Author Topic: Haven't done rebalancing before, looking for insight!  (Read 2638 times)

goober

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Haven't done rebalancing before, looking for insight!
« on: April 28, 2015, 01:57:14 PM »
My employer is awesome enough to provide our retirement plans through Vanguard! When I started, I had no clue about anything FIRE related, or even personal finance related, so I placed everything into Vanguards 2055 retirement account. Here's the current breakdown of that fund:

Allocation to underlying funds as of 03/31/2015:

61.3% Vanguard Total Stock Market Index Fund Institutional Shares   
28.3% Vanguard Total International Stock Index Fund Institutional Plus Shares   
7.9%   Vanguard Total Bond Market II Index Fund**   
2.5%   Vanguard Total International Bond Index Fund Institutional Shares
Total      100.0%

I believe the 3/31/15 date was the only time Vanguard re balanced the fund since I've had it. Questions I have:

Any insight is greatly appreciated!

seattlecyclone

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Re: Haven't done rebalancing before, looking for insight!
« Reply #1 on: April 28, 2015, 02:02:18 PM »
A 90/10 stock/bond ratio is already pretty risky. Vanguard uses this allocation as something they recommend as being pretty good for someone who wants to retire in 2055, and they'll slowly change the ratio as you get closer to that date. You are of course free to come up with your own, different asset allocation that you feel more comfortable with. If you do, you'll have to buy individual funds and keep them in balance yourself. This isn't terribly hard, but you have to actually do it once or twice a year (any more than this is probably excessive).

arebelspy

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Re: Haven't done rebalancing before, looking for insight!
« Reply #2 on: April 28, 2015, 02:16:55 PM »
Two thoughts for you:

1) If you're investing in a target date fund like that, you're presumably doing it because you like their AA, so stick with it, no rebalancing needed.

2) If you do want to tweak your AA, rebalancing during the accumulation phase is best done by sending contributions to the underweighted assets, rather than selling overweighted ones (unless you're WAY out of balance, but that doesn't seem likely most of the time).
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Runge

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Re: Haven't done rebalancing before, looking for insight!
« Reply #3 on: April 28, 2015, 02:21:32 PM »
If you're expecting a long retirement, i.e. 30 years or more, then the general consensus is to keep a higher stock percentage. The target date funds automatically change the ratios as time nears the specified retirement for that fund. Eventually you'll end up with an AA similar to this:

1   Vanguard Total Stock Market Index Fund Investor Shares   34.9%
2   Vanguard Total Bond Market II Index Fund Investor Shares**   31.4%
3   Vanguard Total International Stock Index Fund Investor Shares   15.3%
4   Vanguard Total International Bond Index Fund Investor Shares   10.4%
5   Vanguard Short-Term Inflation-Protected Securities Index Fund Investor Shares   8.0%

I took that from here:
https://investor.vanguard.com/mutual-funds/target-retirement/#/mini/holdings/0303

If you're ok with your AA gradually changing to something close to that, then continue to pump money into it. Otherwise you'll want to DIY. Before you decide anything, I'd recommend doing some more research on asset allocations and how it'll affect your early retirement. Write up an IPS (http://www.bogleheads.org/wiki/Investment_policy_statement) and stick to it.
« Last Edit: April 28, 2015, 02:28:34 PM by Runge »

goober

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Re: Haven't done rebalancing before, looking for insight!
« Reply #4 on: April 28, 2015, 02:28:34 PM »
Thanks everyone! I certainly have stuck with it as I personally like the 90/10 stock to bond ratio. I do plan on being retired long before that, and I'll probably pull out of it once it starts shifting too much on the bond side for my tastes.

arebelspy

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Re: Haven't done rebalancing before, looking for insight!
« Reply #5 on: April 28, 2015, 02:38:01 PM »
Thanks everyone! I certainly have stuck with it as I personally like the 90/10 stock to bond ratio. I do plan on being retired long before that, and I'll probably pull out of it once it starts shifting too much on the bond side for my tastes.

Why not just take control now then?
We are two former teachers who accumulated a bunch of real estate, retired at 29, and now travel the world full time with two kids.
If you want to know more about me, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

seattlecyclone

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Re: Haven't done rebalancing before, looking for insight!
« Reply #6 on: April 28, 2015, 03:00:39 PM »
One thing you may want to consider going forward is tax efficiency. If all of your savings are in your 401(k), tax efficiency is irrelevant. But as your savings rate grows, you may find yourself needing to save some money in a taxable account. See this Boglehead page for some really great info about it, but the gist is that bonds and REITs should go in your retirement accounts as much as possible, while you should fill up your taxable accounts with stocks (particularly international stocks). What this means for you is that a target retirement fund generally isn't the best thing to buy if you have taxable accounts; it's better to split things up and put them in places where you can minimize your taxes.