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

AlanP_2

If you are RE-BALANCING as per the OP then by definition you are putting things back into the same point of balance they were in before i.e. your original Asset Allocation ( as arbitrary as that may be).

If you are changing the Asset Allocation because you think the next 3 years will be rocky, or because your objectives have changed, or even because you have drawn new %'age allocations out of the hat this year that IS NOT re balancing, it is changing your fundamental approach and rationale.

The latter may be sensible - who knows - but it is absolutely nothing to do with re-balancing IMHO.

lonewolf123

Hi all,

I have a portfolio of passive funds that I add to every month when I get paid (I treat it as a savings account).

So I tend to re balance every month. I don't get charged trading fees so buying and selling regularly is not going to eat away at my gain.

Just a question to ask you guys, would you recommend re balancing every month?

Also because I add to this portfolio every month, I can re balance without selling the over performing funds and buying the under performing funds.

I just buy more of the under performing funds till I hit the right percentages for my portfolio. Again is this the right way of investing or should I be selling the over performing?

Thanks guys

JohnRo

AlanP wrote: »

If you are changing the Asset Allocation because you think the next 3 years will be rocky, or because your objectives have changed, or even because you have drawn new %'age allocations out of the hat this year that IS NOT re balancing, it is changing your fundamental approach and rationale.

The two things are separate but not necessarily incompatible.

I don't see the problem with reassessing and adjusting portfolio allocations every once in a while, especially when significant geopolitical changes are materialising as they have this year.

I took a decision to increase US and reduce UK exposure, the holdings I'm using to do that haven't changed, just their eventual weight when it comes around to assigning new money at their scheduled rebalance times.

AnotherJoe

lonewolf123 wrote: »

Hi all,

I have a portfolio of passive funds that I add to every month when I get paid (I treat it as a savings account).

So I tend to re balance every month. I don't get charged trading fees so buying and selling regularly is not going to eat away at my gain.

Just a question to ask you guys, would you recommend re balancing every month?

Most regulars here would run around screaming with their hair on fire at that frequency

Also because I add to this portfolio every month, I can re balance without selling the over performing funds and buying the under performing funds.

I just buy more of the under performing funds till I hit the right percentages for my portfolio. Again is this the right way of investing or should I be selling the over performing?

How do you know if they are overperforming? Or do you mean relatively speaking?

Seems to me if you do rebalancing monthly by selling as well as buying, you never give any sector a chance to shine. For example, commodities have done well this year, but at the first sign of that you'd have been selling and as they got better you'd sell more, and always buying something that was starting to perform badly. That doesn't seem like a good idea to me I think you have to give them a chance. Plus inevitably there s a lot of 'noise' from month to month and you shouldn't trade on the basis of that(says me ).

So at most I'd buy additional 'underperformers', at least long term that should work out better.

I've pretty much given up on the concept of balancing to my own arbitrarily chosen allocation* and gone very global so i dont need to rebalance as its all automagic. Then a few "side funds" (actually just 2 really) for sectors i think will do well very long term, say for an absolute 5 year minimum and more like 10+

* seems to me only two allocations are objective, either buy the FTSE All Share on the grounds that you live and work in the UK and so its all in Sterling, or buy global funds in the same proportion as GDP on the grounds you live on planet Earth.

Any other allocation is wholly arbitrary as will be shown by anyone who their own allocation since they always pick nice round whole numbers, because if there was science to it, they woudl have say 26.,4% UK, 39.8% USA and so on. But its always soemthing neat like 25% UK, 40% USA, 10% Europe, etc.

Fair enough if you want to have your own arbitrary allocation, but if so then why would that always be static? Unless the argument is just a semantic one, that of course you might change your arbitrary allocation but then its not rebalancing its reallocating? I say in reality you'd do both together.

JohnRo

AJ, please, the red text is making my eyes bleed.

ColdIron

lonewolf123 wrote: »

Just a question to ask you guys, would you recommend re balancing every month?

Also because I add to this portfolio every month, I can re balance without selling the over performing funds and buying the under performing funds.

