Need to Re Balance....it's tough!!

[1210sda]

After the great year we had in 2020, it's time to rebalance. My re balancing bands have been reached.

It's the right thing for me to do, but it's not easy to sell your winners. (i.e. VTSAX). If the market keeps going up, I'll try not to second guess myself and wish that I hadn't rebalanced.

Are you faced with something similar?

[L82GAME]

Yes, but we stuck to our IPS and rebalanced. It helps me to sleep well at night. Everyone wants to hang on when the markets are hot, and panic sell in the downturns. Don’t give in to the behavioral biases that erode wealth over the long haul. Stick to your plan. Good luck!

[March2009]

Been investing for 30 years. Would have been better off never rebalancing since my US and Tech stocks have massively outperformed.

BUT I like my portfolio aligned with my risk profile. I'm entering early retirement at the end of this year and I sleep good at night with my portfolio balanced at 60/40 overall (with 6 stock sectors and 3 bond sectors).

[SB1234]

After the great year we had in 2020, it's time to rebalance. My re balancing bands have been reached.

It's the right thing for me to do, but it's not easy to sell your winners. (i.e. VTSAX). If the market keeps going up, I'll try not to second guess myself and wish that I hadn't rebalanced.

Are you faced with something similar?

As a wise marketing person said. Just do it.
You don't be selling everything.. You will just sell a little.

[runner3081]

We rebalance with new contributions, not current investments.

[GerryL]

I rebalance when I move my RMD to the cash fund in my IRA each year. For me, the tough part is getting the domestic/international ratio right across my whole portfolio using the Vanguard Portfolio Watch tool. I ignore what has moved up or down and just focus on "adjusting the dials" to get to my desired AA.

I've gotten by for years with a best faith effort and then not looking back. I'm one of those people who will make a large purchase and then continue looking to see whether I could have gotten a better deal if I had waited. Strangely, I DON'T do that with my portfolio.

[toblerone]

If the market keeps going up, I'll try not to second guess myself and wish that I hadn't rebalanced.

This is why it's important to have a plan. If you are just following your plan, you won't be second-guessing the action of rebalancing. You might question the plan itself, but that's a different story. The plan is a buffer between you and stupid, emotional decisions.

I'm pretty much a strict 3-funder with 5% rebalance bands. The only thing hard about selling VTI to buy BND is that BND is yielding jack squat. But it is the plan, and has treated me very well (I can't rebalance with new contributions alone anymore).

[nedsaid]

After the great year we had in 2020, it's time to rebalance. My re balancing bands have been reached.

It's the right thing for me to do, but it's not easy to sell your winners. (i.e. VTSAX). If the market keeps going up, I'll try not to second guess myself and wish that I hadn't rebalanced.

Are you faced with something similar?

Yes, I will probably rebalance my portfolio again soon. I loved stocks and it wasn't easy to sell shares and to rebalance into bonds. Just like anything else in life, you get used to it. Remember this is about controlling risk, it is part of getting ready for the next bear market.

I allowed my portfolio to drift higher in 2007 and 2008 and I sluffed off suggestions to de-risk my portfolio. The financial crisis and bear market of 2008-2009 hit and it was a V-8 moment for me, I could have rebalanced but didn't. I promised myself that when the markets hit all-time highs again that I would start the process of both rebalancing and de-risking my portfolio, this didn't happen until July 2013 when the taper tantrum hit. I started the long process of de-risking and rebalancing from stocks to bonds and have continued it to this day.

[TheDDC]

If the market keeps going up, I'll try not to second guess myself and wish that I hadn't rebalanced.

This is why it's important to have a plan. If you are just following your plan, you won't be second-guessing the action of rebalancing. You might question the plan itself, but that's a different story. The plan is a buffer between you and stupid, emotional decisions.

I'm pretty much a strict 3-funder with 5% rebalance bands. The only thing hard about selling VTI to buy BND is that BND is yielding jack squat. But it is the plan, and has treated me very well (I can't rebalance with new contributions alone anymore).

Easy. Then get rid of BND. It’s a loser. And that’s not based simply on what we know today, either. Go with a 2fund.

-TheDDC

[arcticpineapplecorp.]

We rebalance with new contributions, not current investments.

+1
(though this is not always possible depending upon the size of the portfolio and how its assets are allocated)

[Mudpuppy]

We rebalance with new contributions, not current investments.

