When to "rebalance"?

[Scanner]

I notice a couple of posters here commit to rebalancing their portfolio's once/year, maybe a specific date like April 15th or Groundhog's Day or whatever.

Wouldn't it make better sense to rebalance when the fund's return is up over 10% for the year?

My reasoning is this - on average, the performance in the stock market is going to be 8 to 10%. It would seem like the time to "take a profit" would be when you are doing better than average.

Of course, if you having a year with losses, you just hold.

I suppose the same thing could be worked out in reverse - if your fund is down 10%, you sell some shares to rebalance your portfolio??

I am not trying to "beat the system" per se; it just seems like there should be more management than "buy and hold."

[jIM_Ohio]

Originally Posted by Scanner

I notice a couple of posters here commit to rebalancing their portfolio's once/year, maybe a specific date like April 15th or Groundhog's Day or whatever.

Wouldn't it make better sense to rebalance when the fund's return is up over 10% for the year?

My reasoning is this - on average, the performance in the stock market is going to be 8 to 10%. It would seem like the time to "take a profit" would be when you are doing better than average.

Of course, if you having a year with losses, you just hold.

I suppose the same thing could be worked out in reverse - if your fund is down 10%, you sell some shares to rebalance your portfolio??

I am not trying to "beat the system" per se; it just seems like there should be more management than "buy and hold."

There are three methods to rebalancing.

One is the percentage over/under. I've read 5% and 10% as primary percentages to use.

One is a date method. On X date buy/sell as needed.

The pros to both of above is they are mechanical. You are not timing, looking for S&P to be 15% above it's 100 day moving average, or some metric like that. You are using a black and white approach.

The third technique is less efficient, it says use new money to rebalance. problem with this is with large balances, new contributions will be so small the impact will be low on actually rebalancing.

I use the date and new contribution methods at same time. On June 1 I adjust contributions. One Dec 1 I reset contributions back to normal and buy/sell as needed.

In 6 months it should be hard for things to get too far out of whack. By not selling if things are out of whack (let's say market goes wild from Dec 1 to May 31 and is up 20%)- I just send new money the lower assets and if market is on a tear I get the upside without putting new money in at highs. If market keeps going up, I get in Dec 1 regardless. If market reverted to mean, for 6 months I avoided buying at a peak.

[Scanner]

Jim,

Thanks. It seems like your system is well thought-out.

How do you account for losses though? If you are going to cap your profit at 15%, what do you cap your losses at?

[Scanner]

Jim,

Thought I'd bump this thread up and repose the question.

You saw my returns for the year on DisneySteve's thread - do you think it's time to rebalance and buy more silver?

I know you aren't a commodity beleiver but I am somewhat diversified. Interested in your opinion if I should further take a profit with my Janus fund.

[jIM_Ohio]

post the returns here, please

[kv968]

Originally Posted by jIM_Ohio

The third technique is less efficient, it says use new money to rebalance. problem with this is with large balances, new contributions will be so small the impact will be low on actually rebalancing.

Although maybe not very effective at times due to new contributions being too small, this is the best way to rebalance in a taxable account. This way you won't run into the problem of having to pay taxes on the assets you had to sell in order to rebalance.

Originally Posted by jIM_Ohio

In 6 months it should be hard for things to get too far out of whack. By not selling if things are out of whack (let's say market goes wild from Dec 1 to May 31 and is up 20%)- I just send new money the lower assets and if market is on a tear I get the upside without putting new money in at highs. If market keeps going up, I get in Dec 1 regardless. If market reverted to mean, for 6 months I avoided buying at a peak.

This is a good idea if you want to rebalance bi-annually. Kinda get the best of both worlds.

[kv968]

Originally Posted by Scanner

Jim,

Thought I'd bump this thread up and repose the question.

You saw my returns for the year on DisneySteve's thread - do you think it's time to rebalance and buy more silver?

I know you aren't a commodity beleiver but I am somewhat diversified. Interested in your opinion if I should further take a profit with my Janus fund.

I would say you should probably take a little off the Janus fund and put it towards the silver. Just be ready for the rough ride Also, keep in mind your overall asset allocation.

[Scanner]

Jim,

As you know, my portfolio is split into 1/3rds.

My Janus Overseas Fund is up 45% 1 year and 14% YTD. Incidentally, Money magazine last month said this fund was #1 in return and the closest behind was like 30% or something for an international fund.

My wife's T.Rowe Price Blue Chip Fund is up 21% 1 year and 9% YTD.

My silver ETF I bought at 134.60 and I think it closed @ 125.88 today so as of today, I'm down about 6% for the year on that.

I kind of agree with KV and think it's time to "take a profit" with some of my Overseas once again and move into silver.

[Scanner]

You know. . .I did that Morningstar X-ray Portfolio snapshot of myself that KV linked someone else to another thread and it was interesting - only 6% of my portfolio is in energy and 0% exposure to utilities.

Iwas long thinking a REIT would balance me out but then on my wife's advice, we decided to nix it since we have so much equity into our home and saw it as duplicative.

