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Rebalancing your portfolio

The Case Against Frequent Rebalancing of Portfolios

By Mark Hulbert at the WSJ

Note: the story is supposedly not behind a paywall.


  • Ah the eternal debate, almost as eternal as Sox vs Yankees

    I think there are far more academic stories on this issue than the ones he refers to.

    The plan suggested

    "Another alternative is to rebalance only when your portfolio’s losing assets appear poised to reverse themselves and head up."

    Sounds a lot like market timing. Good luck with that, but if you follow a specific rule, you probably have a better chance of success.

    I agree with him that one of the main reason to rebalance is controlling your risk level, but there are tax considerations that work against frequent rebalancing
  • I think that the headline writer didn't read through or understand Hulbert's article, or just wrote the headline for maximizing clicks.

    Rebalancing isn't for enhancing returns.

    But as the article points out, rebalancing is a risk control strategy.

    It is also known that frequent rebalancing doesn't achieve much and annual rebalancing may be sufficient. Some use 5% deviations as triggers.

  • "I made my money selling too soon" has been attributed to how many famous investors besides Bernard Baruch?

    "But don't try to time the markets!" Sez, a lot of people.

    "Where does dry powder come from anyway after you have retired?" The children ask. Who will tell them?

    I remember writing on this site about selling all the bond funds in my IRA because they were up a silly amount for bonds. And I don't like bonds much anyway. So out they went.

    That worked out OK in some ways. But I can't promise that I squeezed the last ounce out of those investments.

    Some of the money went into growth, which has been hammered. Some of the money went into value, which has done ok. Utilities and staples have done OK. Some went into greens that have tread water. And some is still dry powder.

    But I'm happier holding this stuff than I was the bonds. So there's a better chance I'll leave it alone until it has a chance to do its thang.

    And then I will have to worry about the right way to rebalance. And whether I ought to own bonds because they're financial dental floss.
  • Hi @WABAC
    I enjoyed your open thinking pondering about re-balancing.
    I flash back to very early days and a type of re-balancing that likely carried over to be a new, young investor. Although being 'older' and with much more experience doesn't necessarily cause one to ponder less, the so-called, re-balance.
    The youth years found me in a rural setting. Some of those in my age group were associated with farming. My family was not; but I had buddies' families who were. Which brings me to hay mounds and the near by creek.

    --- Hay mounds: A friends uncle and grandpa had a medium sized working farm. We were allowed to play in the big barn. Each end of the barn had hay or straw bales stacked high, with the center being open. We used a large barn rope hung from the inner peak of the roof to swing (Tarzan style) from hay loft to hay loft. Testing one another's skills at various sections, as the bales were not always equal in location, versus the other side. Swinging back to the other side wasn't always the same circumstance.

    ---Jumping the creek: The creek was 8 feet at the widest, but some sections were only 3 feet wide during a dry summer season. The creek was surrounded by a forest of mature trees, young trees and dead trees. We'd find a dead, but strong tree limb of the right size and use it to kinda 'pole vault' to the other side. We'd often discovered the smooth, tapered bank on one side was a steep bank on the other side; and at times we couldn't find a suitable vaulting stick if the original fell into the creek while 'crossing'. Crossing back wasn't always the same proposition.

    Both of the above caused a type of re-balance, a change of mode of operation, at least in my mind; to get back to the other side. Substituted today for a bond to equity, or an equity to bond move. Or perhaps the neutral zone of cash....but still a move and an investment.

    The point being, at that young age, is that I unknowingly was learning a form of re-balancing that would eventually apply to investing.
    The 'when you sell, what are you going to do with the money now'? What's your next move, dude?

    Anyhoo......a fun example I still recall from youth. The learning process.

    We don't have a re-balance schedule. The portfolio re-balance occurs merely from a given buy or sell. We generally lean towards at least a 5% move in order to be a meaningful amount to impact the portfolio; and we don't shuffle the money often.

  • edited January 2023
    Thanks Mark. Great article. I don’t doubt Hulbert’s overall premise. But you know what they say about ”In the long run …”.

    Gosh - depends on what all you’re invested in as well as age, risk profile, etc, Curiously, a very speculative stock (one of Cathie Wood’s holdings) I sunk a tiny amount in a week ago has bounced 10 15% in a week - up over 5% Tuesday alone. Should I sell all or part? LOL. Last year I might have sold, as I felt locking-in whatever small gain I could in every corner of the markets a necessary “survival” strategy. With a lot of the “free-fall” (hopefully) behind us, I’m not feeling nearly as eager to capture small gains now, Will let this one run a lot longer. But, then again, were it a larger portion of the portfolio I would dump it now - as a quick 10 15% gain is a 10 15% gain any way you cut it. (Again - age, risk tolerance, etc. affect this decision).