Then you have a great milestone to look forward to: when your investments are high enough that your contributions are insufficient to rebalance your portfolio. It's a bit of a strange feeling when one reaches that point.

I should know, I reached that point on Sunday. It was my first rebalance solely due to market conditions, instead of changing my AA or reacting to fund line-up changes on an account that messed up my AA.

And when my spreadsheet lit up red that my allocation was outside of its 5% bands, I followed my plan and entered in rebalance requests across all of the accounts.

[exigent]

You’re just buying insurance against a downside catastrophe when you rebalance. It’s only a small-ish portion of your portfolio, and any lost upside is essentially an insurance premium. You don’t regret buying homeowner’s insurances when your house doesn’t burn down, do you? This should be viewed in the same way.

[HuckFinn]

I have an Investment Policy Statement that requires me to only rebalance at certain thresholds (in theory...) That said, my mind jumps all over with "maybe I should" scenarios.

I'll tell you a trick I've been playing on myself that has generally been working. I hope I can explain this clearly.

Like most Bogleheads I have a higher portfolio balance than I could have fathomed three to five years ago. What I've been doing lately is taking the portfolio value I expected to have at this stage about 5 years ago and applying today's stock or bond values to that figure and translating that into a fictitious asset allocation percentage. I'll give an example:

If I had a 1 Million dollar portfolio today that had $650k stock and $350k bond and I had to sell $50k bond to get back to 60/40 I would apply this logic.

If my portfolio was at about $750K which I expected five years ago and I had $600k in stock I would have %80 in equities.
Conversely, if you get nervous about the market you can say... well I have $400k in bond and if I were at that $750k figure I would have 53% in bonds.

It's been working for me.

[KlangFool]

OP,

I do not know what is your AA. But, for my AA of 60/40, I had to do it twice in 2020 with the 5/25 band.


A) Sell bond to buy the stock in March 2020


B) Sell the stock to buy the bond a few months later.


It is not tough. It had been very profitable.


KlangFool


P.S.: It is not tough for me. I know that the market is crazy. I had seen this kind of market before. Telecom Bust, DotCom Bust, and so on. The market is not relating to the real economy at all.


P.S.2: I know nothing. The market can stay irrational much longer than anyone can imagine. I just "Buy, hold, and rebalance" with my AA of 60/40.

[Hub]

My mentality is opposite. I love to sell after gains if it fits with my plan. My rebalancing problem is that I'm in too much cash and hate to buy high. Not that I even know that today is "high."

[1210sda]

Thanks everyone.

It was a wild year. In the month of March my portfolio had the biggest dollar drop in my 36 years of investing. Of course, a big part of that is due to the current size of my portfolio. It was not the biggest in percent.

The very next month, April 2020, I had the biggest dollar gain ever for me. That record didn't last very long, in November, my gains were bigger than in April.

As many of you did, I bought stocks in March and now (in January) I need to sell stocks. I sometimes wonder if my 5% rebalancing bands are broad enough.

Some suggested rebalancing only with additions to the portfolio. Since I'm retired and in the distribution stage, I don't have outside cashflows with which to do this. It is a good concept and I've used it various times in the past.

Thanks again. Just talking about rebalancing helps reduce anxiety.

[livesoft]

Are you faced with something similar?

We have to rebalance as well. I will not do it all at once, but will make some transactions over the next few weeks. It is easier to exchange $5 worth than it is to exchange $500 worth unless the stock market pops 3+% in a single day.

You want anxiety? What did you do in the 2nd half of March 2020?

[KlangFool]

Thanks everyone.

It was a wild year. In the month of March my portfolio had the biggest dollar drop in my 36 years of investing. Of course, a big part of that is due to the current size of my portfolio. It was not the biggest in percent.

The very next month, April 2020, I had the biggest dollar gain ever for me. That record didn't last very long, in November, my gains were bigger than in April.

As many of you did, I bought stocks in March and now (in January) I need to sell stocks. I sometimes wonder if my 5% rebalancing bands are broad enough.

Some suggested rebalancing only with additions to the portfolio. Since I'm retired and in the distribution stage, I don't have outside cashflows with which to do this. It is a good concept and I've used it various times in the past.

Thanks again. Just talking about rebalancing helps reduce anxiety.

