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Rebalancing early in fearful times

Posted: Mon Mar 09, 2020 3:21 pm
by sonowwhat?
Would rebalancing sooner than your normal time period such as right now in a full blown panic be trying to time the market! I want to be a purist in terms of passive boglehead investing but was thinking that rebalancing now might make some sense!

Re: Rebalancing early in fearful times

Posted: Mon Mar 09, 2020 3:24 pm
by DarkHelmetII
IMHO if you are doing this in the right direction, e.g. Selling bonds to buy depressed stocks, and this is a little 'early' no major harm.

Re: Rebalancing early in fearful times

Posted: Mon Mar 09, 2020 3:26 pm
by greg24
I rebalanced early in the 2008 meltdown and found it left me with less rebalancing at the truly sale prices.

Re: Rebalancing early in fearful times

Posted: Mon Mar 09, 2020 3:33 pm
by sonowwhat?
Yeah that’s my fear! Let’s hope we don’t have a repeat of 2008! Problem I’ve got is historically I rebalance about every 2 months buy selling stocks which keeps my ratio in check and use the money to live. I guess I just flip that during correction and sell bonds. Just curious what are the time periods people use to rebalance?

Re: Rebalancing early in fearful times

Posted: Mon Mar 09, 2020 4:07 pm
by dwickenh
I'm guilty of re-balancing based on the market losses before the market closes for the day. I am in mutual funds only, and don't want to miss the
closing price of the market(re-balance before the market closes).

I don't think this is market timing, just staying in my AA bands.

Re: Rebalancing early in fearful times

Posted: Mon Mar 09, 2020 5:09 pm
by TheBogleWay
DarkHelmetII wrote: Mon Mar 09, 2020 3:24 pm IMHO if you are doing this in the right direction, e.g. Selling bonds to buy depressed stocks, and this is a little 'early' no major harm.
So wait... are you saying the idea of timing the market a bit with bond rebalancing isnt that bad?


What if I wait to see if the market goes down further, and if it does, move my bonds in my 401k to VTI within my 401k, in essence "buying" those stocks at a low. Is that bad? Can anyone chime in?

Re: Rebalancing early in fearful times

Posted: Mon Mar 09, 2020 5:17 pm
by Ice-9
Around 3 pm today I made a copy of my asset allocation spreadsheet and quickly adjusted numbers for the daily moves on ETF versions of my funds.

My rebalancing thresholds are set by Larry Swedroe's 5/25 Rule. My overall stock/bond allocation was almost but not quite there - target 70/30 and I think at something close to 74.6/25.4. But my smaller sub-allocation to Extended Market Index was projecting to be down more than 9% on the day and barely squeaked into rebalance territory.

So I did a small rebalance on just that fund from a bond fund, and the rest of my portfolio will just have to wait until further havoc hits my other various asset classes.

Re: Rebalancing early in fearful times

Posted: Mon Mar 09, 2020 5:20 pm
by chevca
sonowwhat? wrote: Mon Mar 09, 2020 3:21 pm Would rebalancing sooner than your normal time period such as right now in a full blown panic be trying to time the market! I want to be a purist in terms of passive boglehead investing but was thinking that rebalancing now might make some sense!
What is your normal time period to rebalance?

Re: Rebalancing early in fearful times

Posted: Mon Mar 09, 2020 5:26 pm
by rkhusky
dwickenh wrote: Mon Mar 09, 2020 4:07 pm I'm guilty of re-balancing based on the market losses before the market closes for the day. I am in mutual funds only, and don't want to miss the
closing price of the market(re-balance before the market closes).

I don't think this is market timing, just staying in my AA bands.
But are you sticking with your plan? My plan calls for 1% rebalancing bands, so I get to rebalance a number of times per year.

Re: Rebalancing early in fearful times

Posted: Mon Mar 09, 2020 6:04 pm
by BlueMoonXD
TheBogleWay wrote: Mon Mar 09, 2020 5:09 pm So wait... are you saying the idea of timing the market a bit with bond rebalancing isnt that bad?


What if I wait to see if the market goes down further, and if it does, move my bonds in my 401k to VTI within my 401k, in essence "buying" those stocks at a low. Is that bad? Can anyone chime in?
It seems to me like at some point it's a philosophical question. If you are a purist then any kind of market timing is bad on principle. A purist would say if you would rebalance quarterly when the market is up, you should rebalance quarterly when it's down.

Up until about 2 weeks ago, it seemed everyone was a purist, now I'm seeing a lot of "it depends" type of reasoning and rationalization, so perhaps even this community is more emotional in our thinking than we let on.

IMO if you are market timing by rebalancing bonds into stocks on a bad day, it's a relatively harmless form of market timing. You might time it perfectly, or you might find it drops again and you could have profited more by waiting. Either way, you're making a generally profitable decision. As long as this doesn't lead to a habit of trying to predict market behavior I don't think it matters that much.

Re: Rebalancing early in fearful times

Posted: Mon Mar 09, 2020 6:11 pm
by Triple digit golfer
My plan says to rebalance at 5% off target. Another 7% decline will get me there. In the meantime, new contributions go to equities.

If I end up rebalancing, great. If not, oh well. That just means the drop was too wimpy for me to need to do anything.

Re: Rebalancing early in fearful times

Posted: Mon Mar 09, 2020 6:30 pm
by watchnerd
sonowwhat? wrote: Mon Mar 09, 2020 3:21 pm Would rebalancing sooner than your normal time period such as right now in a full blown panic be trying to time the market! I want to be a purist in terms of passive boglehead investing but was thinking that rebalancing now might make some sense!

Does it matter much if a bit too early?

Only if taxes are a consequence.

