How often do you rebalance?

hank

I don’t ever remember a period in which the difference in performance between “safe” fixed income investments and “riskier” investments has been so dramatic as over the past month. It’s particularly accute if your risk assets include commodities, which continue on their way to the moon.

I’ve always thought quarterly rebalancing more than adequate. And, because I can “tilt” my annual distributions one way or another, rebalancing has in the past mostly happened automatically. I’ve read that once a year is enough.. Yet, some pretty wide divergences can now develop in a few days. (The fact I even need to ask this question has me wondering about relative valuations.)

Do you rebalance on some sort of predetermined time schedule? Or do you wait until your investment categories (ie growth, fixed income, alternatives) deviate from one another by a certain amount? Or … perhaps you never rebalance?

catch22

Our rebalance doesn't rely on a schedule, but are the results of buys or sells that change the allocation of the portfolios for other reasons.
IMO, a notable consideration for any personal schedule; is whether the portfolio is a taxable or tax sheltered account(s).

Mark

Never, at least not on purpose. I would prefer not to hold any income producing investments but lenders, rental companies, utility companies, etc., like to see income.

Nearly all of my equity positions pay dividends and/or produce income distributions (e.g. equity CEF's). My fixed income portion, roughly 20-25% at the moment, consists of primarily PIMCO bond CEF's, CHS preferred shares plus some cash. That percentage has been as low as 5-10%. One could say that I just prefer to hold stocks.

Crash

I've been in the habit of rebalancing once a year, when things were allegedly more predictable. Current circumstances equate to a flying circus. I still have not put money into any commodities funds or single stocks. I figure that train has already pulled out of the station. ..... I'd been aiming for a "safer," less volatile portfolio, given that I'm in retirement and am not getting younger. But Mr. Market has other ideas at the moment. I don't want to be the last one caught tilting at windmills. So, very quickly, in just the last couple of days, my bonds have dropped to 44 from 60 percent and stocks are back up to 48 percent of portfolio. The cash portion is mostly all in the sweep account now: standing at 13% of total portfolio.

Domestic equities: 34%
Foreign: 14%

This past week has halved my unrealized losses for 2022, so far. Much easier to swallow, now. There might even be some GROWTH, this year. But don't quote me. That will jinx the whole thing.

davfor

Generally at the end/start of the calendar year. That's when any changes in the allocations generally get set for the new year. (My primary investment account is taxable.) If a substantial overall stock market drop occurs during the year rebalancing can occur when that happens if that makes sense. No set imbalance % for that. But, nothing has developed this year that has come close. Growth stock OEFs have taken a bit of a hit but energy and utilities stocks have mostly compensated....64% of the taxable account portfolio was in stocks at start of the year and 64% is in stocks this evening (it dropped down to 63% at one point this year).

Derf

@davfor : I'm wondering if I'm reading you right. Seems as market drops you add to your account to keep 64% in stocks. Or energy & utilities caused your portfolio to stay in the 64% range with one (1) drop to 63%. Now thinking the later guess & hats off to you !
I was down 8 +% in one account & guessing 2% in other account.

Have a good weekend, Derf

Sven

Our rebalancing process has evolved over time that include the business cycle. In our core bucket, we rebalanced it about 4 times a year. The tactical bucket where we invested in individual stocks, ETFs, commodities, and OEFs, is more actively managed, especially in the last several years where the market conditions rapidly change. Our goal is loss less than the market average while having a respectable gain and staying a bit ahead of inflation. For us that is good enough.

davfor

@Derf Yes. It was the latter. But, overall, my portfolio is down 4.4% YTD. So, there has been a slight downturn. Non-stock investments have tended to drop in tandem with stock investments so far this year....somewhat to my surprise. Decisions to overweight energy in 2020 when the sector was very much out of favor and to shift some bond $'s into individual utility stock $'s in the latter part of that year have proved helpful. But 2022 is still young. Perhaps the market will return to emphasizing the potential adverse impact of rising rates on utility stock profitability. The road ahead may be somewhat bumpy for those income stocks. (This original "bond replacement" investment has returned 20.7% exclusive of dividends so far and is providing a 4.34% YOC.)

Observant1

The performance of my portfolio's individual holdings is checked almost daily (for no good reason).
The entire portfolio is "X-Rayed" from 3-5 times per year.
I usually rebalance annually if the stock/bond allocation varies (+/- 5%) from my target threshold.
This rebalancing occurs near the very end/very beginning of the year.

Devo

My MFO article on Drawdowns exactly talks about all these issues. I do hope you get a chance to read it. My experience is that rebalancing is a 2-step practice.

The 1st thing I find is Slippage away from core positions into tertiary positions. This might be if I thought of Stock picking or market timing. To me, this is actually a more worthwhile rebalancing to do because most of the time when I compare vs the index my stock selections or over/underweighting, I find I would have been better off sticking to the core views. This requires have a pre-set view on what the core asset class index is in each asset.

The 2nd is the under/over weight. I find that as all risky assets have become correlated (international, em, RE, US), I tend to rebalance less internally across risk assets and allow momentum to express over/under weights until it just becomes too extreme. Right now EM assets seem extreme is an example and a motivator to shift out of US into EM by 1-2% max.

Shifting between Risky and Riskless is harder because the Riskless has also been RIsky this year. Neverthless, now I feel we are at a point where a downward risk to growth could actually move bonds up in price. I have been more focused on adding to Bonds from US Eq.

Sven

@Devo, would you please link your previous article on drawdown? I seem to difficulty locating it.

@Obserant1, are you subscribing to M* in order to have access to their X-ray tool ? T. Rowe Price is now enable this tool when the investors reach certain level, and I do not qualify that at this moment.

yogibearbull

@Devo's article https://www.mutualfundobserver.com/2022/03/overcoming-drawdowns/

@Sven, M* Instant X-Ray is free with M* Basic/free subscription but you cannot save the results (just tested, results can be saved as a new M* Portfolio). Access to regular X-Ray from M* Portfolio requires M* Premium. https://www.morningstar.com/instant-x-ray

Observant1

@Sven,

I use X-Ray via M* Investment Research Center ¹ provided by my local library.
I'm able to save X-Ray results and don't have any M* subscriptions.

¹ Also allows free access to FundInvestor, ETFInvestor, StockInvestor, and DividendInvestor newsletters.

Sven

@Obserant1, good reminder to check out our library too.

@yogibb, thank you.