Author Topic: How often do you rebalance?  (Read 9592 times)

trailrated

  • Handlebar Stache
  • *****
  • Posts: 1136
  • Age: 32
  • Location: Bay Area Ca
  • a smooth sea never made a skilled sailor
How often do you rebalance?
« on: May 23, 2014, 01:28:27 PM »
Exactly what the Subject says.... How often do you rebalance and why?

blackomen

  • Stubble
  • **
  • Posts: 192
  • Location: Former Californian in Dallas
  • Antifragile since 1983
    • Gimme Serendipity (a Stumbleupon Clone)
Re: How often do you rebalance?
« Reply #1 on: May 23, 2014, 01:50:50 PM »
I follow a passive investing strategy (the Permanent Portfolio) and I rebalance every time I contribute funds..  by buying the asset whose weight is farthest below its target weight.  So for example, if you're going 60% equities and 40% bonds but you're currently holding 65% equities and 35% bonds, just buy bonds with your monthly savings (destined for your investment accounts) until you reach your target.  This way, you save on capital gains and commissions.

The following article explains it in better terms although I've been doing this for longer: http://www.wisebread.com/one-simple-trick-to-get-the-best-tax-benefit-from-your-retirement-portfolio

trailrated

  • Handlebar Stache
  • *****
  • Posts: 1136
  • Age: 32
  • Location: Bay Area Ca
  • a smooth sea never made a skilled sailor
Re: How often do you rebalance?
« Reply #2 on: May 23, 2014, 02:00:38 PM »
I follow a passive investing strategy (the Permanent Portfolio) and I rebalance every time I contribute funds..  by buying the asset whose weight is farthest below its target weight.  So for example, if you're going 60% equities and 40% bonds but you're currently holding 65% equities and 35% bonds, just buy bonds with your monthly savings (destined for your investment accounts) until you reach your target.  This way, you save on capital gains and commissions.

The following article explains it in better terms although I've been doing this for longer: http://www.wisebread.com/one-simple-trick-to-get-the-best-tax-benefit-from-your-retirement-portfolio

Stupid question, does that mean you manually direct the funds with each purchase rather than just having an automated payment buying x% of each share?

blackomen

  • Stubble
  • **
  • Posts: 192
  • Location: Former Californian in Dallas
  • Antifragile since 1983
    • Gimme Serendipity (a Stumbleupon Clone)
Re: How often do you rebalance?
« Reply #3 on: May 23, 2014, 02:09:48 PM »
After I've transferred the funds to my brokerage account, I calculate the market value of the asset that's needed to attain my target weight.  And I calculate how many more shares I need to buy to reach that.  And then I manually buy that many shares.

aclarridge

  • Guest
Re: How often do you rebalance?
« Reply #4 on: May 23, 2014, 02:26:48 PM »
Quarterly. I invest via ETFs and I pay $10/trade, so it's in my interest to not rebalance too frequently. Quarterly is convenient because I do it right after I receive dividends so they are reinvested properly according to my asset allocation, and also I have enough saved that I don't have to sell anything to rebalance, I just buy appropriate amounts.

Nothlit

  • Bristles
  • ***
  • Posts: 401
Re: How often do you rebalance?
« Reply #5 on: May 23, 2014, 02:27:03 PM »
I started out using target date funds so I didn't have to worry about manual rebalancing. Then about a year and a half ago I switched to using a three-fund portfolio so I could hold different asset classes in different kinds of accounts. Since then I have not needed to rebalance (my target allocation is 80/20 stocks/bonds). For whatever reason, things have just remained relatively in balance on their own. I have my automatic contributions set up so they are made with the same 80/20 allocation.

My plan for rebalancing is to follow the general guidelines set out in Vanguard's whitepaper:

Quote from: Vanguard whitepaper
As a result, we conclude that for most broadly diversified stock and bond fund portfolios (assuming reasonable expectations regarding return patterns, average returns, and risk), annual or semiannual monitoring, with rebalancing at 5% thresholds, is likely to produce a reasonable balance between risk control and cost minimization for most investors.

trailrated

  • Handlebar Stache
  • *****
  • Posts: 1136
  • Age: 32
  • Location: Bay Area Ca
  • a smooth sea never made a skilled sailor
Re: How often do you rebalance?
« Reply #6 on: May 23, 2014, 02:44:39 PM »
After I've transferred the funds to my brokerage account, I calculate the market value of the asset that's needed to attain my target weight.  And I calculate how many more shares I need to buy to reach that.  And then I manually buy that many shares.

Thank you for the clarification, I had not thought to do it like that.

