Does anybody actually rebalance across bond holdings?

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guppyguy
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Does anybody actually rebalance across bond holdings?

Post by guppyguy »

If you hold more then one fund/ETF on your bond side in any combination (BND/BNDX or VGIT/VTIP..etc), does your IPS call for a rebalancing threshold (maybe 5%) and has the MARKET EVER necessitated you actually rebalanced??

I’m guessing no but was curious. It would depend on the volatility/correlation of either side and most bond holdings around here are pretty sanguine.
orklc
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Re: Does anybody actually rebalance across bond holdings?

Post by orklc »

Yes, though not the way you mean. In taxable I split 50/50 between state and national munis. Rebalancing with new contributions is always enough to bring that back to 50/50. It's still rebalancing though.

I don't specify an AA between the bond types in taxable vs tax-deferred -- that's a function of how much fits where.
livesoft
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Re: Does anybody actually rebalance across bond holdings?

Post by livesoft »

I market time between Total Bond Index and Short-term Corporate Bond Index. I would not call it Rebalancing, but I do not go from 0% ST corp bond to 100% total bond and vice versa. That is, I typically have some fraction of each of them. And if you are thinking that market timing would lose one lots of money or make one lots of money, then you would be mistaken. If you are thinking one might goose returns by 0.5% to 1% in a year, then that's probably closer to reality.
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dbr
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Re: Does anybody actually rebalance across bond holdings?

Post by dbr »

In theory, yes, but it has never happened. Even rebalancing stocks and bonds is a rare event for me. There is a degree of rebalancing when withdrawing. It is a "comes out in the wash" sort of thing.
Broken Man 1999
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Re: Does anybody actually rebalance across bond holdings?

Post by Broken Man 1999 »

I do not sell bond funds to buy other bond funds, except for exchanging Total Bond Market Index in favor of treasury bond funds, a work in progress. I do spread the proceeds of selling equity funds via rebalancing over our various bond funds to keep the proportions stable.

Given the stability of our bond fund holdings, relative to our equity fund holdings, there isn't much need to rebalance bond funds other that what I described above.

Broken Man 1999
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Karamatsu
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Re: Does anybody actually rebalance across bond holdings?

Post by Karamatsu »

My bonds are split across three types and I try to keep them in correct proportions, but thus far I've always done that either with new money or with the proceeds when individual treasuries mature, so I think you're right, and I've never actually sold one type in order to buy another. That could change after retirement, but by the nature of the beast(s), treasuries and high-grade bonds with similar duration tend to move together, so it's rare for them to get too far out of alignment, and if I turn off automatic dividend reinvestment it might never be necessary at all.
Dandy
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Re: Does anybody actually rebalance across bond holdings?

Post by Dandy »

Not generally. I try to make sure my "safe" fixed income i.e. FDIC products, short term bond funds and money markets in total are at a certain level to support $X of withdrawals to age 90 (I am 73).
Northster
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Re: Does anybody actually rebalance across bond holdings?

Post by Northster »

Interesting question. Although I try to keep each of my four stock funds near their target percentages and keep the overall equities/bonds ratio fixed, I don't pay much attention to the details of the bond allocations. This is partly because I have no bonds in the tax-sheltered portion, so any rebalancing into bonds grows the tax exempt fund in my taxable account. As was pointed out, the differences between bond funds is so small that I mostly let them drift, making a seat of the pants decision on using short term vs intermediate bond for RMD, while the inflation protected fund just sits there. Not strictly kosher I suppose, but works for me.
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KingRiggs
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Re: Does anybody actually rebalance across bond holdings?

Post by KingRiggs »

I hold all my bonds in a 401k. Target is 20% or portfolio in Schwab Aggregate Bond Fund (SWAGX), 10% in Schwab Intermediate-term Treasury (SCHR).

New contributions over the past few years have gone to SCHR, as it lags behind. I have only had to do one stock>bond rebalance based on the dictates of my ISP. Currently approaching rebalance band in SCHR because of stock outperformance. If I need to rebalance beyond what I accomplish with my monthly contribution, I would be selling equities to do so, not selling one bond fund to purchase the other.
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vitaflo
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Re: Does anybody actually rebalance across bond holdings?