    (Edited post for accuracy)

    Sarah Ketterer, a frequent guest on Bloomberg WSW, recently suggested a tactic she calls ”tactical rebalancing”. By that she means capturing short-term (a few months) or intermediate-term gains in some parts of your portfolio. Probably amping-up and throttling-back certain holdings rather than all-in or all-out. I guess it’s the uncertain and highly volatile nature of today’s markets that led her to that conclusion. ie: “Trying to make the best of a bad situation.”

    But lots of good input from the contributors here, Great thoughtful article. And was easy to access,

  • edited January 2023
    Portfolios can be rebalanced based on time intervals or asset threshold ranges.
    Frequent rebalancing may be counter-productive due to short-term market trends (momentum).
    Rebalancing annually or even biennually can be more productive.
    Investors often use a 5% or 10% deviation from their target stock/bond allocation as a trigger.
    The primary benefit of rebalancing is risk reduction but it may lead to higher returns when executed
    on an intra-asset level (e.g., US stock/foreign stock, large growth stock/small value stock).

    I was unable to access this article via the link because of a paywall.
    It was accessed via ProQuest which is made available through my local library system.
  • @catch22, you caught the spirit of my scribbles.

    Hulbert may have had excellent advice. But it's behind a paywall. So I stumble along in ignorance with a certain amount of mule-headed, and juvenile, insouciance. ;>)

    The way the market has been these past 12 months, I am disinclined to sell any part of the few winners in my IRA. And I'm not sure which of the losers I want more of.

    Over the years I have harvested some tax losses in the taxable account if I am no longer interested in the thesis behind the fund. Other than that, I just let things ride. I'm too lazy to generate taxable events just to push money around to squeeze out one ounce more of return.

    As for those bonds (Heavens. They're tasty. And expeditious.) I might go crazy with a floating rate treasury (TFLO or USFR) for some of the cash in my IRA.

    I'm in the higher for longer camp. Watching the price of celery and iceberg lettuce here in Arizona, I think the Fed is more likely to continue raising rates than it is to bail out Wall Street with rate cuts. So I'm not interested in anything with a duration much longer than the life span of a mayfly.
  • @Observant1 : Thanks for posting comment about using local library to access the link.
    Have a good day, Derf
    PS @catch22 :
    Did you spend any time in the
    hay mow , stacking hay ?
    3 years was enough for me !
  • edited January 2023
    I rebalance quarterly -- generally to control risk.

    I have had luck rebalancing into market downturns (COVID, 2008), but the net effect seems to be modest. Here I was using the safer assets (cash, short term high yield) as dry powder and balancing into major drawdowns. My wife, on the other hand, holds fewer safe assets directly, but holds more AA funds (which presumably are rebalancing into drawdowns as well). She seems to have done about the same as I have over the past several years (actually, I do marginally better on average), but with a bit less volatility.

    Probably the reason for the low returns to my opportunism is because even though getting the timing right on market entry is straightforward ("hold your nose and jump in"), getting out at the right time is not a simple matter once the juicy returns start to accumulate and I get greedy and hold on too long. I.e., you get a nice15-20% return and feel pretty good about yourself ("you bold and daring genius, you!") -- do you try to take it to 25% and 26% and 27% before ... *whoops* ... the market dips and you're back down to 15% or less.
  • +1 Last paragraph.
  • >> back down to 15% or less

    you left out the minus sign
  • @Derf
    Had time haying for 2 summers. Usually 2 hay cuts and 1 for straw after the wheat cut. The friends uncle had an old John Deere, single cylinder (putt, putt, putt) tractor, a small baler and a wooden platformed flat farm trailer for stacking. Hay bales weighed almost as much as I did at age 11 and 12. And we always had a hay hook in hand. And yes, the unloading and stacking into the barn stuff with that when the temps in the barn ceiling were way too hot.

    Paid $1 per day and free lunch in the nearby small town. 'Course, some of the best burgers are at the local bars, eh? A burger, Lays potato chips or fries and a glass bottle of really cold Coke. Sometimes there were extra treats for a bigger lunch.

    Straight out of an ad in a magazine of the time.
  • Rebalancing to reduce risk makes good sense to in normal market condition and the year is 2022 is not one of them.