Emilyngh

  • Pencil Stache
  • ****
  • Posts: 892
Re: How often do you rebalance?
« Reply #7 on: May 23, 2014, 03:17:35 PM »
Once a year.   I usually put the largest chunk in the market after I figure our income taxes for the year (I hold off contributing some to make sure that we put in the optimal amount tax-wise) and I rebalance with these contributions.

RapmasterD

  • Pencil Stache
  • ****
  • Posts: 589
  • Location: SF Peninsula
Re: How often do you rebalance?
« Reply #8 on: May 23, 2014, 09:02:27 PM »
I roughly balance out as I go along in making deposits. I don't intentionally "rebalance" at a set increment, i.e., once per year.

Joel

  • Pencil Stache
  • ****
  • Posts: 784
  • Location: California
Re: How often do you rebalance?
« Reply #9 on: May 23, 2014, 10:19:13 PM »
I rebalance through my twice a month contributions.

Nords

  • Magnum Stache
  • ******
  • Posts: 3244
  • Age: 59
  • Location: Oahu
    • Military Retirement & Financial Independence blog
Re: How often do you rebalance?
« Reply #10 on: May 23, 2014, 11:33:05 PM »
Exactly what the Subject says.... How often do you rebalance and why?
We're retired, so we're no longer adding to our retirement accounts. 

We rebalance as seldom as possible.  We have four different assets in our investment portfolio (Berkshire Hathaway stock, a dividend ETF, an international ETF, and a small-cap value ETF).  We let each asset fluctuate between 18-28% of the portfolio's total value.  An actual rebalancing only happens once every 2-3 years... so far.

If an asset gets outside of those bands then we sell a put or call option to bring it back inside the bands.  We do this because we've learned that it eliminates our perpetual debates emotional behavioral psychology resistance and makes us feel better.  So far we've only been exercised once while we've pocketed thousands of dollars in premiums.

wtjbatman

  • Handlebar Stache
  • *****
  • Posts: 1310
  • Age: 36
  • Location: Missouri
Re: How often do you rebalance?
« Reply #11 on: May 24, 2014, 12:25:18 AM »
I'm too new to serious investing to have had to rebalance, but I really wouldn't anyway. As a DG investor I'm 100% equities. The only rebalancing I will need to do is if a company freezes or cuts its dividend.

rmendpara

  • Pencil Stache
  • ****
  • Posts: 602
Re: How often do you rebalance?
« Reply #12 on: May 24, 2014, 01:33:56 PM »
Exactly what the Subject says.... How often do you rebalance and why?

I rebalance "passively" (not sure if that is the right term). Since I fully contribute to my 401k, I typically don't try to buy and sell so much of my existing holdings as I just change the allocation of future investments. Based on the current limit of $17.5k/yr, it's around $1.45k/mo in contributions.

Recent example, small caps have been lagging this year, so I've upped the percentage of my contributions going to US small caps and intl small caps from 10 to 20% of contributions. I will ease back to the "base" of 10% once the % gets closer to the right mix in my overall portfolio (includes holdings outside my 401k). The same idea get applied to other asset classes too.

In case you're wondering, my securities overall targets are 50% US stocks, 30% Intl stocks, 15% Alternatives, 5% FI (I'm 25, by the way). Right now, total portfolio is around $140k, with ~$100k in equity in an investment property. Within each category, I don't come up with specific targets, but try to keep a mix as best I can. Once my portfolio gets large enough, ($1m+), I may need to rethink how I rebalance, since shifting my monthly 401k contributions may not be enough. That will be a while, so I suppose we'll see.
« Last Edit: May 24, 2014, 01:40:17 PM by rmendpara »

Dr. Doom

  • Bristles
  • ***
  • Posts: 469
  • Age: 42
  • Location: East Coaster
Re: How often do you rebalance?
« Reply #13 on: May 24, 2014, 02:00:21 PM »
Be sure to read up on  gain and loss harvesting before doing anything.

I did a lot of unnecessary rebalancing in taxable accounts earlier in my investing life which cost me thousands of dollars in taxes that I wouldn't have had to pay if I'd understood the rules better back then.


hodedofome

  • Handlebar Stache
  • *****
  • Posts: 1228
  • Age: 40
  • Location: Texas
Re: How often do you rebalance?
« Reply #14 on: May 27, 2014, 08:05:24 AM »
For my retirement accounts I use a relative strength/tactical asset allocation strategy and I rebalance that once a month. I'd do it less but I don't feel like taking the risk.

soccerluvof4

  • Walrus Stache
  • *******
  • Posts: 5706
  • Location: Artic Midwest
  • Retired at 50
    • My Journal
Re: How often do you rebalance?
« Reply #15 on: May 28, 2014, 06:03:02 AM »
I simply re balance every time I add to my portfolio unless there is a major shift in the market BUT not buy moving from one index to another but the amount I might put in an index.

