Author Topic: Rebalance stocks to bonds --- anyone else find this difficult?  (Read 5694 times)

CoffeeR

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Rebalance stocks to bonds --- anyone else find this difficult?
« on: January 24, 2018, 08:25:49 AM »
So, I need to re-balance $100K from stocks to bonds. Given my time horizon, IPS, asset allocation, and general clinical detachment to the market it is the right decision.

Boy, do I find it hard in this roaring bull market to do this. Am I alone in this?

NotJen

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Re: Rebalance stocks to bonds --- anyone else find this difficult?
« Reply #1 on: January 24, 2018, 08:37:08 AM »
I just rebalanced $12k into bonds.  Didnít really think about it.  Just saw my % getting too low last year, and canít rebalance with new contributions in Taxable acct (no bonds there).  Hope Iím good percentage-wise for a year or two.

VoteCthulu

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Re: Rebalance stocks to bonds --- anyone else find this difficult?
« Reply #2 on: January 24, 2018, 08:51:14 AM »
Perhaps you should consider rebalancing more often. I recently moved $10k into bonds, and it didn't bother me at all, but if I had to move $100k+ like you, I might worry more about it.

You could move $25-50k now and then plan to do so again in 3-6 months until you get where you want to be, if that makes you feel better.

Eric

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Re: Rebalance stocks to bonds --- anyone else find this difficult?
« Reply #3 on: January 24, 2018, 09:52:20 AM »
That's the reason you have an IPS, right?  Follow it!

CoffeeR

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Re: Rebalance stocks to bonds --- anyone else find this difficult?
« Reply #4 on: January 24, 2018, 04:19:13 PM »
That's the reason you have an IPS, right?  Follow it!
I did. Today.

The issue was not should I do it, but does anyone else find it difficult. Based on the responses so far, I seem to be alone on the matter of difficulty. Oh well. As a notable and often derided market commentator (in these and the bogglehead forums) says: "Discipline trumps conviction."

sokoloff

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Re: Rebalance stocks to bonds --- anyone else find this difficult?
« Reply #5 on: January 24, 2018, 04:47:14 PM »
I would have trouble pulling the trigger as well, so you're definitely not alone there.
DW might have the opposite trouble (being too wary of the equity market's volatility).

If you have a solid plan, sticking to the plan is more important than not feeling discomfort along the way. ;)

Retire-Canada

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Re: Rebalance stocks to bonds --- anyone else find this difficult?
« Reply #6 on: January 24, 2018, 04:57:38 PM »
So, I need to re-balance $100K from stocks to bonds. Given my time horizon, IPS, asset allocation, and general clinical detachment to the market it is the right decision.

Boy, do I find it hard in this roaring bull market to do this. Am I alone in this?

I'm 100% stocks at the moment pre-FIRE because I have no need for bonds at this point. But, yes it would be hard to sell $100K stocks and buy $100K bonds right now. That's because bonds don't have any utility to me at the moment. If I was FIREd I would look at bonds a different way, but even then I don't plan on holding a fixed % of bonds and continually rebalancing. I will hold a fixed $ value so in most cases my stocks will outgrow them.

If you are having a hard time following your IPS maybe it's not the right plan for you?
« Last Edit: January 24, 2018, 05:03:49 PM by Retire-Canada »

AdrianC

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Re: Rebalance stocks to bonds --- anyone else find this difficult?
« Reply #7 on: January 24, 2018, 06:10:10 PM »
So, I need to re-balance $100K from stocks to bonds. Given my time horizon, IPS, asset allocation, and general clinical detachment to the market it is the right decision.

Boy, do I find it hard in this roaring bull market to do this. Am I alone in this?

Not alone. I need to do the same. Been dragging my feet.

DavidAnnArbor

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Re: Rebalance stocks to bonds --- anyone else find this difficult?
« Reply #8 on: January 24, 2018, 06:23:54 PM »
I've been letting the portfolio drift and I don't really care or feel the need to rebalance.

acorn

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Re: Rebalance stocks to bonds --- anyone else find this difficult?
« Reply #9 on: January 24, 2018, 06:29:16 PM »
So, I need to re-balance $100K from stocks to bonds. Given my time horizon, IPS, asset allocation, and general clinical detachment to the market it is the right decision.