Post by vitaflo »

More than likely when you rebalance from stocks to bonds you're going to shore up your bond holding AA. So rebalancing across bond holdings by themselves will be a very rare, if ever, event.
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KlingKlang
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Re: Does anybody actually rebalance across bond holdings?

Post by KlingKlang »

My wife and I hold four different bond funds between our IRAs (TBM, TIBM, TIPs, and LT Treasury) with the interest deposited in IRA MM accounts. I then make monthly transfers from the MMs back to the bond funds to try and keep the fund values equal.
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Taylor Larimore
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Re: Does anybody actually rebalance across bond holdings?

Post by Taylor Larimore »

Guppyguy:

I own one very diversified bond fund: Vanguard Total Bond Market Index Fund (the largest bond fund on the planet for good reasons). One of its advantages is that it rebalances itself.

Strive for simplicity.

Best wishes
Taylor
Jack Bogle's words of Wisdom: "We ignore the real diamonds of simplicity, seeking instead the illusory rhinestones of complexity."
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CoAndy
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Re: Does anybody actually rebalance across bond holdings?

Post by CoAndy »

My 401(k) is all in Vanguard Target Retirement 2035 so there are not too many bonds there though they will be increasing over time.
My 457 bond allocation was Fidelity U.S. Bond Index but I have cut contributions there and am putting non equity money into Vanguard T.I.P.S. fund and a Stable Value Fund (paying 1.75%).
wolf359
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Re: Does anybody actually rebalance across bond holdings?

Post by wolf359 »

Taylor Larimore wrote: Tue May 11, 2021 10:42 am Guppyguy:

I own one very diversified bond fund: Vanguard Total Bond Market Index Fund (the largest bond fund on the planet for good reasons). One of its advantages is that it rebalances itself.

Strive for simplicity.

Best wishes
Taylor
Jack Bogle's words of Wisdom: "We ignore the real diamonds of simplicity, seeking instead the illusory rhinestones of complexity."
+1

This is very good advice.
Topic Author
guppyguy
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Re: Does anybody actually rebalance across bond holdings?

Post by guppyguy »

KingRiggs wrote: Tue May 11, 2021 9:44 am I hold all my bonds in a 401k. Target is 20% or portfolio in Schwab Aggregate Bond Fund (SWAGX), 10% in Schwab Intermediate-term Treasury (SCHR).

New contributions over the past few years have gone to SCHR, as it lags behind. I have only had to do one stock>bond rebalance based on the dictates of my ISP. Currently approaching rebalance band in SCHR because of stock outperformance. If I need to rebalance beyond what I accomplish with my monthly contribution, I would be selling equities to do so, not selling one bond fund to purchase the other.
KingRiggs/livesoft-

This is kind of the only combination I was thinking of. Two funds, equal term risk, but one more exposed to credit risk than the other. During a flight to quality event like last March, credit premium "shows up" creating an imbalance. I still don't think it would trigger a threshold rebalance on the bond side. So in reality, like everybody has mentioned, rebalancing is taken care of with new funds.

Whether its worth to slice/dice away from TBM is another question.

I just wish Schwab offered a treasury only mutual fund.

Best-
Guppyguy
Karamatsu
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Re: Does anybody actually rebalance across bond holdings?

Post by Karamatsu »

It's an interesting question, whether slice/dice is worth it. I'd have to back-test. I do have questions, though, about the wisdom of market-weighting bonds. With equities it makes a certain amount of sense to "follow the money" and the best guesses of the crowd, but with bonds you're following the debt, which is a very different thing.
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baconavocado
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Re: Does anybody actually rebalance across bond holdings?

Post by baconavocado »

I hold BND and BNDX and I do rebalance with them, although my rebalancing thresholds are probably much smaller than yours. I was buying BNDX in February this year and selling it last September.
stimulacra
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Re: Does anybody actually rebalance across bond holdings?

Post by stimulacra »

Yes. At least annually.
Thesaints
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Re: Does anybody actually rebalance across bond holdings?

Post by Thesaints »

Taylor Larimore wrote: Tue May 11, 2021 10:42 am Guppyguy:

I own one very diversified bond fund: Vanguard Total Bond Market Index Fund (the largest bond fund on the planet for good reasons). One of its advantages is that it rebalances itself.

Strive for simplicity.