1210sda,

<<Some suggested rebalancing only with additions to the portfolio.>>


It is the same. Except in reverse. Rebalancing by subtraction. Selling the asset class above the allocation.


KlangFool

[1210sda]

Are you faced with something similar?

We have to rebalance as well. I will not do it all at once, but will make some transactions over the next few weeks. It is easier to exchange $5 worth than it is to exchange $500 worth unless the stock market pops 3+% in a single day.

You want anxiety? What did you do in the 2nd half of March 2020?

I bought stocks!!

[1210sda]

Are you faced with something similar?

We have to rebalance as well. I will not do it all at once, but will make some transactions over the next few weeks. It is easier to exchange $5 worth than it is to exchange $500 worth unless the stock market pops 3+% in a single day.

You want anxiety? What did you do in the 2nd half of March 2020?

I bought stocks!!

I found it easier selling bonds and buying stocks in March than selling stocks and buying bonds today. I guess it has something to do with selling your "winners". I didn't consider my bonds "winners" back in March.

[Iorek]

Lifecycle fund ftw

[portfolio123]

To be clear, are there tax considerations with selling your stock that offset the potential benefit? Example, I need to pay x% capital gains tax on my stock which would essentially eat into any potential downturn protection had I just held on?

Not saying it’s a reason to not rebalance if new contributions aren’t feasible, but just a consideration when thinking about risk / return.

[sleepysurf]

I'm in a quandary, as I've hit my 5/25 re-balancing band, but what I need to sell (VEXAX- Extended Market Index) is in my taxable account, and the (substantial) gains are still short term. Unfortunately, I have no unrealized capital losses left to offset, so I've decided to sit tight until 3/24/21, when the gains become long term, then reassess.

I've also been doing substantial Roth conversions the past 3 years (converting bonds/VBTLX in IRA to total stock/VTSAX in Roth), but if I do that right now, it would push my overall equity allocation even higher, and deplete my cash to pay taxes. I don't really want to hold VBTLX in my Roth, but I suppose that's another option.

I really shouldn't complain, as these are all "first world problems." The easiest "fix" might be just changing my IPS asset allocation from 50:50 to 60:40!

[sperry8]

After the great year we had in 2020, it's time to rebalance. My re balancing bands have been reached.

It's the right thing for me to do, but it's not easy to sell your winners. (i.e. VTSAX). If the market keeps going up, I'll try not to second guess myself and wish that I hadn't rebalanced.

Are you faced with something similar?

It's very difficult to sell winners. One of the ways I do it is to allow dividends and cap gains to not automatically reinvest. This way, each year as markets go up - I don't actually have to hit the sell button. The divs/cap gains just get plowed into cash annually. This runoff rebalances automatically (to an extent).

Then I only have a decision about what/when to buy. Interestingly I don't want to hit the buy button because I think stocks are high. Isn't that wild? I don't want to sell because I don't want to sell winners... and yet don't want to buy because prices are too high. Human emotions are absurd and must be taken out of the equation.

[Cautionary Tale]

After the great year we had in 2020, it's time to rebalance. My re balancing bands have been reached.

It's the right thing for me to do, but it's not easy to sell your winners. (i.e. VTSAX). If the market keeps going up, I'll try not to second guess myself and wish that I hadn't rebalanced.

Are you faced with something similar?

It's very difficult to sell winners. One of the ways I do it is to allow dividends and cap gains to not automatically reinvest. This way, each year as markets go up - I don't actually have to hit the sell button. The divs/cap gains just get plowed into cash annually. This runoff rebalances automatically (to an extent).

Then I only have a decision about what/when to buy. Interestingly I don't want to hit the buy button because I think stocks are high. Isn't that wild? I don't want to sell because I don't want to sell winners... and yet don't want to buy because prices are too high. Human emotions are absurd and must be taken out of the equation.

Always scary to do anything, because it involves the possibility of a making a "mistake". I think the root is that there is a tiny element of gambling involved, and most people are at least somewhat risk averse.

[LeslieSmiley]

psychologically, i find it to be helpful to perceive "re-balancing" (when you need to sell "winners") not from the perspective of "growth" but from the perspective of "maintaining stability with respect to volatility". then it doesn't feel like "selling winners" anymore, instead, it feels more like "replenishing defense"