Boy, do I find it hard in this roaring bull market to do this. Am I alone in this?

Not alone. I need to do the same. Been dragging my feet.

Same. I planned to change my asset allocation to include more bonds once I reach a milestone. Now that I've reached that number,  I've been putting off actually buying bonds.

MrUpwardlyMobile

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Re: Rebalance stocks to bonds --- anyone else find this difficult?
« Reply #10 on: January 24, 2018, 06:32:20 PM »
Iíve been slowly reallocating my 401k to increase the bonds to the appropriate level.  Itís tough when I see Iím otherwise up 25% over 12 months.

Heckler

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Re: Rebalance stocks to bonds --- anyone else find this difficult?
« Reply #11 on: January 24, 2018, 07:30:28 PM »
A year ago I was supposed to move 10k from US to Bonds.   I bought 20k more bonds instead from the wifes bonus and brought bonds back up to the minimum.


Now I need to move 20k in the same direction and don t have the bonus to make it happen with new finds.  Finding it very difficult to sell US to Bonds.   Facepunch me.

30/70 aa @ 44 y.o. Currently at 23/77.

CoffeeR

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Re: Rebalance stocks to bonds --- anyone else find this difficult?
« Reply #12 on: January 24, 2018, 08:14:52 PM »
So, I need to re-balance $100K from stocks to bonds. Given my time horizon, IPS, asset allocation, and general clinical detachment to the market it is the right decision.

Boy, do I find it hard in this roaring bull market to do this. Am I alone in this?

I'm 100% stocks at the moment pre-FIRE because I have no need for bonds at this point. But, yes it would be hard to sell $100K stocks and buy $100K bonds right now. That's because bonds don't have any utility to me at the moment. If I was FIREd I would look at bonds a different way, but even then I don't plan on holding a fixed % of bonds and continually rebalancing. I will hold a fixed $ value so in most cases my stocks will outgrow them.

If you are having a hard time following your IPS maybe it's not the right plan for you?
I was 100% stocks until recently, since bonds held no value to me... but as RE approaches (one could say I am already FI, or close to it) my willingness and capacity for risk are diminishing. The memories of the tech and housing crash are fresh and still painful years laters. I stayed 100% stocks through both and never went to bonds or cash or got "out of the market", though I did plenty of stupid. I frankly never thought I would be at this place where I think the right answer is some bonds. Yet here I am. Still my recent AA of 75/25 for my retirement accounts is still quite heavy in stocks and if anything is too aggressive.



CoffeeR

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Re: Rebalance stocks to bonds --- anyone else find this difficult?
« Reply #13 on: January 24, 2018, 08:22:05 PM »
I've been letting the portfolio drift and I don't really care or feel the need to rebalance.
I know the feeling. I was doing the same. Why rebalance in a raging bull market? It was hard for me to buy any bonds at all after being 100% cash for 20+ years.

CoffeeR

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Re: Rebalance stocks to bonds --- anyone else find this difficult?
« Reply #14 on: January 24, 2018, 08:23:01 PM »
So, I need to re-balance $100K from stocks to bonds. Given my time horizon, IPS, asset allocation, and general clinical detachment to the market it is the right decision.

Boy, do I find it hard in this roaring bull market to do this. Am I alone in this?

Not alone. I need to do the same. Been dragging my feet.
Thank you! Just knowing you are not alone helps.

Retire-Canada

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Re: Rebalance stocks to bonds --- anyone else find this difficult?
« Reply #15 on: January 24, 2018, 09:05:18 PM »
I was 100% stocks until recently, since bonds held no value to me... but as RE approaches (one could say I am already FI, or close to it) my willingness and capacity for risk are diminishing. The memories of the tech and housing crash are fresh and still painful years laters. I stayed 100% stocks through both and never went to bonds or cash or got "out of the market", though I did plenty of stupid. I frankly never thought I would be at this place where I think the right answer is some bonds. Yet here I am. Still my recent AA of 75/25 for my retirement accounts is still quite heavy in stocks and if anything is too aggressive.

