The Money Mustache Community

Learning, Sharing, and Teaching => Investor Alley => Topic started by: Raenia on February 08, 2018, 07:06:52 AM

Title: How often do you rebalance?
Post by: Raenia on February 08, 2018, 07:06:52 AM: After the recent drop, I've been getting itchy to rebalance, even though it's not my usual time to do it. So I'm curious, how do you all decide when to rebalance? Are you on a schedule? Do you adjust whenever an asset class is more than 3% off target? When you happen to think of it? Discuss :)
Title: Re: How often do you rebalance?
Post by: Mississippi Mudstache on February 08, 2018, 07:15:09 AM: I do it once or twice a year. I re-balanced back in August, then again last week, when I contributed to IRAs for me and my wife. When adding a lot of new money, it just makes sense to go ahead and contribute to funds such that my target AA is right for the entire portfolio.
Title: Re: How often do you rebalance?
Post by: bacchi on February 08, 2018, 08:46:17 AM: Yeah, I always "rebalance" when I contribute funds. Otherwise, it's in November every year.

There's some evidence that rebalancing should be done only every 4-6 years in order to catch the business cycle better. I need to find that research paper again.
Title: Re: How often do you rebalance?
Post by: PDXTabs on February 08, 2018, 09:33:25 AM: My 401(k) match is on a yearly basis at the end of January. So, I rebalance right after that. Also, I use Fidelity's brokeragelink to buy VTWSX, and this way I only pay the $75 fee once per year.
Title: Re: How often do you rebalance?
Post by: PizzaSteve on February 08, 2018, 09:37:19 AM: Tend to buy roughly towards allocation and auto reinvest. Dont care if percentages are off a bit. Might rebalance if major correction occurs (20 percent or greater change for one asset class).
Title: Re: How often do you rebalance?
Post by: frugalnacho on February 08, 2018, 09:47:05 AM: I try to buy whatever is underfunded in my AA as I make contributions throughout the year. I rebalance annually around my birthday. I do all my rebalancing in IRA/401k to avoid triggering capital gains.
Title: Re: How often do you rebalance?
Post by: jdhansen on February 08, 2018, 12:04:00 PM: My 'stache is newer as I just started growing it over the last couple of years. So far I have been able to keep my AA balance which each contribution that I make. I'm sure as my savings rate continues to grow and the markets do what they do, I will eventually go to an annual rebalancing plan. Most likely around my birthday in June, since it was a Birthday gift that got this stache a rollin.
Title: Re: How often do you rebalance?
Post by: centastic on February 09, 2018, 04:45:22 PM: Buy the lagging asset, as others have mentioned.

If you're FIRE then once every 9 months would be my rule of thumb.
Title: Re: How often do you rebalance?
Post by: Making Cents on February 10, 2018, 09:05:42 AM: I did some reading on this last year and came to the conclusion that it is the amount of drift, not the passage of time, that really matters. There is some disagreement on how much drift is too much, but I like Vanguard's research on this because it has gathered data on cost of rebalancing vs benefit: https://www.vanguard.com/pdf/icrpr.pdf (https://www.vanguard.com/pdf/icrpr.pdf)

I check my portfolio at least quarterly (more often if the markets are more active in one direction than usual) and rebalance if drift is near or over 5%.
Title: Re: How often do you rebalance?
Post by: neo von retorch on February 10, 2018, 09:20:24 AM: It's also important to remember the purpose of rebalancing. It's to maintain your asset allocation because you chose that AA based on your desired balance between risk and reward. So you only rebalance periodically, with contributions and/or when it moves outside of your AA by a %, as per your poll options. (You shouldn't mix and match these too much. As others have said, buying with contributions is best - you probably have a very small portion of your AA reserved for cash, so as you get more cash, you move it into the appropriate lagging fund.) You shouldn't change your AA because the market conditions changed, nor should it trigger a rebalance unless you settled upon a drift % strategy.

I found that even with the 10% drop in equities, due to my 401k contributions being straight equities, and my 90/10 AA, my drift was still very tiny, so there's no real reason to rebalance. (I still did a tiny rebalance inside my IRA to get my international bonds back down to 3% and my Total Stock closer to 70%).
Title: Re: How often do you rebalance?
Post by: Radagast on February 10, 2018, 07:54:06 PM: I rebalance with new money. In theory I also rebalance with bands, but so for they have not been crossed since I made them official. I think they would have been crossed three times in 2016 even after new contributions, but not sure.

William Bernstein studied this extensively and thinks that bands are the best strategy, and they should be far enough apart that you rebalance each slice on average only once every 1-5 years. The best foreseeable band rebalancing will probably only come out ahead of annual rebalancing by 0.2% annualized or so though.
Title: Re: How often do you rebalance?
Post by: facepalm on February 10, 2018, 08:55:04 PM: The purpose of rebalancing is to mitigate risk.

I rebalance once per year.
Title: Re: How often do you rebalance?
Post by: Fomerly known as something on February 11, 2018, 07:36:57 AM: Bi-annually, plus whenever my AA is more that 5% off in my taxable. When my AA reaches off more than 1% in my 401k.