Rebalancing

cfw1994

I think this topic got bogged down in another thread recently.
Noticed some analysis released yesterday by Abraham (a smart fella) - you can register and get the short report.
Essentially it reads broadly that you are best off by not rebalancing until things are 10% adrift.  Certainly avoid quarterly, and probably avoid annual.  
Curiously, I note he adds on twitter that letting things drift even further continued to improve returns...but were discarded because they would breach risk tolerance.
Maybe people need to up their "risk tolerance"?!   
An argument for letting the winners run.   
I've noted that my "4 way equal split" now has the best one around 20% higher than the worst.   Should I rebalance?     For now, I think I will let it lie.  Presumably an IFA would have rebalanced long before now.   
Rebalancing: overated?

Thrugelmir

cfw1994 said:

Rebalancing: overated?

How diversified is your investment portfolio?  Top performing sectors come and go. 

Whether to "run" a winner is better addressed at an individual stock level. 

cfw1994

BGAmerican/BGInternational/15yrGiltTracker.....& a curious "Pre-retirement Fixed Interest" fund that last one implies low returns: half Bonds, half UK gilts (yes, MASSIVE overlap with my 15rGilt one), yet STILL appears to beat the default 50:50 Global Equity Tracker fund in our scheme over the long term (will need to watch that moving forward, dropping behind in recent years).  Go figure.  Was quite pleased when I spotted that in there. 
Global Tracker:
       
Fixed Interest:
       
Never done a formal "X-Ray".

Audaxer

cfw1994 said:

I've noted that my "4 way equal split" now has the best one around 20% higher than the worst.   Should I rebalance?     For now, I think I will let it lie.  Presumably an IFA would have rebalanced long before now.   
Rebalancing: overated?

I'm not sure what makes up your "4 way equal split", but if you still think that is the right strategy, then if one is 20% higher I think you should rebalance. How would you feel if we went into another crash next week and you lost your 20% gain?

Linton

Rebalancing is a balance.

Too often and you waste your time and possibly money for little reward and you may miss out on trends .  Rebalance too infrequently and your portfolio moves significantly away from what you had originally decided was the right allocation and also miss the opportunity to buy low and sell high.  I think reviewing once a year is a reasonable compromise, some people may go down to 6 months.  I would not bother rebalancing if the difference is less than 5%.

Thrugelmir

BG International has a 53% weighting to the US.  Selling BG American to buy BGI. Doesn't achieve the objective of rebalancing particularly well. 

cfw1994

Audaxer said:

cfw1994 said:

I've noted that my "4 way equal split" now has the best one around 20% higher than the worst.   Should I rebalance?     For now, I think I will let it lie.  Presumably an IFA would have rebalanced long before now.   
Rebalancing: overated?

I'm not sure what makes up your "4 way equal split", but if you still think that is the right strategy, then if one is 20% higher I think you should rebalance. How would you feel if we went into another crash next week and you lost your 20% gain?

Well, having tracked things FAR too closely, I can tell you that the 4 areas dropped 8.33%, 18.49%, 19.53% & 22.19% from the highs of 21 Feb to the low of 20 March.   I'm fairly sanguine that things broadly go up.   Every now & then I wonder about moving to cash, but then logic and reason takes over 

@Linton - the point/summary of the research I quoted was that leaving it to 10% difference is almost always better than any more frequent (& that 15-20 is better again, but does move your risk profile up....)

dunstonh

Rebalancing can mean different things depending on how you run your portfolio.
If you use static weightings and will always be returning to that arbitrary split, then rebalancing shouldn't be too frequent.  You could get away with every 4-5 years probably.
If you use fluid weightings then you should really rebalance annually.  Otherwise, you risk being overweight in an area that you dont want to be overweight in.  

Above is a chart that shows VLS60 in green (28.38% up in that period).  A portfolio of the same risk level taken out using Jan 2017 weightings and left to its own devices without rebalancing in red (30.74% up).    And the Blue is the same portfolio rebalanced using fluid weightings (41.07% up).

cfw1994

What are "fluid weightings" versus static ones?

gm0

ERN also did a study on rebalancing frequency with mildly different assumptions and test conditions no doubt from the Abraham link.  The samples chosen and assumptions seem to be material vs the effect being studied.  I am fairly unconvinced that we are materially above the "noise" floor here for benefiting from/being harmed by - slightly slower or slightly more often

The ERN blog sensitivity analysis - especially for what happened with "worst decile" of retirement starts in first 10 years analysis ends up suggesting quarterly rather than annual from that backtesting data set.

https://earlyretirementnow.com/2020/08/05/rebalance-swr-series-part-39/

Audaxer

dunstonh said:

Rebalancing can mean different things depending on how you run your portfolio.
If you use static weightings and will always be returning to that arbitrary split, then rebalancing shouldn't be too frequent.  You could get away with every 4-5 years probably.
If you use fluid weightings then you should really rebalance annually.  Otherwise, you risk being overweight in an area that you dont want to be overweight in.  

Above is a chart that shows VLS60 in green (28.38% up in that period).  A portfolio of the same risk level taken out using Jan 2017 weightings and left to its own devices without rebalancing in red (30.74% up).    And the Blue is the same portfolio rebalanced using fluid weightings (41.07% up).

That's interesting. Can you share what funds make up the blue line portfolio, and what triggered the rebalancing - was it related to weightings % changes or annual rebalancing?