(I know you all don't see your home as part of your portfolio but we differ in opinion with you)

Maybe adding an Energy or Utility fund would be a great balance. I just kind of assumed my T. Rowe Price Blue Chip was exposing me heavily to energy but I guess it's not. . .

I'll have to think

25% Domestic Blue Chip
25% International
25% Utility and Energy
25% Silver

That looks pretty diversified to me - what do you all think?

[jIM_Ohio]

Originally Posted by Scanner

Jim,

As you know, my portfolio is split into 1/3rds.

My Janus Overseas Fund is up 45% 1 year and 14% YTD. Incidentally, Money magazine last month said this fund was #1 in return and the closest behind was like 30% or something for an international fund.

My wife's T.Rowe Price Blue Chip Fund is up 21% 1 year and 9% YTD.

My silver ETF I bought at 134.60 and I think it closed @ 125.88 today so as of today, I'm down about 6% for the year on that.

I kind of agree with KV and think it's time to "take a profit" with some of my Overseas once again and move into silver.

My opinion is that rebalancing should not be done on a whim, and I am far from qualified to time the market.

Rebalancing should be mechanical (if this, then this). Base it on a percent, date or something and repeat the rebalance everytime that condition occurs.

You will incur less risk as a result. If you sold today, then the market for overseas dropped, would you buy back in? If you employ a mechanical method, the answer would be yes. To make sure you are taking on the right amount of risk (would not want to overexpose to commodities).

[jIM_Ohio]

Originally Posted by Scanner

You know. . .I did that Morningstar X-ray Portfolio snapshot of myself that KV linked someone else to another thread and it was interesting - only 6% of my portfolio is in energy and 0% exposure to utilities.

Iwas long thinking a REIT would balance me out but then on my wife's advice, we decided to nix it since we have so much equity into our home and saw it as duplicative.

(I know you all don't see your home as part of your portfolio but we differ in opinion with you)

Maybe adding an Energy or Utility fund would be a great balance. I just kind of assumed my T. Rowe Price Blue Chip was exposing me heavily to energy but I guess it's not. . .

I'll have to think

25% Domestic Blue Chip
25% International
25% Utility and Energy
25% Silver

That looks pretty diversified to me - what do you all think?

Looks OK. You may want to include financials in the 25% allocated to Utility and energy (maybe 5% utilities, 5% energy, 5% financials, then allocate 10% to one or more of the sectors you like, rebalancing any time it went up 10% or something like that). I have met many people which like the safety/ dividend payouts of these 3 sectors.

[Scanner]

Jim,

Okay, I understand your opposition to doing this on a whim. . .but how much "out of balance" makes it right to "balance" (to stay on topic)?

You have to know who you are talking to - I have only rebalanced once in 10 years. I am not sure that was correct personal investing management since I was 66% and 33% when I reached the decision to start to diversify more.

The funny thing was, my wife, not really an investing kind of gal, said, "Why would you pull from your Janus fund when it has done spectacular?" I explained the idea of being overexposed but now I look kind of silly that the bull is continuing to run and we got off somewhat.

Anyway, original goal was 33.33% into each sector - should I rebalance when one sector exceeds 40%?

I guess I'll have to think about my risk tolerance.

To me 33% is pretty high allocation to any sector. . .so if my Overseas is now above 40%, I think I am starting to get antsy about it being that high.

I guess I would prefer a percentage method over a date method given my philosophy is to minimally diversify.

If I go with 25/25/25/25, then perhaps rebalancing when a sector hits 30-35% would make sense - it would seem to allow for a bull to run some distance before benching it for awhile.

Thanks all, I like to talking to different people about it - Jim, the numbers guy, and KV, the sensible gal.

[jIM_Ohio]

Originally Posted by Scanner

Jim,

Okay, I understand your opposition to doing this on a whim. . .but how much "out of balance" makes it right to "balance" (to stay on topic)?

You have to know who you are talking to - I have only rebalanced once in 10 years. I am not sure that was correct personal investing management since I was 66% and 33% when I reached the decision to start to diversify more.

The funny thing was, my wife, not really an investing kind of gal, said, "Why would you pull from your Janus fund when it has done spectacular?" I explained the idea of being overexposed but now I look kind of silly that the bull is continuing to run and we got off somewhat.

Anyway, original goal was 33.33% into each sector - should I rebalance when one sector exceeds 40%?

I guess I'll have to think about my risk tolerance.

To me 33% is pretty high allocation to any sector. . .so if my Overseas is now above 40%, I think I am starting to get antsy about it being that high.

I guess I would prefer a percentage method over a date method given my philosophy is to minimally diversify.

If I go with 25/25/25/25, then perhaps rebalancing when a sector hits 30-35% would make sense - it would seem to allow for a bull to run some distance before benching it for awhile.

Thanks all, I like to talking to different people about it - Jim, the numbers guy, and KV, the sensible gal.

I rebalance when I am as little as 2% off by fixing contributions.