As long as you see the purpose of the various assets you hold and it aligns with your plans it's the right allocation.

CanuckExpat

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Re: Rebalance stocks to bonds --- anyone else find this difficult?
« Reply #16 on: January 24, 2018, 09:10:27 PM »
I find it difficult, but at least mainly because I can't figure out a good way of doing it without ending up with more capital gains than I want, and bonds in a taxable account. Also the thought that I might be market timing, but this bull run makes me want to rebalance.

phil22

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Re: Rebalance stocks to bonds --- anyone else find this difficult?
« Reply #17 on: January 24, 2018, 09:14:10 PM »
is there a name for a strategy where you apply a "lag" factor to your rebalancing?  like 1/2 the normal rebalance dollar amount?  no tolerance bands or anything just rebalance less than you normally would.

for example, in a 2-fund portfolio, after you calculate the normal dollar value to sell of the "winner" fund to buy the "loser" fund, you instead sell 1/2 that amount of the winner fund.

you end up drifting your allocation, but in the direction of the most recent winner.  but you keep the same goal allocation and take the same lag factor every rebalance.

i can't find anywhere online to backtest this but i'll keep looking.  i suspect it wouldn't make much difference.




Mr Mark

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Re: Rebalance stocks to bonds --- anyone else find this difficult?
« Reply #18 on: January 25, 2018, 04:23:57 AM »
Yep.

All the smart money is pointing out how bond yields are bound to move up over the next 2 years as central banks everywhere undo QE, plus the Fed will have more borrowing to do after the unfunded tax cut, so supply of bonds will go up, hence prices down.

I'll admit I've let my AA drift from my target 70/30 to almost 75/25 - yet Vanguard portfolio analysis still tells me I'm close enough and doesn't post an alert. So I must be OK! ;-)


CoffeeR

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Re: Rebalance stocks to bonds --- anyone else find this difficult?
« Reply #19 on: January 25, 2018, 05:01:59 AM »
Yep.

All the smart money is pointing out how bond yields are bound to move up over the next 2 years as central banks everywhere undo QE, plus the Fed will have more borrowing to do after the unfunded tax cut, so supply of bonds will go up, hence prices down.

I'll admit I've let my AA drift from my target 70/30 to almost 75/25 - yet Vanguard portfolio analysis still tells me I'm close enough and doesn't post an alert. So I must be OK! ;-)
Forcing myself to buy bonds when all the signs indicate a bond prices will go down (for reasons you stated) is what makes this (for me) hard. I can see all the arguments for the smart money being right. Heck I agree with them. Of course, the number of times in my short investing lifetime the smart money had been wrong is quite... notable.

Still, now that it is done, I am at peace. Of course, that may change as my bond funds decrease in value as stocks soar. I will of course have the consolidation price of seeing my stock funds go up in value. On the other hand, if stocks get hammered the bonds will provide (maybe, if it is not 2008/09) a little ballast. Hey, wait a minute, I think I may have stumbled onto something here. Let me ponder this some more.

AdrianC

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Re: Rebalance stocks to bonds --- anyone else find this difficult?
« Reply #20 on: January 25, 2018, 06:19:38 AM »
I've been letting the portfolio drift and I don't really care or feel the need to rebalance.
I know the feeling. I was doing the same. Why rebalance in a raging bull market? It was hard for me to buy any bonds at all after being 100% cash for 20+ years.

100% stocks, you mean? Me too.

I put 5% in total bond last year but I'm still not comfortable with it. We have about the same sitting in cash.

That total bond just sits there, doing nothing, taking up valuable tax-deferred space...then I remember 2008...

