I am Rebalancing more often

[harllee]

I am 66, DH a little older. We have most of our investments at Vanguard. Current asset allocation is 40% equities /60% bonds/treasuries/CDs. My normal plan is to rebalance when the allocation gets unbalanced by 5%. But this year I am rebalancing more often. I just rebalanced because my equities got to 42%.

I was retired in 2008 and had a larger equity share. I never sold my equities (in fact I bought more equities as I could stomach it) but I spent many sleepless nights worried about my investments. I never want to go through that again.

I just don't feel good about the current large increases in the stock market. Franky, I can't figure out why the market is going up like this. Sure it is helping my balance sheet and my 4% withdrawal rate but something doesn't seem right about it. Somehow I fee better rebalancing more often, I guess locking in my profits.

Anyone else rebalancing more often? Am I overreacting? Should I just sit back and enjoy the ride?

 

[ace8]

... I spent many sleepless nights worried

... Should I just sit back and enjoy the ride?

Sleeping at night has a lot of value to most of us.

Can you "sit back and enjoy the ride?

 

[RenoJay]

To the OP: I had the exact same experience as you in 2008 (bought more equities as prices dropped, but had anxiety and lost sleep) and like you I’m rebalancing much more frequently nowadays. If it helps you sleep well and doesn’t fundamentally mess with your target allocation, do it.

 

[racy]

Retirement researcher, Michael Kitces's work shows re-balancing too frequently hurts performance and increases risk. Quoting from this article: http://www.investmentnews.com/artic...client-portfolios-hurts-performance-pinnacles

"His research showed that rebalancing hurts performance in both bull and bear market periods. And, while annual rebalancing underperforms zero rebalancing, more frequent quarterly and monthly rebalancing performs even worse.

“By rebalancing too frequently we clobber ourselves with transaction costs,” he said. “Rebalancing dials down volatility, but it also dials down returns, and we all know that people don't eat risk-adjusted returns.”

During both the 2000-2002 bear market and the 2003-2005 bull market, the buy-and-hold strategy outperformed all forms of re balancing."

 

[Midpack]

I would re-balance more & more often if not for the tax consequences. Right or wrong, I try to avoid taxable events as much as possible, and that sometimes means I don't re-balance as much as I would otherwise. YMMV

 

[RunningBum]

The OP has the money at Vanguard, so won't be getting "clobbered" by transaction costs.

Regarding taxes, I'd rather pay taxes on LT gains at the peaks than let them settle back down to where you don't have to sell. As long as they are LT gains. Maybe there are some exception scenarios.

That said, I generally don't rebalance more than once a year. If I need to withdraw funds, I take it from the asset on the high side of where I want to be.

 

[youbet]

I would re-balance more & more often if not for the tax consequences. Right or wrong, I try to avoid taxable events as much as possible, and that sometimes means I don't re-balance as much as I would otherwise. YMMV

It depends on your personal scenario, but I'm doing all my rebalancing in my IRA's to avoid the tax consequences. But I generally agree about avoiding taxable events.

 

[gauss]

I own only balanced funds in both my after-tax accounts as well as my retirement accounts. I no longer have these worries and am able to sleep better at night.

I feel this strategy is more likely to help me attain my goals despite any tax inefficiency that may be introduced by not separating the asset classes.

-gauss
Not letting the tax tail wag the dog...

 

[harllee]

I would re-balance more & more often if not for the tax consequences. Right or wrong, I try to avoid taxable events as much as possible, and that sometimes means I don't re-balance as much as I would otherwise. YMMV

Midpack, I am able to do all my rebalancing inside my IRA so no tax effects

 

[gerntz]

I'm in rehab more often.

 

[braumeister]

Somehow I feel better rebalancing more often

So it makes sense for you to do so. There are no rules in that game beyond doing what lets you sleep at night.

 

[audreyh1]

It can be tough watching gains rack up. I know a bunch of my funds will pay distributions in Dec, contributing towards rebalancing, so I usually hang on until then, so that I don't create yet more taxable events for myself.

My rebalancing bands are rather wide. So I usually just rebalance in January when I take my withdrawal and put any excess distributions back to work. It would take another event like 2008/2009 to cause a mid-year rebalance.

So it usually means I'm not out of balance during the year to do anything but sit on my hands.

For rebalancing to benefit, you have to let the asset classes diverge a little bit.

But I suppose rebalancing too often is better than not sleeping or pulling your money out after a loss.

 

[tdv2]

It depends on your personal scenario, but I'm doing all my rebalancing in my IRA's to avoid the tax consequences. But I generally agree about avoiding taxable events.

