How do you maintain rebalancing discipline?

[GravitySucks]

I looked up the revised plan I wrote up a decade ago. It said rebalance in quarterly withdrawals and January and July review. I followed that for quite awhile but lately I haven’t followed it.

Almost all rebalancing comes from withdrawals (I’ve been so lucky only two quarters out of 11 years withdraws came from the FI bucket) but I’ve had couple opportunities through the years. Twice I’ve sold bond funds and bought equities on sale.

Currently, since bonds are back to decent yields, if I see a 5 or 10 Treasury or TIPS auction opening I’ll check my AA and if it’s even 1% out of balance on the upside (61/39) I rebalance. This has gotten me a nice 10 year ladder. Rebalancing on an equity dip the plan is to use half of my bond fund to buy on a 20% S&P dip and the other half if the dip hits 30%. Not rebalancing out of my bond ladder ever though. I know I miss on upside run opportunities and maybe will miss out on a once in a lifetime stock sale but I sleep real well this way.

So to answer OP, nope not robotic but the amounts outside of withdraws to live on aren’t usually significant.

 

[Markola]

What prevents you from printing your statement quarterly and using a notebook still? I prefer doing everything online and my own Excel NW spreadsheet, but you don't have to AFAIK.

Nothing, technically, just like nothing prevents me from mailing piles of monthly checks to pay bills vs. autopay.

 

[audreyh1]

Nothing, technically, just like nothing prevents me from mailing piles of monthly checks to pay bills vs. autopay.

Yet you lamented knowing your investment status more than 4 times a year. Sounds like the issue is distraction by daily/weekly market noise.

For me knowing my plan doesn’t require me to take action based on any particular market event means I can hear what’s happening yet not take any action. These days I update my allocation spreadsheet monthly at most, and I don’t even have to do it that often.

 

[Markola]

The issue is, I enjoy following the noise, yes. I was an Econ major and have always followed the noise. I also recognize that I need systems to tie my hands from tinkering, hence the AUM. Quarterly statements might work for me, but I think committing to a Quarterly rebalancing schedule would let me scratch the itch to do something. Then graduate to annual, eventually.

I was curious to see what others do, which is interesting.

 

[audreyh1]

I pay some attention to the noise, less attention probably now compared to a decade or two ago. But it doesn’t trigger me to actually do anything different than already planned. Like OldShooter said investing is supposed to be boring in spite of the financial media working so hard to make it seem life and death critical every day. They are trying to keep you constantly plugged in and listening to their sponsors as well.

 

[Montecfo]

Rebalancing I think is more art than science.

As an active investor, I am selling stocks which have reached investment objectives from time to time. So I am always "reinvesting" in something and can do so using this cash.

I review my portfolio in detail once a year and identify changes needed to meet my allocation targets. These are usually not dramatic. Then I work toward those over time.

I also use key market inflection points to strategically rebalance buy buying stocks on sale. This is the most productive time to "rebalance" in my opinion. Examples were the covid selloff (bought stocks), the Nov 2021 Fed signal that a rare hike cycle was begining (moved to low duration and floating rate bonds).

For the OP, your funds have grown steadily, presumably due to higher risk. Now you want to lock in some gains. Why not make sure your original funds (say the 5%) are in something safe and conservative. Then when you feel ready to take profits on an aggressive position, then reinvest so that you stay no more than 75% of funds in your aggressive positions (i.e, 15% /20%).

That way your original investment is preserved and you continue to grow it. You can move the 75% down say 5-10% per year, or some other schedule until you are adequately "de-risked".

If you are nervous, maybe sell half right now while conservative investments (e.g., fixed income or similar) are still relatively attractive.

Just ideas.

 

[Markola]

Now you want to lock in some gains. Why not make sure your original funds (say the 5%) are in something safe and conservative. Then when you feel ready to take profits on an aggressive position, then reinvest so that you stay no more than 75% of funds in your aggressive positions (i.e, 15% /20%).

I like that, and have read elsewhere that it is helpful, psychologically, to preserve one’s original investment after something runs up hard. Thanks! I’ll ponder.

 

[Al18]

Since retiring 5 1/2 years ago, I just monitor my assets and decide where to withdraw my retirement income for the year - stocks, fixed income or a combination. So far, it’s been a combination.

 

[Markola]

Since retiring 5 1/2 years ago, I just monitor my assets and decide where to withdraw my retirement income for the year - stocks, fixed income or a combination. So far, it’s been a combination.

Annually? Quarterly?

 

[Koolau]

Annually? Quarterly?

In my case, I do it annually and then whenever I need more (up to twice so far - but not specifically TO rebalance but I DO rebalance whenever I take out money from the stash. YMMV

 

[steelyman]

For my retirement portfolio, I use a spreadsheet and make withdrawals annually (end of year). The spreadsheet covers both asset and tax allocations and took a while to set up but has been worth it to me.

I use VTHRX (Vanguard Target 2030) as a benchmark and follow their current asset allocation. The spreadsheet calculates how much to withdraw based on a life expectancy “guesstimate” so it’s a variable withdrawal rate.