I'm 90/10.

yachi

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Re: Rebalance stocks to bonds --- anyone else find this difficult?
« Reply #21 on: January 25, 2018, 06:36:27 AM »
With yields less then 3% and prices projected to decrease I haven't bought into bonds yet.  I have a mortgage at 4.6% and some student loans too, so my 'rebalancing' should go to pay off those loans first.  I'm curious for those considering rebalancing to bonds.  Have you paid off all your higher-than-bond-yield loans? 

joonifloofeefloo

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Re: Rebalance stocks to bonds --- anyone else find this difficult?
« Reply #22 on: January 25, 2018, 06:47:43 AM »
I'm with those who find it hard to do. However, I *am* comfortable keeping some in cash -i.e., I have a "bonds and cash" allocation instead of a "bonds" one.

In accounts I'll only be adding to each year, and don't plan to withdraw from for 40 years, I stick with 100% stocks. In accounts I'm not adding to annually, and need to rebalance, I do my "bonds and cash" thing so there's always something to rebalance with.

Car Jack

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Re: Rebalance stocks to bonds --- anyone else find this difficult?
« Reply #23 on: January 25, 2018, 06:52:50 AM »
I've been doing "sell dollars to buy dollars" all during the runup.  I find that if I target the % on my overall spreadsheet, rather than looking at any stock gain, it gives me new focus.  I do small changes but am not afraid to do them every day until I hit the target %.  For me, $10k changes are perfect. 

Another thing that keeps my mind thinking that I'm still participating in the runup is funding my taxable account.  It's 100% stock.  So let's say that over the last week, I sold $50k in stocks and bought bonds in my IRA, I just got some RSUs at work and they just became available in my checking account.  I move over $5k to Schwab and buy SCHB.  Although this buy is only 10% of my rebalance, it feels good when a big daily rise in the stock market comes along.

I have no debt and no mortgage. 

Poundwise

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Re: Rebalance stocks to bonds --- anyone else find this difficult?
« Reply #24 on: January 25, 2018, 08:29:34 AM »
It was a wrench to rebalance for me, too.

Like others here, I find it feels easier if I do the rebalancing by buying more bonds with uninvested cash, rather than selling stocks to buy bonds. More recently though, I had to sell a lot of high performing stock funds and bought TIPS, which of course have fallen slightly in value whilst the stocks are still soaring.  I repeated to myself, "Don't be greedy. Don't be greedy!" and tried to frame it to myself that I was profit-taking.  A few years ago I would have been delighted to see these gains.  They are good enough for me.

Anyway, I still have 85% of my investments happily riding the roller coaster. 

mintleaf

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Re: Rebalance stocks to bonds --- anyone else find this difficult?
« Reply #25 on: January 25, 2018, 03:06:44 PM »
Remember to visualize many possible outcomes, to keep some balance. You're focusing on what happens if the bull continues for a while, but think about what would happen if a correction/crash came next week. The flight-to-safety response would push those bonds up relative to the loss in equities. You'd be very happy that you locked in some of those profits!

Mr Mark

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Re: Rebalance stocks to bonds --- anyone else find this difficult?
« Reply #26 on: January 25, 2018, 11:31:05 PM »
I don't think the data supports a need for constant rebalancing. Remember annual or even bi-annual is pretty good. Rebalancing too frequently means you miss the positive effect of stocks going up (selling too soon) and also buy too soon on the way down (catching a falling knife).

You can also reduce the effect of systematic rates going up by making sure you don't have long maturity bonds. Short term treasuries will not drop significantly in value.

You can also play the yield curve by holding short term bonds and effectively shorting the dollar long term via a 30 yr fixed mortgage  (But be quick!)

I also would not actually sell stock to buy bonds but slowly rebalance via savings.

JLee

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Re: Rebalance stocks to bonds --- anyone else find this difficult?
« Reply #27 on: January 25, 2018, 11:37:23 PM »
I've been letting the portfolio drift and I don't really care or feel the need to rebalance.

Me too, but I'm wayyyyyy stock-heavy anyway so I don't really care.

