Nearly time to look at my S&S ISA - rebalancing tips for current climate

Linton

AnotherJoe wrote: »

I dont buy that theory, seems to me it doesn't stand up even to casual scrutiny.

Whose to say that ;
1) you chose it right in the first place, or
2) your circumstances have changed so you need different, or
3) economic circumstances have changed so you'd like to tweak it, or
4) more than one of the above apply ?
.....

To take your points in turn...

1) Clearly it helps if you start off with a sensible allocation. Such an allocation should take into account the possibility of single point of failures. So dont have a too high a % of your investment in any one geographic area or industry sector. For example in my equity investments I am not willing to have more than 35%US, 15% UK, 20% the rest of the EU, and any other individual country more than perhaps 10%.

2) I agree that if your circumstances have changed then you need to reconsider your allocations, but such changes would surely be more at the major asset level (eg bonds vs equity) rather than whether you should have 25% or 15% UK equity allocation.

3) This is the dangerous one. You need to invest for the future not the past, and you dont know what the future is going to be. If they had known in advance what the BREXIT vote was going to be I guess many small private investors would have sold all their UK investments, and missed out on a significant rise in £ terms of the UK stock market. So dont consider tweaking on the basis of the latest headlines, rather use rebalancing to gain from the wins replenishing those areas which have done poorly.

Its futile derisking when the future looks rocky to you - under what circumstances will it not look rocky? Perhaps never. Almost certainly only when prices have risen beyond what they were when you sold. And the time when everything looks like plain sailing is when the monster emerges from the water. If the future frightens you perhaps you are investing at a equity vs bond risk level higher than you can personally accept.

AnotherJoe

Linton wrote: »

To take your points in turn...

Please take these following comments in the nature of friendly debate,and not trying to be argumentative for the sake of it

1) Clearly it helps if you start off with a sensible allocation. Such an allocation should take into account the possibility of single point of failures. So dont have a too high a % of your investment in any one geographic area or industry sector. For example in my equity investments I am not willing to have more than 35%US, 15% UK, 20% the rest of the EU, and any other individual country more than perhaps 10%.
My point is, such allocations are, unless you go with a simple percentage of GDP approach to spread your investments, wholly arbitrary. 35% is an arbitrary number. Why not 36% or 34%? Or 20% or 60%? So unless you picked 35% from a hat, maybe you'll decide next year that it should be 30% or 40% or indeed 37.64% since choosing whole numbers, rounded to 0 or 5, shows just how arbitrary they are.

2) I agree that if your circumstances have changed then you need to reconsider your allocations, but such changes would surely be more at the major asset level (eg bonds vs equity) rather than whether you should have 25% or 15% UK equity allocation.
Good point, yes you'd do that too, but maybe my circumstances changing mean I have now understood that (say) i initially chose too low or high a figure for one sector or that i can take a higher risk in one sector than i was prepared to do before.(or lower)

3) This is the dangerous one. You need to invest for the future not the past, and you dont know what the future is going to be.
You dont know but I contend that doesn't matter, you can still make your best guess/bet, for example i think its a very reasonable supposition that Brexit will cause the pound to continue to sink over the medium term.
If they had known in advance what the BREXIT vote was going to be I guess many small private investors would have sold all their UK investments, and missed out on a significant rise in £ terms of the UK stock market.
But if they also realised (or guessed) that this would mean the pound falling and thus meant UK companies whose income was principally from outside the UK would rise, they'd have bought. depends on your level of knowledge and foresight and luck and how prepared you are to stand by your thoughts.
Or, if they sold their UK investments and bought US ones, they'd have gained even more. It would only be those who sold and stayed in cash that lost out.

So dont consider tweaking on the basis of the latest headlines, rather use rebalancing to gain from the wins replenishing those areas which have done poorly.
I've tweaked on the basis of what i expect future headlines to be, not past ones.
Might I be wrong. Oh yes, its certainly happened before
But, whose to say I was right before? All you can do is invest on the basis of what you think is right now. You'd be foolish, if you changed your mind about what was right, to continue investing on the basis of what you thought was right once but now think is wrong (apologies to Bertrand Russel)
I also wouldn't replenish poorly perfroming areas unless i thought they would have a chance of recovering. Otherwise, w ere this 1905, I'd be selling my Ford shares and shovelling them into Acme Buggy Whips, or 1970's, selling IBM and buying Acme Slide Rules.