I do the same. My IRA's have more bonds now than in the recent past. taxable accounts are mostly stocks. I have about 2/3 of my assets taxable accounts. Also good to hold bond portion in pretax accounts to avoid ordinary income while w*rking.

 

[Midpack]

It depends on your personal scenario, but I'm doing all my rebalancing in my IRA's to avoid the tax consequences. But I generally agree about avoiding taxable events.

Midpack, I am able to do all my rebalancing inside my IRA so no tax effects

Our IRAs are entirely bond funds, and our taxable is entirely equity funds, and yet our AA is a little more equity heavy than I’d like, so we’re hemmed in tax wise...

 

[scrabbler1]

Nearly all of my rebalancing moves have been within my IRA, so there are no tax consequences. I have made 22 such moves in my IRA in the last 9 years.


In my taxable accounts, rebalancing moves are quite rare. In the same time span, I have made 5 moves, and they are not to stick to a specific AA but to tweak the dividend income I receive from my bond funds.

 

[Dash man]

We just put a little over a half million into a newly remodeled beach property that rents (supposedly) for between $3500-$4000/week during the summer season. We’ll use it ourselves part of the time in May and Sept/Oct while the weather is still nice. After management fees, cleaning fees and landscape maintenance, we should still have plenty to pay for property taxes, insurance and maintenance. We also hope for some price appreciation since the neighboring communities are ridiculously priced. DW wanted a beach house in New Jersey. That’s the real reason we got one.
It changed our asset allocation to be more heavily into real estate.

 

[Lsbcal]

I am 66, DH a little older. We have most of our investments at Vanguard. Current asset allocation is 40% equities /60% bonds/treasuries/CDs. My normal plan is to rebalance when the allocation gets unbalanced by 5%. But this year I am rebalancing more often. I just rebalanced because my equities got to 42%.

I was retired in 2008 and had a larger equity share. I never sold my equities (in fact I bought more equities as I could stomach it) but I spent many sleepless nights worried about my investments. I never want to go through that again.

I just don't feel good about the current large increases in the stock market. Franky, I can't figure out why the market is going up like this. Sure it is helping my balance sheet and my 4% withdrawal rate but something doesn't seem right about it. Somehow I fee better rebalancing more often, I guess locking in my profits.

Anyone else rebalancing more often? Am I overreacting? Should I just sit back and enjoy the ride?

This is a wise reaction to perceived higher risk.

I rebalance every time our equities go 1% above the target. No tax consequences for us. Easier to do emotionally then live with large imbalances.

 

[pb4uski]

I am rebalancing more often too. It is my subtle way of timing the market since it has been so good. No transaction costs and 0% LTCG but it will reduce my Roth coversions for the year.

 

[Chuckanut]

I rebalanced by withdrawing funds for next year. With the market hitting all time highs it seemed a good idea to do it a bit early.

 

[GravitySucks]

I've been rebalancing more than expected. Thought I would do it once a year, but equities have been rising fast. Whenever it gets out of balance enough to add a wrung to the bond ladder I've hit the button.
It's to that point third time this year and I'm getting close to covering all the years remaining till SS at 70 where the ladder will be complete. The plan was for that to take a few more years.
I might be losing out of a few bucks, but it feels great to be real close to all my essential expenses covered forever. ( Barring a SS nightmare or some serious inflation.)

 

[stevelb]

I also lived through 2008 without selling and luckily we were rewarded for doing so. However I do not want to go through that again and of course am about 10 years older. I also find myself rebalancing at about 2% above my target whereas previously I would let it ride to maybe 5-6%.

 

[audreyh1]

Well we'll see if I'm a fool for waiting until distributions are paid out in Dec. I have no idea if they are going to be close to next year or quite a bit larger.

I'm not at rebalance trigger yet, so not rebalancing.

 

[harllee]

OP here, thanks for all the comments. Good to know I am not the only one rebalancing more frequently. I think living through the 2008 recession has made me a much more cautious investor. As a consequence I am probably missing out on some gains but I sleep better!

 

[REWahoo]

Am I rebalancing more frequently? Not sure - I'd have to check with the Wellesley and Wellington management teams to answer that question.

 

[Midpack]

OP here, thanks for all the comments. Good to know I am not the only one rebalancing more frequently. I think living through the 2008 recession has made me a much more cautious investor. As a consequence I am probably missing out on some gains but I sleep better!

You may not care to answer, but are you rebalancing in taxable or sheltered, makes a big difference IMHO? Rebalancing within sheltered is easy.