Best wishes
Taylor
Jack Bogle's words of Wisdom: "We ignore the real diamonds of simplicity, seeking instead the illusory rhinestones of complexity."
In principle, all stocks have the same general nature: fractional ownership of some business. It certainly makes sense to own them all in order to diversify out some risk and to be sure not to miss the best performers and not to concentrate on losers.
With bonds the story is completely different. They have very little in common with each other. Owing half short-term and half long-term maturities is quite different from owing intermediate maturities, even if the two allocation may have the same duration. Investment grade bonds have normally little correlation with the stock market, whereas high-yield bonds have high positive correlation. Munis are tax-exempt, while ordinary bonds are not.
In particular, VBTLX has 60% government issues, no HY, no munis, and no indexed bonds in its portfolio. Its holdings are concentrated in the 1-10 years maturities range.
In other words, it is a fund which is the optimal choice for not that many investors, while, I concede, it is the worst possible choice for only very few of them. It is not that hard, nor more expensive to tailor one's bond portfolio a lot better than that and I see no good reason for the discerning investor to have any money in it.
livesoft
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Re: Does anybody actually rebalance across bond holdings?

Post by livesoft »

guppyguy wrote: Tue May 11, 2021 12:52 pmKingRiggs/livesoft-

This is kind of the only combination I was thinking of. Two funds, equal term risk, but one more exposed to credit risk than the other.
I do not consider my two funds to have equal term risk. So I look at the Short-term Corporate Bond Index fund as having shorter term risk for more credit risk. Others may disagree, but the 5-year M* "growth of" chart that I have included suggests to me that sometimes a short-term corporate bond index fund outperforms a Total US Bond Index fund and sometimes it doesn't. This leads to market timing possiblitities.

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dcabler
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Re: Does anybody actually rebalance across bond holdings?

Post by dcabler »

Yes, but what I'm doing is slowly reducing the effective duration of my TIPs bond holdings over time as part of a 15 year income stream that will begin when I turn 70. I update once per quarter.

Cheers.
Last edited by dcabler on Wed May 12, 2021 5:37 am, edited 1 time in total.
averagedude
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Re: Does anybody actually rebalance across bond holdings?

Post by averagedude »

I do rebalance between Total bond (70%), Intermediate corporate bond (20%), and Hi yield bond (10%) from Vanguard. My thoughts is to have more corporate in my bond holdings.
badger42
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Re: Does anybody actually rebalance across bond holdings?

Post by badger42 »

I've only rebalanced between classes of bonds once or twice.

I have allocations to treasuries, TIPS, and high yield. Normally if rebalancing out of stocks I rebalance into whichever needs the $$, and if rebalancing into stocks I rebalance from whichever is over-allocated.

I do not like TBM funds - they carry too much duration risk for the yield, and lack the tail risk protection of TIPS. Simple is not good if it does not match your investment goals.
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Re: Does anybody actually rebalance across bond holdings?

Post by abuss368 »

Taylor Larimore wrote: Tue May 11, 2021 10:42 am Guppyguy:

I own one very diversified bond fund: Vanguard Total Bond Market Index Fund (the largest bond fund on the planet for good reasons). One of its advantages is that it rebalances itself.

Strive for simplicity.

Best wishes
Taylor
Jack Bogle's words of Wisdom: "We ignore the real diamonds of simplicity, seeking instead the illusory rhinestones of complexity."
Taylor -

I learned this valuable lesson! When I had two bond funds I had to instantly rebalance within stocks and bonds. Simplifying with less funds eliminates the complexity and tax cost.

Keep investing simple.
Tony
John C. Bogle: “Simplicity is the master key to financial success."
investuntilimrich
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Re: Does anybody actually rebalance across bond holdings?

Post by investuntilimrich »

Isn't the YTD negative on total bond? Call me crazy but that seems to have been a terrible place to have had your money lately.
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dziuniek
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Re: Does anybody actually rebalance across bond holdings?

Post by dziuniek »

It probably happened for folks holding TIPS in 2008 when they dropped a good bit.

I think the drop was to the tune of 10% or so...

Check the chart for VIPSX (Vanguard Inflation-Protected Securities Fund Investor Shares).

That being said, a rare* event unless your rebalancing bans are pretty tight.
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