Rebalancing fund allocation

Ma77hew

Is there an optimal time to rebalance investment funds.

I understand from various sources that equity/bonds split should be around 70/30 for a 30 year old. Thats how mine is paid in, but, my actual balance is more 86/14 so needs rebalancing.

Do people just do this periodically or have a trigger for doing it or is there an optimal time of year to do it?

I'm thinking just periodically like once or twice a year.

SeniorSam

I have done mine periodically and about twice a year is good.

If you are doing this yourself, you do need to look at loads of fund performances and see how each fund is split up, so that you finish up with the right balance. About 70/30 would sound right. If you don't do this, you may find that the balance is not what you think.

Sam

AlanP_2

No optimal time in terms of adding an "edge" of some kind but a review at least every 12 months makes sense so that things don't go too far off course.

I'm not convinced that a 70/30 split at your age is correct TBH but it is down to personal preference, attitude to risk and what else you have in terms of cash, property, pensions etc. and when you are thinking you will need to start withdrawing from the pot as opposed to building it up.

For example, if it were pension / retirement investments then at 30 you probably have 25 years plus before you want to start dipping into it and probably 50 -70 years left before you have no further interest in that pot (statistically based on life expectancy).

Over that length of time Stocks are likely to outperform Bonds by a good way even though there will be significant drops along the way based on historical performance.

So, thinking about the split may be worthwhile as opposed to basing it on somewhat historical thinking based on the "old style" route of taking an Annuity at retirement age before the current pension freedoms opened up more options.

If it is an ISA or unwrapped investment then the Annuity comments are irrelevant.

dunstonh

Is there an optimal time to rebalance investment funds.

No. Frequency is good at annual.

I understand from various sources that equity/bonds split should be around 70/30 for a 30 year old.

That is not how it should be. That is just an opinion that takes no other factors into account other than timescale. It fails to take into account behaviour, capacity for loss, understanding/knowledge. Its the sort of recommendation you get on rubbish internet sites.

Chickereeeee

Ma77hew wrote: »

I understand from various sources that equity/bonds split should be around 70/30 for a 30 year old.

That was from the time when your retirement date was when you bought an annuity. You wanted to reduce risk of a fall as you approached that fixed date. You gave up growth for less volatility.

Now, there is no 'fixed date' (unless you have a self-imposed one), and you plan for life expectancy/income plans instead.

It is a 'rule of thumb' which was widely used until maybe 10 years ago, and still often quoted.

C

Ma77hew

So, how do I work out a better allocation?

dunstonh

Ma77hew wrote: »

So, how do I work out a better allocation?

Research and analysis looking at the economic cycle, value of assets, volatility ratings of each type of asset and then bring them together to match your objectives.

jamesd

Ma77hew wrote: »

Is there an optimal time to rebalance investment funds.

No, but monthly is probably too often and two years is probably too infrequent..

Ma77hew wrote: »

I understand from various sources that equity/bonds split should be around 70/30 for a 30 year old. Thats how mine is paid in, but, my actual balance is more 86/14 so needs rebalancing.

Your sources have misled you. The best combination for your age is closer to 100% equities provided you can deal with the volatility. A bit of other things to allow rebalancing to do some good.

To work out a better allocation you could start by considering the maximum drop you'd want in a bad year. With pure major market equities you could expect a drop of 40% once or twice a decade and 20% two or three times a decade. High quality bonds would be expected to have drops in the 10-20% sort of range in normal market conditions so adding some of them can reduce the combined up and down movement.

Normal market conditions is important. We're decades into a sustained increase in bond prices, to the point where some bonds now require you to pay their issuer for the privilege of lending them money. Because of such high prices it's not currently very wise to have the traditional sort of bond holding levels because there's every reason to expect a one way drop at some point during your investing time horizon.

Alternatives to bonds can include commercial property or peer to peer investing.

You also don't have to ignore market conditions when rebalancing. You can do things like rebalancing from equity markets that are at high cyclically adjusted price/earnings ratios to ones that are at lower levels.

Chickereeeee

jamesd wrote: »

To work out a better allocation you could start by considering the maximum drop y̶o̶u̶'̶d̶ ̶w̶a̶n̶t̶ you could tolerate in a bad year.

Fixed it for you!