 

[Markola]

The spreadsheet calculates how much to withdraw based on a life expectancy “guesstimate” so it’s a variable withdrawal rate.

Dynamic makes more sense to me than a fixed SWR. The withdrawals on the 80% we have AUM at Vanguard are based on their own success formula. Each year we meet to see how our needs have changed and how the portfolio is looking, based on life expectancy. They won’t recommend more than a 2.5% spending cut or a 5% spending increase year to year.

 

[Al18]

I usually sell some stock and CD quarterly starting in February. I try not to sell stock in January or December, as there seems to be more buying and selling activity in these months for tax purposes.

 

[audreyh1]

I usually sell some stock and CD quarterly starting in February. I try not to sell stock in January or December, as there seems to be more buying and selling activity in these months for tax purposes.

I don’t find the first week of January to be a problem. Most years the markets rally into year end and for some reason rates seem to rise a little bit. This works nicely for me as I’m usually trimming stocks and buying bonds at that time due to rebalancing.

Some say stocks rally into the new year in anticipation of new pension money coming in after Jan 1. Who knows if that’s true, but the pattern is pretty strong.

 

[TheWizard]

Back for maybe a decade before retirement in 2013, and for a while after, I rebalanced by bands infrequently.

Nowadays, with excess retirement income, I no longer rebalance, for the most part.
My Roth IRA is 100% stock funds and my taxable account is nominally 95% stock funds, 5% MM.
The 5% MM allows me to set up low-ball limit orders way below current price, in the event a buying opportunity arises. New money coming into my taxable account either just sits there or lets me buy more stock funds with competitive limit orders, depending on that 5% metric.

Dividends hit my settlement funds every so often and I let the voices in my head tell me which stock funds(s) to buy a little more of...

 

[Koolau]

Back for maybe a decade before retirement in 2013, and for a while after, I rebalanced by bands infrequently.

Nowadays, with excess retirement income, I no longer rebalance, for the most part.
My Roth IRA is 100% stock funds and my taxable account is nominally 95% stock funds, 5% MM.
The 5% MM allows me to set up low-ball limit orders way below current price, in the event a buying opportunity arises. New money coming into my taxable account either just sits there or lets me buy more stock funds with competitive limit orders, depending on that 5% metric.

Dividends hit my settlement funds every so often and I let the voices in my head tell me which stock funds(s) to buy a little more of...

Heh, heh, just as long as the voices don't sound like Jim Cramer, you'll probably be okay. I do not obsess over rebalancing because I'm not worried about being a few percent off one way or the other. I take the concept seriously, but not the execution. (Measure with a micrometer - cut with an ax.)

 

[DayDreaming]

I take an extremely lazy approach to rebalancing and have only done it a few times in my 15 years of retirement. My investment portfolio continues to grow, maybe it would have grown more with active rebalancing, but I'm happy with how things have been going.

 

[Lagniappe]

I have not rebalanced, but I need to. I have drifted from 70% to 80% equities. I have very limited space in my IRA (about 12% of my total portfolio), and it is all filled with bonds. I need to sell stock and buy bonds in my taxable account, and pay the taxes. There are worse problems to have, I guess.

 

[TheWizard]

I have not rebalanced, but I need to. I have drifted from 70% to 80% equities. I have very limited space in my IRA (about 12% of my total portfolio), and it is all filled with bonds. I need to sell stock and buy bonds in my taxable account, and pay the taxes. There are worse problems to have, I guess.

I'm not sure that paying taxes for the privilege of rebalancing makes a lot of sense.
If still working, put new contributions into bonds of some sort for a while.

There are no awards given out for keeping your AA closest to what you define as your target ...

 

[Lagniappe]

I'm not sure that paying taxes for the privilege of rebalancing makes a lot of sense.
If still working, put new contributions into bonds of some sort for a while.

There are no awards given out for keeping your AA closest to what you define as your target ...

Not working. I am retired and living off portfolio distributions. I am not trying to get a trophy, I am trying to keep my portfolio allocation consistent with my risk tolerance.

 

[audreyh1]

If you trim equities for expenses, you can at least choose those with the highest cost basis.

 

[HI Bill]

What is rebalancing?, LOL. Back in May 2019, Vanguard came up with a retirement plan for my wife and I. It suggested selling VTI and VUG to rebalance into BND. The plan would have added $35K in capital gains to my income for the year. Since my BND fund has consistently lost $, I'm glad I didn't rebalance and incur taxes, only to lose more $ in the BND fund. I'm now, on my fourth year in ER, in ~91% equities. I doubt that will change much in my retirement, unless we have a sequence of down markets that forces me to sell BND and withdraw cash, rather than equities.

The annual difference between a 60/40 balance was 67% gain/26.6% loss vs a 50% gain/39% loss for 90/10. I'm figuring my 10% in cash and BND would be enough to get me through 3 years without having to sell equities, especially if we cut spending during those years. YMMV.

 

[audreyh1]

If you don’t have a target asset allocation then sure rebalancing won’t matter to you.

 

[MC Rider]

Uhhh, the computer does it.

 

[Koolau]

Uhhh, the computer does it.

Does it also make the required trades? If so, how does that w*rk. It sounds handy.