Re-balancing

New_World_Man

I understand the idea of deciding and keeping a particular balance within your portfolio.

Couple of queries spring to mind (in the context of a private investor).

How often should you review and re-balance?

Your various funds will move up and down so they will never remain exactly balanced from the initial proportions - how far out of balance can they get before you feel the need to change it (so, for example, if you started with a 60/40 split and after a year it stood at 57/43 could you let it ride or should you jump in to change it back?).

I suppose what I am trying to work out is how disciplined you need to be with this.

My most volatile etf is a FTSE 250 tracker which accounts for about 10% of my total shares and is something of a rollercoaster, but as a long term “buy and hold” I am quite comfortable with that. It does of course mean that any rebalance is likely to be short lived as it’s value meanders all over the place. Do volatile holdings have an impact on re-balancing or do you just work with that day’s value.

Any thoughts, hints or tips greatly appreciated.

The MSE forum has been really helpful in getting me interested in investing but I feel that I need more assistance in how to keep an eye on what I have (a mix of low cost mainstream US, UK, European and Global trackers thus far).

SonOf

How often should you review and re-balance?

Annually is usually fine unless a specific event occurs that requires it to be changed earlier.

Your various funds will move up and down so they will never remain exactly balanced from the initial proportions - how far out of balance can they get before you feel the need to change it (so, for example, if you started with a 60/40 split and after a year it stood at 57/43 could you let it ride or should you jump in to change it back?).

Is your portfolio built using static allocation (that never change) or acturarial adjusted allocations that change throughout the economic cycle?

Do volatile holdings have an impact on re-balancing or do you just work with that day’s value.

You work on that days value. The more volatile the assets, the more important it is to rebalance.

Linton

New_World_Man wrote: »

I understand the idea of deciding and keeping a particular balance within your portfolio.

Couple of queries spring to mind (in the context of a private investor).

How often should you review and re-balance?

If you do it too often you will be incurring excessive costs reacting to the random small movements of prices. If you dont do it sufficiently frequently you will be missing out on the opportunity to buy low and sell high. Once per year would be a reasonable compromise. If you have a small to moderate sized portfolio with ongoing contributions you can avoid rebalancing simply by putting new investments into funds which are below quta.

Your various funds will move up and down so they will never remain exactly balanced from the initial proportions - how far out of balance can they get before you feel the need to change it (so, for example, if you started with a 60/40 split and after a year it stood at 57/43 could you let it ride or should you jump in to change it back?).

Again you have a balance of gain vs costs. And again it will depend on whether you are still contributing. Perhaps a minimum of 5% of holding may be appropriate, with say £2K as an absolute minimum transaction in cash terms.

I suppose what I am trying to work out is how disciplined you need to be with this.

My most volatile etf is a FTSE 250 tracker which accounts for about 10% of my total shares and is something of a rollercoaster, but as a long term “buy and hold” I am quite comfortable with that. It does of course mean that any rebalance is likely to be short lived as it’s value meanders all over the place. Do volatile holdings have an impact on re-balancing or do you just work with that day’s value.

Work with the value on the day.

Any thoughts, hints or tips greatly appreciated.

The MSE forum has been really helpful in getting me interested in investing but I feel that I need more assistance in how to keep an eye on what I have (a mix of low cost mainstream US, UK, European and Global trackers thus far).

If you have a Global tracker why have separate US, UK and European ones? Why dont you like the % given by the global fund?

coyrls

Threshold rebalancing is discussed here: https://monevator.com/threshold-rebalancing/