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Do you rebalance your retirement portfolio?
Posted on 1/3/13 at 5:15 pm
Posted on 1/3/13 at 5:15 pm
If so, can you explain a real, and not just theoretical benefit to doing so?
I don't really see one, and it seems that mine just sort of works itself out okay as it moves along over time.
I don't really see one, and it seems that mine just sort of works itself out okay as it moves along over time.
2
Posted on 1/3/13 at 5:35 pm to Y.A. Tittle
I rebalanced a few weeks ago, b.c company's stock had been performing really well and I thought it was too high a percentage of my overall net worth.
its about keeping diversification, and helps you sell high and take some gains.
its about keeping diversification, and helps you sell high and take some gains.
Posted on 1/3/13 at 6:01 pm to Y.A. Tittle
quote:I'm sure you know this.
If so, can you explain a real, and not just theoretical benefit to doing so?
Sectors rarely remain as top-performers or bottom-dwellers year-to-year. Consider 2008 vs 2009 below. Holding equal allocations of EMB/Treas/HighYld/MBS through 2008 would result in Treas/MBS overweight and HighYld/EMB underweight. The following year the sectors flipped. A nonrebalanced portfolio would underperform one adjusted to re-equalize positions.
From 2009-2010 not so much. More often than not though, rebalancing will take advantage of various sectors tendency to fluctuate.
This post was edited on 1/3/13 at 6:03 pm
Posted on 1/3/13 at 9:42 pm to NC_Tigah
quote:
From 2009-2010 not so much. More often than not though, rebalancing will take advantage of various sectors tendency to fluctuate.
But, if I keep my purchase allocation the same, wouldn't their tendency to fluctuate work itself (balance itself?) out in the end, or at least have an equally beneficial result than if I rebalanced my entire holdings on some sort of regular basis?
Posted on 1/4/13 at 4:01 pm to Y.A. Tittle
quote:Obviously depends. As with dollar cost averaging, it's playing the odds. Should add, we've never made a point of formal rebalancing per se. But we deal in accounts of numerous individual equities, so it's more a matter of continual consideration of diversification following transactions.
But, if I keep my purchase allocation the same, wouldn't their tendency to fluctuate work itself (balance itself?) out in the end, or at least have an equally beneficial result than if I rebalanced my entire holdings on some sort of regular basis?
Folks will often hold portfolios largely comprised of MF's ETFs RIETs etc. In that case, if you believe proportionality of initial portfolio allocations still make sense, you should probably rebalance. Otherwise altered diversification increases risk. If the new redistribution happens to optimize diversification given new market circumstances, then hold what you've got.
Hand in glove with decision to buy a hot fund vs a high quality fund coming off of a down year. The latter is more productive in my experience, but there are certainly instances where high flyers continue flying high, or high quality continues to underperform.
There are absolutely circumstances where rebalancing is poor strategy. Depends on the number and type of holdings, along with taxes or market considerations.
This post was edited on 1/4/13 at 4:23 pm
Posted on 1/4/13 at 4:08 pm to NC_Tigah
(no message)
This post was edited on 1/12/13 at 8:45 pm
Posted on 1/4/13 at 4:46 pm to Maniac979
Quarterly but also have a mechanism in place to auto rebalance if any holding deviates more than 10% of where it should be.
Posted on 1/4/13 at 5:09 pm to Y.A. Tittle
quote:
But, if I keep my purchase allocation the same, wouldn't their tendency to fluctuate work itself (balance itself?) out in the end, or at least have an equally beneficial result than if I rebalanced my entire holdings on some sort of regular basis?
The whole point of rebalancing at regular intervals is that you're selling high in your more weighted asset class and buying low in your less weighted asset class. So to keep it simple, if you're 50-50 bonds and stocks, but stock market performance is strong and you're skewed 70-30, by rebalancing you're betting that your stock holdings are performing better than is to be expected over the long term and reducing your risk exposure to a market down-turn.
Allowing your holdings to fluctuate regularly is effectively betting against your initial asset allocation model, leaving yourself with more or less market exposure in a particular class than intended. So if you remain 70-30 stocks/bonds, and your stock holdings underperform your expectations, then you will realize that underperformance over a greater portion of your holdings than initially intended.
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