Rebalancing - selling low & buying high?

[plainjane]

I've ignored the funds in one of my accounts for several years because we switched FIs and just never bothered to move the money.  They make up about 20% of our invested assets.  They started out slightly unbalanced towards safety/bonds, and over the past 6-7 years they've gotten more and more unbalanced in that direction.  However, as we all know, the equity component has started to reassert itself over the past bit.

In the past I've argued that our more aggressive stance elsewhere, and some company stock (which used to be about 10% or our investments, but is down to about 3%) justified the high safety in this account, but now the argument is becoming that it's too small a portion of our investments to worry about...

So, do I ignore that we're basically going to be selling low and buying high and rebalance already?  They're currently in fairly high MER funds, and I'm finally shifting to indexes, so this is an easy time to make the move.

[aj_yooper]

I like to keep all my funds in one place (Vanguard) so I can keep a better watch on things.  Moving dormant accounts is fairly easy and decreases stress and worry. 

Rebalancing can also be done by placing any new money into the under-represented asset categories in your asset allocation.  Rebalancing reduces volatility in the AA and is necessary for investment success.  Otherwise you are drifting.  How far is your AA out of balance? 

I like the idea of selling the high ER funds and moving to more efficient investments.  Hopefully, they are not in a taxable account.

[matchewed]

Sounds like you need to either better define your AA or define how often you will visit your AA. I prefer a spreadsheet method as I have some money with Fidelity and some with Vanguard. I revisit every six months and look at an aggregate total.

An investment policy statement is useful in this.

[Freeyourchains2]

I recommend re-balancing when the investment sectors offer you good returns.

Stocks: Dividends Growth Companies giving off 4% + Stocks rising. (Sector though is High now. It was low 2-3 years ago.)

REITs (Sector was low last year, but now back to normal neutral, all the while paying out 15% returns.)

Bonds (secotr is low, however returns are extremely low.)

Real Estate (Sector is low, and returns  in rent are high, let alone returns in house prices will be going high again.

Metals: (Sector is low, and returns could be high during another market crash.)

Etc.

Buy sector assets while low, then sell sector assets while high.

Keep emotions out of it (least you sell during a market crash panic for complete 401k/IRA/Taxable losses, etc.)

For more  see here: http://earlyretirementextreme.com/wiki/index.php?title=Permanent_Portfolio

[aclarridge]

I've ignored the funds in one of my accounts for several years because we switched FIs and just never bothered to move the money.  They make up about 20% of our invested assets.  They started out slightly unbalanced towards safety/bonds, and over the past 6-7 years they've gotten more and more unbalanced in that direction.  However, as we all know, the equity component has started to reassert itself over the past bit.

In the past I've argued that our more aggressive stance elsewhere, and some company stock (which used to be about 10% or our investments, but is down to about 3%) justified the high safety in this account, but now the argument is becoming that it's too small a portion of our investments to worry about...

I don't know if you've been clear enough...what I understand from this is that the 20% of your invested assets in this account are now mostly bonds since bonds have done well...now you are contemplating selling some of the bonds and buying more equity instead. But then you aren't buying high/selling low so I must be misunderstanding you.

Regardless, I'd say pick an asset allocation that makes sense to you and stick to it, making whatever trades you need to to get you there initially. You're always going to be rebalancing at the market rates which are peoples' best guess at what things are worth, so you can never know if you are buying high or low relative to what the price will be in the future. Just because an asset has dropped in value a lot in the recent past, doesn't mean it can't drop more. Same for increases. Understand what you're buying, buy it often, and hold long-term.

[plainjane]

I've ignored the funds in one of my accounts for several years because we switched FIs and just never bothered to move the money.  They make up about 20% of our invested assets.  They started out slightly unbalanced towards safety/bonds, and over the past 6-7 years they've gotten more and more unbalanced in that direction.  However, as we all know, the equity component has started to reassert itself over the past bit.
In the past I've argued that our more aggressive stance elsewhere, and some company stock (which used to be about 10% or our investments, but is down to about 3%) justified the high safety in this account, but now the argument is becoming that it's too small a portion of our investments to worry about...

I don't know if you've been clear enough...what I understand from this is that the 20% of your invested assets in this account are now mostly bonds since bonds have done well...now you are contemplating selling some of the bonds and buying more equity instead. But then you aren't buying high/selling low so I must be misunderstanding you.

Thanks.  What I was trying to say was that bonds have gone down recently, and stock have been going up.  So should I still sell the bonds (which are down vs. where they were) and buy more stock (which is high compared to where it was) in order to rebalance.  But you're right, I was looking at it from a short term perspective.  This money hasn't been touched for over 10 years - emotional selling isn't a problem for me at this point, but I always get fearful around timing purchases (which is why I set ongoing periodic payments).

But I think the points above have been very helpful. 
- Stop trying to time the market
- If I feel uncomfortable with selling the bonds, rebalance by buying more on the equity side with new money until I'm where I want to be
- Keep a better handle on rebalancing going forward
- Consider moving everything into one bucket so it is easier to keep track of

[aj_yooper]

The Bogleheads advise that after you determine your asset allocation (stock %/bonds %), then you apply the percentages to your overall portfolio, wherever the funds are.  So, if you are overweight on bonds, say by 10%, if you are contributing to your accounts regularly, then increase the amount you have set for stock.  If the imbalance can be solved fairly quickly by this method, then you are at your AA.  If not, you would need to sell some bond funds and buy the stocks.  Reallocation can be emotionally difficult to do if, say, if  bonds are doing great and stocks are doing poorly.  You would be selling a winner, but that is how it works to rebalance.  Some people rebalance yearly or semi-yearly; some do it when the AA is off by over 5% or so. 

[aclarridge]

Thanks.  What I was trying to say was that bonds have gone down recently, and stock have been going up.  So should I still sell the bonds (which are down vs. where they were) and buy more stock (which is high compared to where it was) in order to rebalance.  But you're right, I was looking at it from a short term perspective.  This money hasn't been touched for over 10 years - emotional selling isn't a problem for me at this point, but I always get fearful around timing purchases (which is why I set ongoing periodic payments).

But I think the points above have been very helpful. 
- Stop trying to time the market
- If I feel uncomfortable with selling the bonds, rebalance by buying more on the equity side with new money until I'm where I want to be
- Keep a better handle on rebalancing going forward
- Consider moving everything into one bucket so it is easier to keep track of

I know what you mean about getting apprehensive around timing purchases - for me, there's an urge to try to exert some control over the buying like I do with all my purchases (i.e. getting the lowest price) but unfortunately, it's just not possible when buying in a liquid market. I try to remind myself of the control I do have over the long term application of investing philosophy and objectives.

Looks like you're on the right track!