I'm waiting a full year to rebalance my LTT holding because otherwise I'll invoke short term cap gains.

Re: Rebalancing early in fearful times

Posted: Mon Mar 09, 2020 6:59 pm
by DarkHelmetII
TheBogleWay wrote: Mon Mar 09, 2020 5:09 pm
DarkHelmetII wrote: Mon Mar 09, 2020 3:24 pm IMHO if you are doing this in the right direction, e.g. Selling bonds to buy depressed stocks, and this is a little 'early' no major harm.
So wait... are you saying the idea of timing the market a bit with bond rebalancing isnt that bad?


What if I wait to see if the market goes down further, and if it does, move my bonds in my 401k to VTI within my 401k, in essence "buying" those stocks at a low. Is that bad? Can anyone chime in?
Market timing is 'bad' and discouraged. Rebalancing outside of ones predefined rebalancing bands or timeframe, in response to market fluctuations, is market timing of sorts. However impact is relatively minor, and if this little deviation from a 'pure' boglehead execution prevents much bigger mistakes (e.g. Liquidate position at market bottom and hold cash for 10 years waiting to get back in) then so be it.

Re: Rebalancing early in fearful times

Posted: Tue Mar 10, 2020 7:48 am
by dwickenh
rkhusky wrote: Mon Mar 09, 2020 5:26 pm
dwickenh wrote: Mon Mar 09, 2020 4:07 pm I'm guilty of re-balancing based on the market losses before the market closes for the day. I am in mutual funds only, and don't want to miss the
closing price of the market(re-balance before the market closes).

I don't think this is market timing, just staying in my AA bands.
But are you sticking with your plan? My plan calls for 1% rebalancing bands, so I get to rebalance a number of times per year.
Yes, sticking with my IPS of re-balancing within 5% band.

Re: Rebalancing early in fearful times

Posted: Tue Mar 10, 2020 7:53 am
by rkhusky
dwickenh wrote: Tue Mar 10, 2020 7:48 am
rkhusky wrote: Mon Mar 09, 2020 5:26 pm
dwickenh wrote: Mon Mar 09, 2020 4:07 pm I'm guilty of re-balancing based on the market losses before the market closes for the day. I am in mutual funds only, and don't want to miss the
closing price of the market(re-balance before the market closes).

I don't think this is market timing, just staying in my AA bands.
But are you sticking with your plan? My plan calls for 1% rebalancing bands, so I get to rebalance a number of times per year.
Yes, sticking with my IPS of re-balancing within 5% band.
So, you have a rule that allows you to rebalance even if you haven't reached the 5% bound?

Re: Rebalancing early in fearful times

Posted: Tue Mar 10, 2020 7:54 am
by Wanderingwheelz
I did that yesterday right before the close. I’m still off nearly 1% due to the severity of the stock sell-off, though.

Psychologically, it felt better to make a big purchase on the single worst day we’ve had in a very long time. It won’t have a material effect over the long haul, though.

Given time, that will likely show up as a textbook “sell high, buy low” rebalance.

Re: Rebalancing early in fearful times

Posted: Tue Mar 10, 2020 8:00 am
by dwickenh
rkhusky wrote: Tue Mar 10, 2020 7:53 am
dwickenh wrote: Tue Mar 10, 2020 7:48 am
rkhusky wrote: Mon Mar 09, 2020 5:26 pm
dwickenh wrote: Mon Mar 09, 2020 4:07 pm I'm guilty of re-balancing based on the market losses before the market closes for the day. I am in mutual funds only, and don't want to miss the
closing price of the market(re-balance before the market closes).

I don't think this is market timing, just staying in my AA bands.
But are you sticking with your plan? My plan calls for 1% rebalancing bands, so I get to rebalance a number of times per year.
Yes, sticking with my IPS of re-balancing within 5% band.
So, you have a rule that allows you to rebalance even if you haven't reached the 5% bound?
As my mutual funds don't price until the end of the day, my original post states that I estimated I would hit
my 5% band at market close. I sold bonds and bought stock funds to re-balance prior to market close. There
is nothing in my IPS to prohibit that move. I did wait until late in the trading day to make the move. The 5%
is a maximum movement before re-balancing, so yes I could do so at any time when less than 5% also.

Does that clear up the confusion?(caused by my explanation before)

Dan

Re: Rebalancing early in fearful times

Posted: Tue Mar 10, 2020 8:06 am
by rkhusky
dwickenh wrote: Tue Mar 10, 2020 8:00 am
rkhusky wrote: Tue Mar 10, 2020 7:53 am
dwickenh wrote: Tue Mar 10, 2020 7:48 am
rkhusky wrote: Mon Mar 09, 2020 5:26 pm
dwickenh wrote: Mon Mar 09, 2020 4:07 pm I'm guilty of re-balancing based on the market losses before the market closes for the day. I am in mutual funds only, and don't want to miss the
closing price of the market(re-balance before the market closes).

I don't think this is market timing, just staying in my AA bands.
But are you sticking with your plan? My plan calls for 1% rebalancing bands, so I get to rebalance a number of times per year.
Yes, sticking with my IPS of re-balancing within 5% band.
So, you have a rule that allows you to rebalance even if you haven't reached the 5% bound?
As my mutual funds don't price until the end of the day, my original post states that I estimated I would hit
my 5% band at market close. I sold bonds and bought stock funds to re-balance prior to market close. There
is nothing in my IPS to prohibit that move. I did wait until late in the trading day to make the move. The 5%
is a maximum movement before re-balancing, so yes I could do so at any time when less than 5% also.

Does that clear up the confusion?(caused by my explanation before)

Dan
Very good.