Rebalancing Unnecessary With TSP?

[yakers]

I am in the decumulation mode (retired) and withdrawing from my TSP (401k type) account. have a plan to rebalance every 12 to 18 months if there is a significant change for target AA. My current target AA is 40% G(stable value) 40% C (S&P500) 15% I (total intl) and 5% S (small cap index), actual levels have drifted a bit. The TSP has a withdrawal 'feature' which I had not included in my plan which may make rebalancing unnecessary. When a monthly withdrawal is taken it is based on the actual balance in each of the funds on the day of withdrawal .( I could rebalance monthly if I wanted to neutralize this system) The TSP system actually looks good to me because it is always drawing more from 'winning' funds than from 'losing' funds on a monthly basis. Do other 401k or VG funds do this? Seems like it makes rebalancing unnecessary since the monthly levels of each fund are used for withdrawals.

 

[Ed_The_Gypsy]

Interesting. I have not heard of this.

I am hoping not to sell anything, just live off the dividends. All distributions go into a MMF and once in a while I decide what to do with them.

 

[Animorph]

I'd still watch that the withdrawals were keeping your AA in balance, since they are limited in size. For example, 2008/2009 might have required a little extra rebalancing, since it was a fairly large and quick change in the market.

 

[pb4uski]

I'd still watch that the withdrawals were keeping your AA in balance, since they are limited in size. For example, 2008/2009 might have required a little extra rebalancing, since it was a fairly large and quick change in the market.

+1

 

[Nords]

Regardless of the institution or the account, Rick Ferri places asset allocation in the "close enough" category:
Horseshoes, Hand Grenades and Asset Allocation

The asset allocation advice provided by investment advisors can be so precise that it becomes absurd. Statements like this are common, “Our proprietary model shows that the optimal allocation is 46.84% in US stocks, 23.42% in international stocks, 20.61% in fixed income, and 9.13% in cash.”

Why make asset allocation complicated? Why not just round out the numbers and say 45% in US stocks, 25% in international stocks, 20 percent in fixed income and 10% in cash? The answer lies more in marketing than in science. Coming up with a solid asset allocation is part math, part art, and part luck. A precise asset allocation sounds more scientific and convincing than one that’s in the ball park.

 

[ziggy29]

My 401K is with Fidelity and it has an "automatic rebalancing" option. You choose the target allocation among availlable funds and the frequency to rebalance and they do it for you on an ongoing basis. I haven't used it (like most of us here, I suspect, I'm too much of a control freak with my investments) but it is out there for those who'd rather not be bothered.

 

[2B]

I've seen articles that say it's not necessary to rebalance at all. In the accumulation phase just preferentially buy what you are low in. When withdrawing, take what you're high in. The actual differences on a month to month or even year to year basis are irrelevant.

 

[ziggy29]

I've seen articles that say it's not necessary to rebalance at all. In the accumulation phase just preferentially buy what you are low in. When withdrawing, take what you're high in. The actual differences on a month to month or even year to year basis are irrelevant.

This is very true early in the accumulation phase and gradually becomes less true as you are deeper into the accumulation phase.

In a $50K account, adding $10K (20% of previous balance) can probably accomplish all the rebalancing you'll need over the course of a year.

But in a $500K account a $10K deposit is only 2% of the original balance, and there's a pretty good chance you'll need more rebalancing than that in any random year in the markets. If you had $300K (60%) in equities and stocks fall 20% in a year, you need a lot more than a $10K equity purchase to come close to balance.

 

[Ed_The_Gypsy]

I've seen articles that say it's not necessary to rebalance at all. In the accumulation phase just preferentially buy what you are low in. When withdrawing, take what you're high in. The actual differences on a month to month or even year to year basis are irrelevant.

I am in between these two points. I have not put anything into my IRA for years. (I am paying off debts for now.) So, I rebalance once in a while. I used to do it every year. Now, when it looks out of balance. My AA remains the same, but I make adjustments inside it.

 

[W2R]

I am in the decumulation mode (retired) and withdrawing from my TSP (401k type) account. have a plan to rebalance every 12 to 18 months if there is a significant change for target AA. My current target AA is 40% G(stable value) 40% C (S&P500) 15% I (total intl) and 5% S (small cap index), actual levels have drifted a bit. The TSP has a withdrawal 'feature' which I had not included in my plan which may make rebalancing unnecessary. When a monthly withdrawal is taken it is based on the actual balance in each of the funds on the day of withdrawal .( I could rebalance monthly if I wanted to neutralize this system) The TSP system actually looks good to me because it is always drawing more from 'winning' funds than from 'losing' funds on a monthly basis. Do other 401k or VG funds do this? Seems like it makes rebalancing unnecessary since the monthly levels of each fund are used for withdrawals.

It is possible that you may not need to rebalance, depending on variables such as the amount you withdraw, but I like your plan of checking every 12-18 months to be sure. As you know, rebalancing is very simple and has no tax consequences within the TSP.