How & when do you stop running your winners?

OldScientist

https://forums.moneysavingexpert.com/discussion/6657342/how-when-do-you-stop-running-your-winners

As others have said, deciding on and implementing a rebalancing rule with either strict rebalancing or within defined tolerance bands is a simple rule based approach. Another approach is not to allow any single fund to exceed a certain fraction of your portfolio (so for 4 funds, a cap of anything above 25%would suffice).

IMV, 8 months is probably too short a period to decide on removing funds - presumably you believed in the funds 8 months ago, so unless anything has changed to shake your belief (change of manager?) then is there a reason to change? I note that over the past 5 years, the four funds have had annualised returns of between 8% and 16% compared to FTSE World ~12.6%. In other words, holding equal amounts of the four funds over that period would have returned about the same as the index (albeit with a small fraction of fixed income, so possibly slightly lower volatility).

redpete

I'm retired and hence largely in the draw-down phase of investing. My investments are simplistically split between bonds and equities with most of the equities in globally-diverse tracker funds.

Once a year I review valuations and if the equity part of the investments has risen by 20% or more of a baseline total (adjusted for inflation) then I sell off 20% and transfer to the bonds portion (& maybe withdraw some as income). I rebalance to get back to my original proportions to decide which specific funds to sell-off.

This removes the temptation to panic-sell, or try to out-think market sentiment (apart from a recent decision to reduce the % allocated to US stocks).

[Deleted User]

https://forums.moneysavingexpert.com/discussion/comment/81903400#Comment_81903400

Very much agreed. This is the same drum I've been beating for some time.

seacaitch

I have a portfolio comprising 9-10 (10 currently) holdings, grouped into 3 approx risk/volatility buckets.

Each holding has a target % weighting, and each risk bucket has an overall target % weighting which is the sum of its component holdings' target weightings.

I use inflows (new money, investment income received) & outflows (portfolio withdrawals) to keep actual weightings fairly close to target weightings, without recourse to "forced" rebalancing steps:

• If an individual holding departs from its target weighting by 20%, eg. a holding with a 15% target weight which grew to an 18% weight, a forced rebalancing would occur.
• And, if a risk bucket departs from its overall target weighting by an absolute 2.5%, eg. a risk bucket with an overall target of 35% which has grown to >37.5%, then a forced rebalancing of its components would occur. NB this "2.5%" used to be 5%, but has been reduced to ensure tighter adherence to bucket targets.

Since my holdings are not speculative (ie. unlikely to rise or sink very rapidly), and because I use portfolio inflows & outflows to subtly adjust holdings back towards target weights fairly frequently, forced rebalances are quite rare.

The approach I describe here is very much focused on longer term risk management, and not letting the portfolio transform itself into something different than was originally intended. It's managing wealth already accumulated, aiming to maintain and grow that steadily, rather than looking for individual moonshots to massively move the dial (since indidividual holdings only get 20% freedom before trimming).

[Deleted User]

https://forums.moneysavingexpert.com/discussion/comment/81913264#Comment_81913264

I also monitor various "buckets" against my prefered or desired levels, I can monitor the variance from those levels in real time. I don't care too much about changes to fund values but I do watch closely where the overall distribution is headed, eg, the split between capitalisation ratio's, geographic ratio's, currency ratio's etc. It's then a matter of manual intervention if I feel that something is unduly out of line. The other alerts I have established show percentage increase/decrease by fund and a projection for the remainder of the year, from which it is relatively simple to observe a fund that is in decline.