Author Topic: New 401(k) option, but is now the time to rebalance?  (Read 2513 times)

Will

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New 401(k) option, but is now the time to rebalance?
« on: December 14, 2014, 11:58:17 PM »
My 401(k) had some very expensive choices, and the best pick for me was the Black Rock S&P 500 index (BSPAX, expense ratio of .37).  While I already had a fairly high amount in large cap stocks, all the rest of the choices had ERs that were MUCH higher, so that was the investment direction I took.  But now, PIMCO has been dropped and the Vanguard Intermediate Term Bond Index Fund (Admiral Shares) has been added.  I know my bond allocation is way lower than I want, and I definitely plan on having my future contributions go into VBILX with its nice low .10 ER.  I also have the option now of transferring the BSPAX over to VBILX, which would get my overall allocations closer to what I want.  But is now really the time to rebalance? The S&P has been down, so I would be "selling low" if I were to rebalance now.  I am not trying to time the market or anything, but I also am not trying to make a dumb fund transfer just because it is now an option.  I know when you rebalance you are supposed to sell the stuff that was up and buy the stuff that was down.  But now the stuff I have too much of is down!  So what do you think: transfer now, even though the S&P is down, or wait for a rebound?

wtjbatman

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Re: New 401(k) option, but is now the time to rebalance?
« Reply #1 on: December 15, 2014, 07:17:18 AM »
I wouldn't rebalance by selling the S&P 500 fund. I would simply redirect new contributions to purchase the bond fund until I've reached my desired AA. I don't know what the balance of your 401k is, but I get the impression that A) It's not huge, and B) You aren't a year from retirement. If that's the case, there's no rush.

MDM

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Re: New 401(k) option, but is now the time to rebalance?
« Reply #2 on: December 15, 2014, 07:31:36 AM »
I know my bond allocation is way lower than I want, and I definitely plan on having my future contributions go into VBILX with its nice low .10 ER. 
But is now really the time to rebalance? The S&P has been down, so I would be "selling low" if I were to rebalance now. 

If your ongoing contributions will get you to the bond allocation you want in the "near" future (you get to define "near") then that is the simplest.

As for rebalancing existing funds, one might ask "down compared with what?"  Yes, down a little from recent all time highs, but compared with the last five years you would hardly be "selling low":



Fuzzy Buttons

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Re: New 401(k) option, but is now the time to rebalance?
« Reply #3 on: December 15, 2014, 07:32:02 AM »
I had to answer the same question this fall, as I switched from a 100% S&P 500 allocation to put 40% in Long Term bonds.  For me, just changing the contribution fund wouldn't work as my balance is so high it would take 20 years of contributions to make up what I wanted in bonds.  If you've got a small enough balance that your new contributions would reach your bond level in a couple of years, then just do as wjtbatman has suggested and let it build up.

But if you have a large amount to diversify, then I encourage you to do what I did and simply make the change now.  This isn't a re-balance - this is moving to a new asset allocation.  Whether the S&P 500 is "up" or "down" doesn't matter.  What matters is just that you are confident that the new allocation is what you want to stick with going forward.

And as to the question of whether the S&P 500 is "up" or "down", it all depends on what time frame you are using.  It's down 2% for the month, up 8% for the year, and up 81% over the last five years (not counting dividends).  You'll drive yourself nuts trying to figure out if it's over or under valued.  Just keep it near your desired allocation and allow the market to do the work.

Will

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Re: New 401(k) option, but is now the time to rebalance?
« Reply #4 on: December 15, 2014, 09:26:34 AM »
I wouldn't rebalance by selling the S&P 500 fund. I would simply redirect new contributions to purchase the bond fund until I've reached my desired AA. I don't know what the balance of your 401k is, but I get the impression that A) It's not huge, and B) You aren't a year from retirement. If that's the case, there's no rush.

Yeah, the 401(k) balance for me is just for this year (so $17.5k), and for 2015 I can "catch up" and put in $24k, since I hit 50 early in January.  But my bond allocation is at least $41.5k below where I want it to be.  Still no rush, but it seems like the time is now (or soon).

MDM and Fuzzy: The point you've both made about "down" is a good one.  I just get in the mindset of "it's not as high as it used to be" and think of that as "down" even though it is still way "up." 

Thanks to all who have chimed in.  It sure is nice to have all of you as resources and sounding boards.

Cheddar Stacker

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Re: New 401(k) option, but is now the time to rebalance?
« Reply #5 on: December 15, 2014, 12:44:10 PM »
since I hit 50 early in January

This is shocking to me. Based on your avatar I would've guessed 20's/30's. Nice to see you can still have a wacky/childish sense of humor at 50. And I've always loved your "what the deuce?" tagline. Good stuff.

If you're still shopping for opinions, I'd re-balance now . Taking a small loss (which is likely just a loss from the peak, not really a loss) in order to give you peace of mind and attain your desired AA is a good thing overall.

Damn, now I wish I could contribute $24K to my 401k next year.

wtjbatman

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Re: New 401(k) option, but is now the time to rebalance?
« Reply #6 on: December 15, 2014, 06:36:46 PM »
Based on new information (bond allocation is "too low" by 41k), I change my vote to rebalance. You don't necessarily need to do it today though, if you're not comfortable with how your stocks are performing. Just wait until they recover. When will they recover? Well it could be a few days, or a few years. I'm leaning towards the former, but it's the stock market, who the F knows :)

Will

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Re: New 401(k) option, but is now the time to rebalance?
« Reply #7 on: December 15, 2014, 10:26:46 PM »
since I hit 50 early in January

This is shocking to me. Based on your avatar I would've guessed 20's/30's. Nice to see you can still have a wacky/childish sense of humor at 50. And I've always loved your "what the deuce?" tagline. Good stuff.

If you're still shopping for opinions, I'd re-balance now . Taking a small loss (which is likely just a loss from the peak, not really a loss) in order to give you peace of mind and attain your desired AA is a good thing overall.

Damn, now I wish I could contribute $24K to my 401k next year.

I like to think I don't act my age without being too immature.  And when you get to be an old fart like me, you'll probably be able to contribute even more than $24k (if you are still working at that age)!

Based on new information (bond allocation is "too low" by 41k), I change my vote to rebalance. You don't necessarily need to do it today though, if you're not comfortable with how your stocks are performing. Just wait until they recover. When will they recover? Well it could be a few days, or a few years. I'm leaning towards the former, but it's the stock market, who the F knows :)

I'm pretty sure I am going to go the rebalance route.  I think by my actual birthday (January 8th) all those who rebalance at the end of year/beginning of year will have already done so, so any minor blips will be smoothed out by then.  But who knows?