Markola
Thinks s/he gets paid by the post
Something I’ve wondered about, especially lately with the stock market drop and bond market rise: We have about 1/3 of our portfolio in 401k equivalents, all parked in 2020 target date funds. Those funds rebalance nightly, essentially, or at least very frequently, to stick closely to their asset allocations. Meanwhile, 2/3 of our portfolio is managed by our Vanguard advisor, who rebalances when the asset allocation exceeds a 10% band, e.g. if stock price swings throw the target AA off by more than 10%, he rebalances. We don’t have any extra trading costs for rebalancing, so expenses are not a factor.
My question is, does the math show that it will make any difference to our portfolio value in, say, 9 months or 15 months or 5 years, etc. if we remain committed to our asset allocation (50/50 in our case) over that period? Let’s assume there is no money entering or leaving the portfolio. Is there any advantage whatsoever to selling bonds (or cash) right now to buy “cheaper” stocks if at some point in the future we’re simply going to sell the appreciated stocks to buy cheaper bonds and return to our same stock/bonds (cash) asset allocation? It’s a hypothetical question, since we aren’t touching our assets regardless. I think the answer is obvious but I see people scrambling to “buy the dip”.
My question is, does the math show that it will make any difference to our portfolio value in, say, 9 months or 15 months or 5 years, etc. if we remain committed to our asset allocation (50/50 in our case) over that period? Let’s assume there is no money entering or leaving the portfolio. Is there any advantage whatsoever to selling bonds (or cash) right now to buy “cheaper” stocks if at some point in the future we’re simply going to sell the appreciated stocks to buy cheaper bonds and return to our same stock/bonds (cash) asset allocation? It’s a hypothetical question, since we aren’t touching our assets regardless. I think the answer is obvious but I see people scrambling to “buy the dip”.
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