5% is a good standard
10% is a must rebalance

[kv968]

Originally Posted by Scanner

Jim,

Okay, I understand your opposition to doing this on a whim. . .but how much "out of balance" makes it right to "balance" (to stay on topic)?

Unfortunately I think the only one who can answer that question is you. However I do agree with Jim in that whatever method or numbers you use, stick to it. There's always the tendency to "just let it ride a little more" when things are going good or to "pull it out" if you're getting hammered in a down market, but that kind of thinking can get you in trouble in the long run. Sure there'll be times when you wish you had stayed in a certain sector longer but then there will be probably many more times you were glad you "cashed out" a bit and redistributed.

You have to know who you are talking to - I have only rebalanced once in 10 years. I am not sure that was correct personal investing management since I was 66% and 33% when I reached the decision to start to diversify more.

Originally Posted by Scanner

I guess I'll have to think about my risk tolerance.

To me 33% is pretty high allocation to any sector. . .so if my Overseas is now above 40%, I think I am starting to get antsy about it being that high.

33% isn't really too high if the sector is stable enough to support it. Silver, IMO, is definitely not stable enough to have 33% (or even 25%) of a portfolio in it but that's just me.

Originally Posted by Scanner

Thanks all, I like to talking to different people about it - Jim, the numbers guy, and KV, the sensible gal.

You're welcome and thanks for considering me "sensible" but KV isn't a gal

[Scanner]

Well, I think you may all be interested in what I decided.

I just have all my statements in finally (about time) and here's the breakdown:

MY PORTFOLIO
International: 38.05%
Domestic: 34.33%
Silver ETF: 27.60%

I decided to rebalance back to 1/3rds when (and if!) International hits 40% - I'll take 7% off and redeploy it (looks like silver at this point). I'll probably target a price on the fund and have the net alert me.

My reasoning is that the 7% leeway should give a fund ample time to make a bull run before "taking a profit" and re-deploying elsewhere.

So, I'm using a %age over method with my quarterly statements. When and if I buy more silver, dollar cost averaging will help me in that sector when it decides to make that bull run I am predicting

Thanks for all the help.

[Scanner]

Oops. . .it appears the last 2 weeks has had significant market run up.

In 2 weeks - the new percentages:

38.68%
34.56%
26.75%

It appears I may be close to a rebalance.

Still, the entire portfolio is up 18.33%.

Maybe I should be looking at the entire portfolio balance/profit/loss vs. a single fund getting out of balance. . .now I am doubting myself, LOL.

Wow. . .it must be just as hard when the market is tanking - if my Janus Overseas fund had lost 25% instead of gaining 47% for year. . .what to do?

I know everyone here preaches against gut feelings but there are a lot of variables.

[kv968]

A little side note...If you're planning on rebalancing quarterly (or anytime for that matter), make sure you know what portions of the funds you're selling, especially with the int'l fund. That fund charges a 2% redemption fee when selling "shares" that aren't held longer than 3 months. So make sure that when you do sell to rebalance it's first in and first out and not what you just bought.

[kv968]

Originally Posted by Scanner

Maybe I should be looking at the entire portfolio balance/profit/loss vs. a single fund getting out of balance. . .now I am doubting myself, LOL.

Wow. . .it must be just as hard when the market is tanking - if my Janus Overseas fund had lost 25% instead of gaining 47% for year. . .what to do?

I know everyone here preaches against gut feelings but there are a lot of variables.

I don't know what you mean by looking at your entire portfolio balance. So if your total earning are up say 20%, you rebalance? Into what? I think you're better off rebalancing amongst the individual funds.

I know there are a lot of variables to include but that's why you have to set a plan and stick to it. I tend to stray a bit from my plan every now and then, but in the long run it's best to stick with the rebalancing and make it almost automatic with whatever method you choose.

[Scanner]

So make sure that when you do sell to rebalance it's first in and first out and not what you just bought.

I don't understand - a share is a share is a share, right? I'm sure I would never sell more than what's been in there for 3 months.

don't know what you mean by looking at your entire portfolio balance. So if your total earning are up say 20%, you rebalance? Into what?

I am just trying to figure out what should trigger the "rebalance."

A %age over a certain sector?
Or should the total portfolio return be the trigger?

Theorectically, everyone of my funds could return 150% and then be in perfect balance.

So, for instance, when my portfolio exceeds the average (8-10%), should I then rebalance? Or do I need the "bull run" to balance the "bear runs?" I know what you are saying - sometimes you should just cash out - but don't you want to give your bull a chance to run for awhile?

[kv968]

Originally Posted by Scanner

I don't understand - a share is a share is a share, right? I'm sure I would never sell more than what's been in there for 3 months.

What I meant by that was make sure that when selling, it's a first in, first out situation. For instance say you were buying 10 shares a month using dollar cost averaging and you needed to rebalance. If you needed to sell 20 shares to rebalance, make sure it's shares that you've held for 90 days to avoid the redemption fee and not 20 of the shares you just bought. I just c