    Did considerable reshuffling in late 2021 to get defensive. Shared the details in another post that worked out ok in 2022. As rate hikes are slowing this year, I will build up the bond funds again in the near term. Still cautious on growth stocks especially when earning season is starting.
  • edited January 2023
    catch22 said:

    The friends uncle had an old John Deere, single cylinder (putt, putt, putt) tractor …

    So that’s why they sounded that way! Always wondered. Spent 1-2 weeks a summer on farms in the Saginaw Valley region as a kid. Several relatives owned sizable farms for that day. The JDs were great tractors, but weird sounding - almost like they were about to die. Somewhere between a “Put-Put” and a “Bang-Bang”. Big flywheel spinning on the right side of one I recall. Probably kept her from stalling. Thanks for the memories.

    The thread? Did some unbalancing today. (Sold some stuff to reduce market exposure after a nice winning streak).
  • edited January 2023
    @hank et al
    Correction, the JD A model is two cylinder. There was a single cylinder motor (moveable) for other uses at the farm.
    Hank, the IDLE sound you recall (145-190 rpms, typical).

    Now, I won't further pervert this decent thread.
  • edited January 2023
    I don't believe in automatic rebalancing. To me, that's an idea brokers thought up to churn accounts and earn order flow payments or commissions from.

    If anything, I may reallocate some holdings across different SECTORS as appropriate based on market/current events and forecasts. But I won't reallocate just because I'm X percent over/under somebody's target weighting on a given sector/asset class.
  • @catch22 +1 Beautiful!
  • We’ve (DW & I) been at the conservative end with a target equity of 35% and 22% to TIAA’s Traditional account “guaranteeing” 3+%/yr. I’m grateful to have only taken a 7% hit this past year, between the 28% bond funds and 10% cash. Instead of investing the RMDs these last few years and not needing half of them for living expenses, we’d stashed the cash in 2020-21.

    Now that the market has dropped, we’ve been investing back into equities (VTI, VIG, SCHD, VPU). We’d started to purchase short-term treasuries (3 and 6-month) at auction, but our VG money market funds seem just as competitive at the moment (am I missing something here?).
  • edited January 2023
    but our VG money market funds seem just as competitive at the moment (am I missing something here?).
    Your VG MMKT are in line with Fidelity MMKT's. SPAXX (3.9%)and FDRXX (3.93%) are standard MMKT core accounts with yield about 3.88%. While an additional MMKT we use, FZDXX is at 4.27%.
  • edited January 2023
    Sounds like @Level5 has his act together. Nice approach me thinks.

    Can’t emphasize enough the relevance of age & situation to this whole topic. As one nears 80, unless there’s some extenuating circumstance (growing portfolio for heirs, having money to burn, being really desperate for return, etc.) it’s best to stay on a tight leash. Don’t get too far out on the ledge. Time ceases to be on your side at some point. Indeed, some who are north of 75 elect to move to cash only or safer funds like VWINX. I’d say: Be slow to criticize whatever conservative path these folks (self included) elect to pursue. :)

    @Catch22. Thanks for the mm info. Looks like FDZXX has a $100,000 minimum investment.
  • edited January 2023
    I changed the ticker, as I did a typo. Should be FZDXX. $10,000 in IRA. The $100,000 is taxable account. One has to do an actual purchase for FZDXX, not unlike buying a mutual fund. So, you could use another MMKT/core account (example: SPAXX or FDRXX) monies to purchase When logged in to Fido, select your 'positions', then select the 'dividends tab for current yield; and you can enter FZDXX into the search for yield info there, although it may be dated by one week old, but at this time is close to the previous week yield.

    Check here for more info regarding FZDXX and what may be do with monies in this fund. msf provided an excellent write.
  • edited January 2023
    @catch22 @hank - appreciated the education you two have provided for this long term lurker.

    Perhaps the biggie between MMkt and treasuries is the untaxed state income with treasuries for taxable accounts, yes?
  • @Level5 Yes for taxes with MMKT. Treasury items not taxed at a local level may also apply, if a municipality/city requires tax filing. Our FZDXX (4.27%) is within IRA and taxable accounts. But, taxes are important to 'total return'. We're/I'm too lazy to purchase Treasury items in taxable account, and are satisfied with the current yield.
  • @catch22 - Thanks for correction and additional digging.

    @Level5 - Thank you for the kind words.
  • @catch22 - “We're/I'm too lazy to purchase Treasury items in taxable account, and are satisfied with the current yield.” I so totally get that!
  • down to 62 percent in stocks. but that's not really the goal. side-effect.
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