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How often do most people re balance their investments? Yearly I would assume. However if the market takes a huge hit, I don't see how you can re balance as stocks are down and you would have to wait for a recovery.
How often do most people re balance their investments? Yearly I would assume. However if the market takes a huge hit, I don't see how you can re balance as stocks are down and you would have to wait for a recovery.
We do not do it, but our FA rebalances, if necessary, every quarter.
if you are 100% equities and own no bonds and use funds rebalance in to the funds that did worse .
perhaps reits did better than the s&p so sell reits and buy the s&p .
if you have other asset classes than just rebalance them out .
i don't rebalance the insight models ever . funds just get swapped for other funds to keep the beta on the model in target range .
if a goal of the portfolio is to stay 70% less volatile than the s&p 500 than funds are swapped or maybe cash held with more aggressive funds to keep it in that range .
rebalancing between bonds and stocks usually hurts performance as a rising glide path over the years works best ,.
but if volatility is an issue then maintaining a set allocation between assets ,may help . doing it every two years has worked better than every year .
just remember , rebalancing from equities in to lesser capable performing assets like a total bond fund may mitigate temporary short term dips but permanently reduce long term gains .
for a long term investor having less capable assets like bonds and rebalancing makes little financial sense , just possibly mental ease .
How often do most people re balance their investments? Yearly I would assume. However if the market takes a huge hit, I don't see how you can re balance as stocks are down and you would have to wait for a recovery.
I was on a 401(k) committee for an employer from 2005-2013. A lot of people, seeing that their account was down 25-40% in 2009. A good many of them shifted all of their funds from stock and bond funds in 2009 to the stable value funds. In 2013, many of them still were in the same stable value funds. This meant that they missed the market recovery from 2009-now.
Personally, I spend a lot of time determining the right asset allocation and then stick with it. I have always found that rebalancing once a year was more than adequate.
How often do most people re balance their investments? Yearly I would assume. However if the market takes a huge hit, I don't see how you can re balance as stocks are down and you would have to wait for a recovery.
re-balancing is important and should be done occasionally. However re-balancing is not something you should do or take lightly.
Quote:
Originally Posted by jlawrence01
I was on a 401(k) committee for an employer from 2005-2013. A lot of people, seeing that their account was down 25-40% in 2009. A good many of them shifted all of their funds from stock and bond funds in 2009 to the stable value funds. In 2013, many of them still were in the same stable value funds. This meant that they missed the market recovery from 2009-now.
Personally, I spend a lot of time determining the right asset allocation and then stick with it. I have always found that rebalancing once a year was more than adequate.
You bring out the important aspect. In 2009 if people decided to re-balance their funds they actually locked in their losses if they moved out of equities to treasuries. I know several people who did just that. Years later when comparing account balances in conversations about retirement they realized their mistakes and regretted it.
My suggestion in the case of the market drop of 2009 is this. Instead of moving existing account balances the best strategy is to buy new shares in those funds. The longer the time horizon the better the situation is. 2009 was nearly 10 years ago. The rise in the market since then has made a lot of people a lot of money me included. As you near retirement and that means 5 years or less you can rebalance to less volatile investments. Best idea is to look at how target date funds look internally. Pick target date funds from say Vanguard and compare the prospectus' Choose several so you get a good idea. 2025, 2035, 2045, 2055 funds have similar investments just in different proportions. They also have a fund they use for disbursements that will give the investor a fixed or adjusting periodic paychecks. I hope this helps.
good article from kitces on rebalancing . a nay for enhahncing returns -odds are it will hurt your performance . a thumbs up for risk mgmt .
EXECUTIVE SUMMARY
The conventional view of portfolio rebalancing is that it is a strategy to enhance long-term returns by periodically selling the investments that are up (and overweighted) to buy those that are down (and underweighted), in the process of realigning the portfolio to its original target allocation.