I think rebalancing by purchasing is an acceptable approach, you are not overpaying or underpaying at that point in time

With larger portfolios you may not be able to keep things level with proportionately smaller contributions but that's probably a problem for another day

Whether it's the optimal strategy I don't know but it's certainly what I did when drip feeding into funds

What I do now is rebalance annually as I Bed and ISA. Sell the unwrapped funds to achieve the allocation there and purchase funds in the ISA to do the same

Returning to drip feeding, I did consider using my ideal allocation and having an annual rebalance because as you say it costs nothing. You will be over and underpaying at that point in time by definition but that may not be a bad thing in itself

I suppose the only other tactic would be to try to pick winners and losers but I'm a stick to the plan kind of chap

I don't know if that answered your question but at least you know you're not alone with monthly rebalancing

lonewolf123

Thanks guys

I think I will carry on with my approach.

It seems to make sense to me as since I'm investing on a monthly basis anyway, it would be best to buy the relatively under performing funds as they are "cheaper" than to keep buying the over performing funds.

bowlhead99

lonewolf123 wrote: »

Hi all,

Also because I add to this portfolio every month, I can re balance without selling the over performing funds and buying the under performing funds.

I just buy more of the under performing funds till I hit the right percentages for my portfolio. Again is this the right way of investing or should I be selling the over performing?

If you have enough new money coming in that you can just top up the smaller holdings without ever having to "sell and buy", that's fine. Effectively you are just ensuring that as far as poss, the portfolio looks like what you want. So I wouldn't run round with my hair on fire complaining about that


For example say you had £1100 of X and £900 of Y and your preferred or target allocation is 50:50.

In theory you could sell £100 of X and buy £100 of Y, and then split your new monthly money of (say) £300, right down the middle as £150:£150. The result would be a portfolio split £1150:£1150.

But alternatively you can forget the separate buying and selling for that first hundred quid. Just split your £300 to buy £50 of A and £250 B and you'll have the same number of units and same £1150 values in each fund with fewer transactions. Sounds like that's what you're currently doing, and it's fine.

Gets harder when you have £100k in each pot and the market can move each of them by £3-5k in a month and your new money is only £1k. Then you are never going to properly "sort" your positions with the small amount of incoming new cash, but nobody wants the cost, time or effort to rebalance the whole lot every month.

In that case you would just pick a rebalance point. Some would say six months, a year or even 18 months or more if not much is happening. Others might plan to do it every year but revisit more regularly if there are major market movements.

Someone here suggested a 20-25% relative movement rule, or a 5-10% absolute movement rule.

So if you were not really planning to rebalance until next summer, but had a holding that was a fifth to a quarter bigger or smaller than its target (e.g. a fund that was intended to be 50% of the portfolio is now 60-63% or only 37-40%) you could look at it early.

Some specialist or high risk small parts of the portfolio might swing their relative sizes by a fifth to a quarter without it really mattering too much, like if a certain holding was supposed to be something like 4-5% and it was a fifth bigger than that, it's still only 5-6% and doesn't really change your life or compromise the integrity of your portfolio. So for those you could use a rule that said, if it was supposed to be 5% and has grown to 10-15, that's too much.

So you could create a whole load of somewhat arbitrary rebalance points for your portfolio using a combination of time since you last did it and some spreadsheet logic and some rules (like greater of, or lesser of, "5% absolute movement", or "25% relative to target").

But certainly for the moment if you can make tweaks here and there as part of deploying new money for very little effort, then sure, why not.

AnotherJoe

JohnRo wrote: »

AJ, please, the red text is making my eyes bleed.

[STRIKE]Done [/STRIKE] Sorry. Done

Nick_C

I don't worry about rebalancing my portfolio, but I do review it once a month. I'm mainly looking for income (although I am getting capital growth as well). My reviews are aimed at maximising the effective yield - looking at the dividends I am getting and comparing them with the current value of the shares. If the price has gone up and the dividend hasn't I sell and reinvest. Some people may be horrified by this approach, but it has worked very well for me.