TheFrugalFox

  • 5 O'Clock Shadow
  • *
  • Posts: 97
Re: How often do you rebalance?
« Reply #16 on: May 28, 2014, 11:01:16 PM »
I am not going to rebalance my portfolio at all. Once bought, if one sector/share does better than another - so be it. I personally think it's counter productive to take money out of a good sector and place it in an under performing sector just so things balance on paper.

I do believe it is very import though to start off with a diverse, well thought out portfolio - but then just let it go, do not fiddle with it.

Dr. Doom

  • Bristles
  • ***
  • Posts: 469
  • Age: 42
  • Location: East Coaster
Re: How often do you rebalance?
« Reply #17 on: May 29, 2014, 07:39:27 AM »
I am not going to rebalance my portfolio at all. Once bought, if one sector/share does better than another - so be it. I personally think it's counter productive to take money out of a good sector and place it in an under performing sector just so things balance on paper.

I do believe it is very import though to start off with a diverse, well thought out portfolio - but then just let it go, do not fiddle with it.

cFIREsim (and therefore history) disagrees.  Try running the same options with and without annual rebalance turned on.  The scenarios look better when you do it.

CowboyAndIndian

  • Handlebar Stache
  • *****
  • Posts: 1589
  • Location: NJ, USA
    • KOWines: Deep discount wine/spirits store.
Re: How often do you rebalance?
« Reply #18 on: May 29, 2014, 09:28:08 AM »
I have a simple method to rebalance.

I buy 8 asset classes (SP500, Russel 2000, Emerging mkts etc) which give me the asset allocation I want.
For each asset class (ETF's with min expenses), I decide a percentage of the total portfolio it should be ( e.g. 20% for SP500).

When an asset class drops below 80% of what it should be, I rebalance.
When an asset class increases about 135% of what it should be, I rebalance.
This effectively forces  me to buy low and sell high.

When I add new contributions, I just pick the asset classes which have dropped below their percentage of the portfolio  and add to it.

I have found that on an average I rebalance only once a year and the max I have rebalanced is probably twice.

Heart of Tin

  • Stubble
  • **
  • Posts: 205
  • Location: Kansas City
Re: How often do you rebalance?
« Reply #19 on: June 04, 2014, 11:05:03 AM »
I am not going to rebalance my portfolio at all. Once bought, if one sector/share does better than another - so be it. I personally think it's counter productive to take money out of a good sector and place it in an under performing sector just so things balance on paper.

I do believe it is very import though to start off with a diverse, well thought out portfolio - but then just let it go, do not fiddle with it.

cFIREsim (and therefore history) disagrees.  Try running the same options with and without annual rebalance turned on.  The scenarios look better when you do it.

Woah, woah, woah. Slow down there with the generalities.

You cannot claim that rebalancing is better based on a cfiresim result, because the cfiresim results of rebalcing vs. not rebalancing are usually mixed. Run cfiresim with the intial inputs rebalanced vs. not rebalanced and you will see higher returns and higher volatility in the not rebalanced scenario than in the rebalanced scenario. Is that inherently better or inherently worse?

The usual reason to rebalance is to maintain your risk level. An allocation with only stocks and bonds that is not rebalanced will, over time, become more  stock heavy since stocks give a larger long term return. This increases the volatility of the overall portfolio, possibly bringing the investor outside of his or her risk tolerance. Rebalancing helps maintian a constant risk exposure.

dragoncar

  • Walrus Stache
  • *******
  • Posts: 8939
  • Registered member
Re: How often do you rebalance?
« Reply #20 on: June 04, 2014, 12:45:23 PM »
Exactly what the Subject says.... How often do you rebalance and why?
We're retired, so we're no longer adding to our retirement accounts. 

We rebalance as seldom as possible.  We have four different assets in our investment portfolio (Berkshire Hathaway stock, a dividend ETF, an international ETF, and a small-cap value ETF).  We let each asset fluctuate between 18-28% of the portfolio's total value.  An actual rebalancing only happens once every 2-3 years... so far.

If an asset gets outside of those bands then we sell a put or call option to bring it back inside the bands.  We do this because we've learned that it eliminates our perpetual debates emotional behavioral psychology resistance and makes us feel better.  So far we've only been exercised once while we've pocketed thousands of dollars in premiums.

You could do the opposite of buying the lagging asset - sell the leading asset for expenses.