rebalancing and volatility

[mcampbell]

I feel I'm underweighted on equities, however with all the current volatility I think this isn't the best time to be messing around.  I'm currently 20% cash, 12% bonds, 35 domestic stock, 27 international, 6% REIT. Thinking I want to get up to like 30-40% bonds, but keep some cash.

[Heckler]

Please see here:

https://www.bogleheads.org/wiki/Investment_policy_statement


You should never "feel" underweighted or overweighted, just off your planned asset allocation. 

[Heckler]

And, your statement makes little sense.  You feel underweighted on stocks, but want to increase your bonds?

[nereo]

+1 to having an IPS

Also - this is exactly why you want to set up periodic (instead of random) times when you rebalance your portfolio.  Trying to convince yourself that now is/is-not a good time for rebalancing is just another form of market timing.  Set a time of year (e.g. "January" or "the end of each fiscal quarter") and then pick a specific date to rebalance, preferably well in advance.  Ignore whether the market has recently rallied or dropped; just do the rebalancing.

[frugalnacho]

+2 to heckler and nereo.  Your statement doesn't make sense, you feel you are under weighted in equities and your solution is to shift more towards bonds?  That's backwards, something must be missing or you used some wrong words.

Make an IPS and stick to it.  My 401k has a re-balancing option so I set the % I want in each fund so it remains consistent with my IPS and it automatically rebalances for me quarterly.  I don't even look at it.  The rest of my investments I look at on my birthday in January, and I rebalance them back to comform to my IPS.  A slight amount of math involved, but absolutely no thinking or emotion.  All the emotion was factored in when I made my original IPS.  I picked what I would be comfortable with long term, and now I am sticking to it regardless of what the market does, I will only be rebalancing on my birthday each year. 

[Tyler]

"Underweight" relative to what?  The core issue is that you appear to lack confidence in your asset allocation.

Times of high stock volatility are a great time to reassess your own personal risk tolerance.  Everyone thinks they have a high risk tolerance when their volatile investments are doing well, but when the coin flips (as it inevitably does) too many people are emotionally unprepared for the fallout and end up shooting themselves in the foot by selling low. 

FWIW, I think there's absolutely nothing wrong with 40% bonds and cash if that's what works for you.  But purely reacting to the market will do more harm than good.  Take notes on how the volatility makes you feel (seriously -- consider journaling about it so you don't forget when times are good), research how other portfolios perform in similar circumstances, and think about how you'd prefer to stay invested for the long haul.  That's where the IPS comes in.  But sleep on any change and don't be impulsive. 

[opnfld]

Heckler and nereo are right.  I'd clarify that you can also rebalance when your asset allocation fluctuates by a predetermined percentage.  E.g. when your stock allocation drifts from your desired 75% (for instance) to 70%.  Then you rebalance.  To do this reliably, you need a spreadsheet (or Personal Capital or Betterment or the like).

[mcampbell]

Missed typed , I feel like I'm underweighted on bonds. Yeah this feels a lot like market timing to me ;(