AdrianC

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Re: Rebalance stocks to bonds --- anyone else find this difficult?
« Reply #28 on: January 26, 2018, 06:41:28 AM »
You can also play the yield curve by holding short term bonds and effectively shorting the dollar long term via a 30 yr fixed mortgage  (But be quick!)
Isn't that speculation? No one can accurately predict interest rates.

A 30 yr fixed mortgage is a good way to leverage stock investments.
Quote
I also would not actually sell stock to buy bonds but slowly rebalance via savings.
Not an option for us FIRE'd types...not that I'm complaining.

Retire-Canada

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Re: Rebalance stocks to bonds --- anyone else find this difficult?
« Reply #29 on: January 26, 2018, 06:43:31 AM »
Not an option for us FIRE'd types...not that I'm complaining.

Well you can rebalance by spending more from your stock allocation since you are withdrawing anyways.

Retire-Canada

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Re: Rebalance stocks to bonds --- anyone else find this difficult?
« Reply #30 on: January 26, 2018, 07:10:56 AM »
It's been mentioned above, but I think it's worth highlighting...if buying more bonds is not making you happy ask yourself if you actually need more bonds?

Let's assume:

- $40K/yr spend
- $1M stash
- 80/20 stock/bond AA
- all numbers inflation adjusted

This means you'll FIRE with ~$200K in bonds or 5 years of spending. Perhaps this gives you the comfort that you'll be able to survive an early market crash.

Later your portfolio continues to grow and you have $1.5M total so $300K or 7.5yrs of spending in bonds. Perhaps it grows to $2M or $400K/10yrs spending in bonds.

Do you need more than 5yrs spending in bonds? If not maybe you don't need a % bond allocation as much as a fixed number of years of spending? If so letting your stocks run would be fine and there is no need to rebalance as long as you are meeting your fixed bond requirement of say that initial $200K.

This is how I will be looking at my bond allocation...a fixed number of years of spending.

Just some food for thought.

JAYSLOL

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Re: Rebalance stocks to bonds --- anyone else find this difficult?
« Reply #31 on: January 26, 2018, 07:12:45 AM »
That's the reason you have an IPS, right?  Follow it!
I did. Today.

The issue was not should I do it, but does anyone else find it difficult. Based on the responses so far, I seem to be alone on the matter of difficulty. Oh well. As a notable and often derided market commentator (in these and the bogglehead forums) says: "Discipline trumps conviction."

No, you are not along.  Rebalancing is counter-intuitive to the way we are we are generally wired to feel about investing, which is why it works so well to keep us on track.  I'm fairly new to this part of investing, but i too feel some discomfort in currently rebalancing from stocks to bonds, just as I'm sure i would feel discomfort rebalancing from bonds to stocks in a stock market correction.  It works because it's uncomfortable and not everyone can do it.

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Re: Rebalance stocks to bonds --- anyone else find this difficult?
« Reply #32 on: January 26, 2018, 09:30:59 PM »
I found it difficult. In the year since I made a formal rebalance policy Wednesday would have been the first trigger, and I hadn't even checked it for 3 weeks. Balancing is a fine abstract policy, but selling emerging market stocks in the middle of a terrific bull market to buy questionable long term government bonds is a very concrete step which I struggled with.

Then I realized I forgot to update my spreadsheet with the correct number of shares, and I didn't need to rebalance.

Laserjet3051

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Re: Rebalance stocks to bonds --- anyone else find this difficult?
« Reply #33 on: January 27, 2018, 09:43:49 AM »
My solution to the (psychologically/emotional) difficulty of rebalancing stocks to bonds has been to NOT sell any stocks but rather to put new money more heavily into bonds. This way I dont have to sell any equities during this roaring bull PLUS I feel good about NOT spending my new $$ on expensive equities, as I am buying bonds that are dropping in price. All the while this strategy is pushing my AA back to where it needs to be as this runaway bull distorts my AA.

COEE

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Re: Rebalance stocks to bonds --- anyone else find this difficult?
« Reply #34 on: January 27, 2018, 12:51:24 PM »
Boy, do I find it hard in this roaring bull market to do this. Am I alone in this?

