Author Topic: When to rebalance?  (Read 2346 times)

eyePod

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When to rebalance?
« on: October 02, 2013, 05:55:08 AM »
Just trying to figure out how long everyone lets their asset allocations drift. I have my targets.  They're barely off of what I want (like 0.5%).  Is it worth it to move them?  I don't have any taxable accounts now, so there wouldn't be any associated fees. 

Any good good rule of thumb (off by 1%, 5%, 10%)?  Just do it every 6 months/year regardless?

(I got an error when I tried to post this the first time.  If it's double-posted, I apologize!)

Ottawa

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Re: When to rebalance?
« Reply #1 on: October 02, 2013, 06:12:44 AM »
It's pretty hard to keep things balanced in a volatile stock market..with daily gyrations of 0.5 - 1%.  As I write this I can see that our portfolio's target vs actual are as follows:

US equities target of 40% is actually 40.67%
CAD equities target of 25% is actually 24.87%
International target of 15% is actually 18.53%
Reits target of 8% are actually 5.96%
Bonds (short term) target of 2.5% are actually 1.89%
Bonds (high yield) target of 9.5% are actually 8.1%

So, next week on payday I will send ~$3000 into the most underperforming area - (as of today that would be REITS).  However, by next week...with the shutdown/debt ceiling...who knows? 

Basically I add to our 'stache every 2 weeks (payday).  The amount may vary and I may buy more than one equity class.  When adopting this strategy, you tend to smooth out your ACB...and always buy low (in a relative sense).  Also, with frequent additions, you may want to consider a discount brokerage that has NO FEES for buying.  In our case, we buy ETF's at no cost with Questrade (Canada). 

Nothlit

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Re: When to rebalance?
« Reply #2 on: October 02, 2013, 09:48:29 AM »
This Vanguard whitepaper recommends annual or semiannual monitoring, with 5% thresholds. In other words, check your portfolio once every 6 or 12 months, and if it's more than 5% off at that time, rebalance. Otherwise let it go. I haven't fully decided what my strategy is yet, but that's what I'm leaning toward following. I have occasionally tweaked new contribution percentages so as to minimize the need for wholesale rebalancing, but I'm not sure how that fits into Vanguard's recommendations.

Greenbeard

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Re: When to rebalance?
« Reply #3 on: October 02, 2013, 01:47:41 PM »
I end up rebalancing every 3 months.  This is mainly because my stock options and employee stock purchase come at those times.

Since I'm not drawing on my investments, then rebalancing is done by adjusting contributions.

I don't attempt adjustments unless I'm more than 2% off my target.

eyePod

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Re: When to rebalance?
« Reply #4 on: October 02, 2013, 02:27:30 PM »
Thanks for the vanguard whitepaper and everyone's insight.  It's good to see those #'s of 2% and 5% out there, since mine are still all within 1% of our targets.  I just wanted to make sure I wasn't making a big mistake by not messing with it if it's maintaining the same output as planned.

prestojx

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Re: When to rebalance?
« Reply #5 on: December 14, 2013, 02:05:33 PM »
There is no one best method to use to rebalance. However, the goal is to minimize costs and hassle.

If you are adding new funds regularly, you can use them to adjust your asset class allocations.

If not, one method is to rebalance only if the change in an asset class's allocation is greater than either an absolute 5% or 25% of the original percentage allocation.

The other is to look at your portfolio once a year and rebalance if necessary. Ultimately, it would probably amount to the same thing.