Its futile derisking when the future looks rocky to you - under what circumstances will it not look rocky? Perhaps never.
Thats not the idea, I think I'm taking advantage of what the future will be, which is what everyone does when they do anything other than buy a completely vanilla purchase of global finds allocated according to GDP. I'm investing in Ford in 1905 instead of Acme Buggy Whips.


Almost certainly only when prices have risen beyond what they were when you sold. And the time when everything looks like plain sailing is when the monster emerges from the water. If the future frightens you perhaps you are investing at a equity vs bond risk level higher than you can personally accept.

Why do you think the future frightens me?????
I've made my guess as to what the future will be, and am investing on that basis.
Its hard to see what other basis on which to invest !

ColdIron

Prudence1 wrote: »

So, I shall just rebalance as necessary.

If you are happy with your allocation and it continues to suit your circumstances this seems like a sensible course of action to me

The good thing about having a plan and sticking to it is it takes all the emotion out of it and avoids making a bad call based on a short term viewpoint.

Prudence1 wrote: »

It seemed like a good idea at the time

Well perhaps more by luck than good judgement your fund choice and allocation wasn't the worst choice you could have made in my opinion. One of my portfolios isn't a million miles away from yours (so obviously it's just fine )

If you buy into the passive investing argument then keep calm and carry on would seem to be the order of the day

Linton

AnotherJoe wrote: »

I've made my guess as to what the future will be, and am investing on that basis.

Its hard to see what other basis on which to invest !

The alternative is to accept you dont know what will happen and so base your portfolio on spreading the opportunity to gain from the unexpected as widely as possible whilst minimising the danger from single points of failure. One also needs to take into account the sizes of the individual markets. This balance is where the arbitrariness comes in. The precise values of the %s dont matter much - the gain is from the rebalancing rather than simply holding more in x than in y. Having variable %s makes this more difficult unless you are contrarian.

In adjusting your %s based on your prediction of the future arent you pitting your wits against everyone else in the market who is trying to do the same thing with the result that you over compensate for a commonly held prediction. The danger is that you are increasing the downside should you be wrong.

I also wouldn't replenish poorly perfroming areas unless i thought they would have a chance of recovering. Otherwise, w ere this 1905, I'd be selling my Ford shares and shovelling them into Acme Buggy Whips, or 1970's, selling IBM and buying Acme Slide Rules.

This is certainly true for individual shares. But surely the commonly used sectors are so broad that the chances of say raw materials, energy, utilities, consumer services etc as a whole becoming obsolete must be pretty unlikely. The underlying technologies and the companies involved will certainly change but the general sectors arent likely to disappear. Equally the economically important major geographic areas arent going to disappear, at least not in timeframes of less than many decades.

marlo4

AnotherJoe wrote: »

..plus Euro bureaucrats all looking to punish the UK, and however it works out long term, which personally i believe will be good for the UK, I think we have a bumpy 3 years minimum ahead of us.

Personally I'm unhappy with how Netflix are punishing me by not letting me watch their content since I cancelled my subscription.

Dird

Linton wrote: »

Why do you need to do something special "in the current climate"? The idea behind rebalancing is that having chosen your % allocation up front all you need do is make occasional regular adjustments to restore it.

Why do you even need to restore it. Isn't the idea that in the long run things will balance out.

ColdIron

Dird wrote: »

Why do you even need to restore it. Isn't the idea that in the long run things will balance out.

Would you say that equities and fixed income will balance out in the long term? You might want to have a read of a post regarding rebalancing by bowlhead99 from a while back: The power of the Rebalance

Superscrooge

ColdIron - Your link above doesn't seem to be working?

ColdIron

Hmm, thought I'd fixed it, try this
https://forums.moneysavingexpert.com/discussion/5208032

bigadaj

marlo4 wrote: »

Personally I'm unhappy with how Netflix are punishing me by not letting me watch their content since I cancelled my subscription.

Yes, and insisting on members of their staff living in your house apparently....