You should be alone in this!

You're selling high and buying low... How much better do you want it?  Someday the market will crash, and you'll sell some of your bonds and buy stock - again selling high and buying low.

It IS hard, but it's also the right decision!

Speaking of - I need to go see how far I am out of line with my desired AA (60/20/20 +/-3%).  A couple weeks ago - I was within bounds, but with my investments growing ~5% in the last couple weeks, that may have changed already!

Bicycle_B

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Re: Rebalance stocks to bonds --- anyone else find this difficult?
« Reply #35 on: January 27, 2018, 01:16:48 PM »
Certainly not alone!

My own feelings vary.  Most often, I feel afraid to hold stocks this high, but do it anyway.  Which has worked so far.

Rebalancing is pretty powerful about making sure you get some gains and some safety, though.  I read somewhere about a study of how often to rebalance, that concluded quarterly and annual were about tied for best of the methods they tested.  Less than quarterly and more than annual lagged compared to the annual method, but quarterly was so close to annual that the authors commented they were just about equal to each other.  So probably the other poster's idea of doing smaller moves to lessen the emotionality could be implemented safely on a quarterly basis.  IIRC, the study involved a stocks vs bonds allocation, no mention of real estate or other asset classes. 

Recently I ran some scenarios comparing what would happen using different decision methods of my own for how to allocate and when to buy/sell.  I just made up a wild hypothetical about the next 3 years of market returns and ran the different methods through it.  I was astonished how close the different methods were as long as there was at least a significant component of stocks and bonds.  Gave me more confidence in the MMM standard, which I am sort of close to except for having a lot of real estate equity.  Anyway - yes, I feel your pain.  :)
« Last Edit: January 27, 2018, 01:19:41 PM by Bicycle_B »

CanuckExpat

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Re: Rebalance stocks to bonds --- anyone else find this difficult?
« Reply #36 on: January 27, 2018, 08:08:15 PM »
Well now I am finding it difficult to re-balance, my initial attempt, and my equity portion increased the next few days by more than I had sold off to buy bonds. This is a good problem to have, and crazy market gains.

Mr Mark

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Re: Rebalance stocks to bonds --- anyone else find this difficult?
« Reply #37 on: January 28, 2018, 02:25:23 AM »
You can also play the yield curve by holding short term bonds and effectively shorting the dollar long term via a 30 yr fixed mortgage  (But be quick!)
Isn't that speculation? No one can accurately predict interest rates.

A 30 yr fixed mortgage is a good way to leverage stock investments.
Quote
I also would not actually sell stock to buy bonds but slowly rebalance via savings.
Not an option for us FIRE'd types...not that I'm complaining.

AdrianC
I think the only reason a 30 yr fixed rate mortgage is available at all in the US at such low rates is due to the Government intervening to underwrite and subsidise the market. So by taking such a debt, thereby holding RE and increasing your investment in an AA of equity and ST/MT bonds, you are buying extra insurance against inflation - a major long term risk to portfolio FIRE income.

But absolutely, that is a type of speculation. However, if you think US$ bond yields are going to systematically increase (which will lower the price of MT/LT bonds & hence OP's reluctance to buy bonds right now vs equities), but still want bonds in your AA as a short term buffer to protect against equity volatility, I'd posit that buying/holding ST bonds while effectively selling LT bonds (via a nominal fixed mortgage loan) helps reduce your overall exposure to rising interest rates, maintaining the 'buffer effect' yet effectively reducing one's overall net allocation % in bonds.

CanuckExpat

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Re: Rebalance stocks to bonds --- anyone else find this difficult?
« Reply #38 on: January 28, 2018, 08:40:14 PM »
is there a name for a strategy where you apply a "lag" factor to your rebalancing?  like 1/2 the normal rebalance dollar amount?  no tolerance bands or anything just rebalance less than you normally would.

for example, in a 2-fund portfolio, after you calculate the normal dollar value to sell of the "winner" fund to buy the "loser" fund, you instead sell 1/2 that amount of the winner fund.

you end up drifting your allocation, but in the direction of the most recent winner.  but you keep the same goal allocation and take the same lag factor every rebalance.

i can't find anywhere online to backtest this but i'll keep looking.  i suspect it wouldn't make much difference.