Yet the reality is that because most investments go up far more often than they go down, systematic rebalancing is actually more likely to just consistently liquidate the best-performing investments to buy ones with lower returns instead – especially when rebalancing across investments that have very significant return differences in the first place (e.g., rebalancing from stocks into bonds).
As a result, rebalancing may be helpful as a risk management strategy – otherwise higher-returning stocks would compound to the point that they are significantly overweighted relative to lower-returning bonds – but it’s only when rebalancing amongst investments with similar returns in the first place that rebalancing provides a return-enhancement potential.
Ultimately, the fact that rebalancing may actually reduce long-term returns isn’t a reason to avoid it (even if returns are lower, risk-adjusted returns may be improved if the risk is reduced by even more), and sometimes returns really can be enhanced (when rebalancing across similar-return investments, such as amongst sub-categories of equities). Nonetheless, it’s crucial to recognize the role that rebalancing really does – and does not – play in a long-term portfolio!
re-balancing is important and should be done occasionally. However re-balancing is not something you should do or take lightly.
You bring out the important aspect. In 2009 if people decided to re-balance their funds they actually locked in their losses if they moved out of equities to treasuries. I know several people who did just that. Years later when comparing account balances in conversations about retirement they realized their mistakes and regretted it.
My suggestion in the case of the market drop of 2009 is this. Instead of moving existing account balances the best strategy is to buy new shares in those funds. The longer the time horizon the better the situation is. 2009 was nearly 10 years ago. The rise in the market since then has made a lot of people a lot of money me included. As you near retirement and that means 5 years or less you can rebalance to less volatile investments. Best idea is to look at how target date funds look internally. Pick target date funds from say Vanguard and compare the prospectus' Choose several so you get a good idea. 2025, 2035, 2045, 2055 funds have similar investments just in different proportions. They also have a fund they use for disbursements that will give the investor a fixed or adjusting periodic paychecks. I hope this helps.
odds are in 2009 stocks would have fallen more than bonds so you would be going the other way . you would be selling treasury bonds and buying stocks .
looking at 2008 s&p fund was down 37% and up 26% in 2009 , total market fund up 7.70 in 2008 and up 3% in 2009 .
Many years ago, I went to one of those kid's shows. If you were one of the five kids selected, you had the opportunity to stick your hand into a one gallon pickle jar and take as many pennies as you could.
However, there was a catch! The neck of the jar was fairly narrow. If you grabbed as many pennies as you could hold in your hands, you would likely drop most of them in getting your have out of the jar. It was better to grab about 75% as much as you could hold and not drop any on the way up. However, almost no one else did that since they were possessed with the need to grab the most.
Rebalancing does result in lower returns. For that matter, an asset allocation that is somewhat less than 100% equities also produces lower returns, especially in up markets. However, the risk reduction allows you to sleep at night and frees you from the need of watching CNBC for the latest market gyration.
It is sort of like watching baseball. For years, I watched Pete Rose consistently line singles to the three outfielders. You could pretty much count on him getting a hot every third at bat and getting on base 40% of the time. Compare that to Dave Kingman who could hit some of the most tremendous home runs ... but 80% of the time, he went back to the bench unsuccessful. Singles hitters stay in the game a lot longer.
however there is no evidence that those that are risk averse stick around in balanced portfolio's any better than if the portfolio's were more aggressive . they show them same poor behavior .
losing money is losing money and it triggers the same poor investor behavior regardless in most people .
i have been doing this stuff for more than 30 years but i have to say that even though i stick things out , i can't say i am more comfortable in a good down blast with my fairly conservative retirement portfolio's then i was when i was a much more aggressive investor .
the fact that balances grow over time are a big contributor to bad behavior .
as i always mention , today a mere 7% drop represents 9 years of maxing out my 401k at catch up . when i was a much younger investor maybe it was a few months in dollars . when we see 2 years of my wifes salary vanish in one session it is never easier.
Last edited by mathjak107; 05-08-2017 at 09:38 AM..
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