I might have or make the adjustments in my IRA (33% of investment).

Number one rule is stay the plan. Once a year for me is plenty.

 

[copyright1997reloaded]

One of the things that has always bothered me with these discussions is the thought process that suggests that the decision is all or none.

Let's say you think 57% is a bit rich, and 50% is your long term target. There is no reason why you have to go from 57% to 50% in one instant. Instead, just like dollar cost averaging in, dollar cost out. Sell a bit, then wait. Look at the situation again in a bit (e.g. a month). Still too high? Sell a bit, then wait.

You never go broke taking profits, OTOH trends in motion tend to stay in motion (so if the run continues, stay a bit in the game).

p.s. I am about the same equity allocation as you.

 

[Chuckanut]

Let's say you think 57% is a bit rich, and 50% is your long term target. There is no reason why you have to go from 57% to 50% in one instant. Instead, just like dollar cost averaging in, dollar cost out.
.

Dear copyright1997reloaded,

You are making to much sense. And you are showing signs of original well thought out ideas. A few more posts like this one and I will place you on my list of Dangerous Radicals Who Infest This Site.

 

[tominboise]

One of the things that has always bothered me with these discussions is the thought process that suggests that the decision is all or none.

Let's say you think 57% is a bit rich, and 50% is your long term target. There is no reason why you have to go from 57% to 50% in one instant. Instead, just like dollar cost averaging in, dollar cost out. Sell a bit, then wait. Look at the situation again in a bit (e.g. a month). Still too high? Sell a bit, then wait.

You never go broke taking profits, OTOH trends in motion tend to stay in motion (so if the run continues, stay a bit in the game).

p.s. I am about the same equity allocation as you.

Makes sense and what I am doing / will do. Just need someone to hold my hand and say "that's right" once in awhile.

 

[mrfeh]

Currently sitting at 57/40/3 (stocks/bonds/short term). Of the stocks, sitting at 40% Domestic and 17% International (all in index funds or etfs, spread over small, mid and large sectors). I last rebalanced in October of last year (2020).

Anyway, the stocks have been doing well, as everyone knows. The bonds, not so much. Is it time to move some of the stock gains to bonds?

FWIW, I am 61, DW is 59. We both retired last September.

You should have metrics that tell you when to rebalance...either time-based or percentages.

 

[Markola]

Assuming one has a fixed asset allocation, unlike the OP, I can’t tell that it makes any noticeable difference when one rebalances, as long as one does it.

I did an experiment in Portfolio Visualizer comparing Monthly/Quarterly/Semi Annual/Annual/ and Rebalance Bands applied to a 60/40 domestic allocation (VTSMX/VBMFX) vs. the Vanguard Balanced Fund (VBINX) that has the same allocation and which rebalances essentially nightly. Over the 37 year life of the balanced fund (I used 1993-1920 to get whole years), the outcomes were barely any different. I would have to post numerous graphs to show my work but here is a link to Portfolio Visualizer.

https://www.portfoliovisualizer.com/backtest-portfolio

 

[chassis]

Currently sitting at 57/40/3 (stocks/bonds/short term). Of the stocks, sitting at 40% Domestic and 17% International (all in index funds or etfs, spread over small, mid and large sectors). I last rebalanced in October of last year (2020).

Anyway, the stocks have been doing well, as everyone knows. The bonds, not so much. Is it time to move some of the stock gains to bonds?

FWIW, I am 61, DW is 59. We both retired last September.

Ignore catchy phrases like "pigs get slaughtered". It's barroom talk.

What is your net worth and current withdrawal rate, income outside of retirement assets (e.g. pension, annuity, rental income), and intentions for Social Security?

What is your target net worth in dollars by a certain age, and what is your intent for your estate? Do you want to die broke or leave something for the next generation?

In my opinion you are far too light on stocks. What is your risk appetite? Mine is above average, and volatility doesn't bother me. What was your profession prior to retirement? How savvy are you financially, beyond monthly household budgeting?