Not exactly it, but I think what you are alluding to is a form of combining re-balancing with momentum investing. They are usually opposites, "rebalancing is the opposite of momentum investing, whose mantra is letting your profits run and cutting your losses. Rebalancing improves returns during periods when momentum doesnít work, and not otherwise." but you can also combine them such as with the method described here for example

I'm posting that so you have the name for momentum investing, not as an endorsement of momentum investing or that particular method of re-balancing.
I find momentum investing an interesting topic, but don't know enough to have an opinion.

Mighty-Dollar

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Re: Rebalance stocks to bonds --- anyone else find this difficult?
« Reply #39 on: January 29, 2018, 12:21:46 AM »
So, I need to re-balance $100K from stocks to bonds. Given my time horizon, IPS, asset allocation, and general clinical detachment to the market it is the right decision.

Boy, do I find it hard in this roaring bull market to do this. Am I alone in this?
You're not alone. Some of the best gains have occurred during the tail ends of bull markets. I'm not sweating because I'm been a bit more allocated into stocks than I should be for my age. I'm in my 50's and I was 90% stocks up until only about 3 years ago. Then I went 80% stocks (18% bonds, 2% gold) about 2 years ago. Then about a year ago I went to about a year ago I went 75% stocks. After this recent runup I'm back up to about 79% stocks. I'll be rebalancing to get back to about 74% stocks in March I think. If stocks go up another 20% - 25% then I'll drop down to 70% stocks.

The bottom line is that you HAVE to diversify into bonds otherwise you're taking on a lot of risk. As bright and rosy as Trump's pro-business policies are, you have to be ready at all times for that black swan event.

Acastus

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Re: Rebalance stocks to bonds --- anyone else find this difficult?
« Reply #40 on: January 29, 2018, 11:04:08 AM »
I find this psychologically hard, too. Especially with such low rates. You may want to put some of your money into balanced funds. Automatically puts some money into bonds, but you get a lot of the stock return.

ChpBstrd

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Re: Rebalance stocks to bonds --- anyone else find this difficult?
« Reply #41 on: January 29, 2018, 01:52:36 PM »
1) Consider using stop-loss orders set at maybe 3 to 5% below current prices. If stocks continue to rally, as they probably will, congratulations! You get to keep the gains and roll up your stops to a higher price, ratcheting in gains the whole way up as you wait for a chance to "rebalance". When that 3-5% dip does come, you automatically move to bonds at that time. Conditional orders can automate all this, taking the emotion out of the moment. Also, it's not market timing; it's an algorithm that will probably/usually outperform an immediate rebalance. The risk you take in exchange for all this upside is 3-5%.

2) Consider selling calls against the shares you want to rebalance. Unlike #1, doing this by itself does not provide much protection against a correction - maybe a couple percent. However, it is a way to earn income from your rebalancing efforts. You can also sell calls in addition to having a stop by having your stop limit conditional order liquidate both your stock and the call position. As long as we're talking short term calls, like 30 days, your call will probably be cheaper to buy back in the event the stock drops 3-5%. If stocks stay rangebound or flat, you keep up the strategy and potentially earn years of bond yields just trying to sell your stocks. Win, win, or lose very small.

CoffeeR

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Re: Rebalance stocks to bonds --- anyone else find this difficult?
« Reply #42 on: January 29, 2018, 02:58:25 PM »
1) Consider using stop-loss orders set at maybe 3 to 5% below current prices. If stocks continue to rally, as they probably will, congratulations! You get to keep the gains and roll up your stops to a higher price, ratcheting in gains the whole way up as you wait for a chance to "rebalance". When that 3-5% dip does come, you automatically move to bonds at that time. Conditional orders can automate all this, taking the emotion out of the moment. Also, it's not market timing; it's an algorithm that will probably/usually outperform an immediate rebalance. The risk you take in exchange for all this upside is 3-5%.

2) Consider selling calls against the shares you want to rebalance. Unlike #1, doing this by itself does not provide much protection against a correction - maybe a couple percent. However, it is a way to earn income from your rebalancing efforts. You can also sell calls in addition to having a stop by having your stop limit conditional order liquidate both your stock and the call position. As long as we're talking short term calls, like 30 days, your call will probably be cheaper to buy back in the event the stock drops 3-5%. If stocks stay rangebound or flat, you keep up the strategy and potentially earn years of bond yields just trying to sell your stocks. Win, win, or lose very small.
Interesting ideas, but both of these strategies can be difficult in retirement 401K type of accounts. My particular 401K does not offer options or stop loss orders and rolling over to more regular IRA accounts is not an option for me until I leave employment, for reasons I do not wish to explain. Still, I like your thinking.

ChpBstrd

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Re: Rebalance stocks to bonds --- anyone else find this difficult?
« Reply #43 on: January 29, 2018, 03:36:39 PM »
1) Consider using stop-loss orders set at maybe 3 to 5% below current prices. If stocks continue to rally, as they probably will, congratulations! You get to keep the gains and roll up your stops to a higher price, ratcheting in gains the whole way up as you wait for a chance to "rebalance". When that 3-5% dip does come, you automatically move to bonds at that time. Conditional orders can automate all this, taking the emotion out of the moment. Also, it's not market timing; it's an algorithm that will probably/usually outperform an immediate rebalance. The risk you take in exchange for all this upside is 3-5%.

2) Consider selling calls against the shares you want to rebalance. Unlike #1, doing this by itself does not provide much protection against a correction - maybe a couple percent. However, it is a way to earn income from your rebalancing efforts. You can also sell calls in addition to having a stop by having your stop limit conditional order liquidate both your stock and the call position. As long as we're talking short term calls, like 30 days, your call will probably be cheaper to buy back in the event the stock drops 3-5%. If stocks stay rangebound or flat, you keep up the strategy and potentially earn years of bond yields just trying to sell your stocks. Win, win, or lose very small.
Interesting ideas, but both of these strategies can be difficult in retirement 401K type of accounts. My particular 401K does not offer options or stop loss orders and rolling over to more regular IRA accounts is not an option for me until I leave employment, for reasons I do not wish to explain. Still, I like your thinking.

Ah, the bastards! In-service distributions should be allowable on all plans by law. At least give me a full-service account. Hell, I might pay you some commissions. Oh well.

AdrianC

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Re: Rebalance stocks to bonds --- anyone else find this difficult?
« Reply #44 on: February 22, 2018, 08:31:51 AM »
Dragging up the old thread to say...I did it. Rebalanced. Expect the market to zoom upwards from here :-)

It's been mentioned above, but I think it's worth highlighting...if buying more bonds is not making you happy ask yourself if you actually need more bonds?

Let's assume:

- $40K/yr spend
- $1M stash
- 80/20 stock/bond AA
- all numbers inflation adjusted

This means you'll FIRE with ~$200K in bonds or 5 years of spending. Perhaps this gives you the comfort that you'll be able to survive an early market crash.

Later your portfolio continues to grow and you have $1.5M total so $300K or 7.5yrs of spending in bonds. Perhaps it grows to $2M or $400K/10yrs spending in bonds.

Do you need more than 5yrs spending in bonds? If not maybe you don't need a % bond allocation as much as a fixed number of years of spending? If so letting your stocks run would be fine and there is no need to rebalance as long as you are meeting your fixed bond requirement of say that initial $200K.

This is how I will be looking at my bond allocation...a fixed number of years of spending.

Just some food for thought.

Good points.

I like the idea of keeping x years expenses in fixed income (bonds and cash) rather than an arbitrary percentage. The usual advice is donít have money in stocks youíll need in the next five years. I want to be a bit more conservative so I've gone with 7.5 years (70/30 for a 4% WR). Still plenty aggressive.