In my opinion investors should have zero dollars in bonds today. Low yield, extreme price risk and billionaires across the board write that bonds are a poor place to invest today.

 

[flyingaway]

Ignore catchy phrases like "pigs get slaughtered". It's barroom talk.

What is your net worth and current withdrawal rate, income outside of retirement assets (e.g. pension, annuity, rental income), and intentions for Social Security?

What is your target net worth in dollars by a certain age, and what is your intent for your estate? Do you want to die broke or leave something for the next generation?

In my opinion you are far too light on stocks. What is your risk appetite? Mine is above average, and volatility doesn't bother me. What was your profession prior to retirement? How savvy are you financially, beyond monthly household budgeting?

In my opinion investors should have zero dollars in bonds today. Low yield, extreme price risk and billionaires across the board write that bonds are a poor place to invest today.

When the market crashes tomorrow, you would wise you had more bonds.

 

[Ready]

This was a timely thread for me. My retirement asset allocation is 55/35/10. With the recent market run up I was at 60/30/10. My rule is to rebalance when I’m out of my target allocation by 5%, so I just rebalanced back to 55/35/10.

Thanks for the reminder!

 

[steelyman]

I changed my rules for rebalancing last year. I categorize my retirement portfolio into 8 different asset classes which are typical: large cap, developed international, total bond market, etc.

I use 5% rebalance bands. Previously I was rebalancing whenever any of the 8 classes exceeded the 5% band.

Now I’m also looking at the portfolio at a “macro” level: just stocks/bonds. This is leading to far fewer moves (for example, currently developed international is way below its allocation but the US stock market compensates). So far, so good.

 

[SnowballCamper]

This!

You need to figure out if you are going with a fixed allocation, or want to be a market timer. And if you're going with a fixed allocation, go with an AA you believe in and will stick to. Then act accordingly.

 

[chassis]

When the market crashes tomorrow, you would wise you had more bonds.

Agree.

@flyingaway what actions are you taking now, or have you taken previously, to protect against the meteor that hits the earth tomorrow, potentially? If it happens? What is your age relative to the original poster, an early retiree?

 

[tominboise]

Ignore catchy phrases like "pigs get slaughtered". It's barroom talk.

What is your net worth and current withdrawal rate, income outside of retirement assets (e.g. pension, annuity, rental income), and intentions for Social Security?

What is your target net worth in dollars by a certain age, and what is your intent for your estate? Do you want to die broke or leave something for the next generation?

In my opinion you are far too light on stocks. What is your risk appetite? Mine is above average, and volatility doesn't bother me. What was your profession prior to retirement? How savvy are you financially, beyond monthly household budgeting?

In my opinion investors should have zero dollars in bonds today. Low yield, extreme price risk and billionaires across the board write that bonds are a poor place to invest today.

Our withdraw rate is around 2.3%. We will take SS at ages 70. No pensions to speak of (a couple of very small pensions that will start at age 65 and basically pay our power bills or something). Plan on leaving between $1-2mil in estate for the kids, if possible.

I am a professional engineer and have managed our finances well enough to retire early. I do nothing when the market crashes, except to rebalance where it makes sense. I have kept 30-35% in bonds for the past 31 years, if that tells you anything. Should have been lighter but it worked for me.

 

[chassis]

Our withdraw rate is around 2.3%. We will take SS at ages 70. No pensions to speak of (a couple of very small pensions that will start at age 65 and basically pay our power bills or something). Plan on leaving between $1-2mil in estate for the kids, if possible.

I am a professional engineer and have managed our finances well enough to retire early. I do nothing when the market crashes, except to rebalance where it makes sense. I have kept 30-35% in bonds for the past 31 years, if that tells you anything. Should have been lighter but it worked for me.

@tominboise you are in good shape. I prefer higher growth and would hold no money in bonds now because of extreme underperformance vs stocks at this time. It's a personal preference and choice.