When to rebalance a portfolio??

k6chris · 7 February 2018 at 7:31PM

The recent pullback / not pullback / pullback-to-be got me thinking about when to rebalance a portfolio? If I have decided on a 60/40 equity/bond portfolio, and due to a pullback in equities (but not so much in bonds) the percentages change, then I understand the benefits that might come from rebalancing (in effect, buying low). Is the trigger to do this based on price movement, time or both? For example, at 60/40 initial portfolio that moves to 59/41 is probably too small to change, but what about 55/45? 50/50?? Or is it better to simply take a look every January 1st and rebalance then, even if at some point you had a 40/60 portfolio due to a severe equity pullback?? Might that 40/60 time be an excellect buying opportunity???

My head hurts.....

bostonerimus · 7 February 2018 at 7:33PM

I use a +/-5% band.

jaymerchi · 7 February 2018 at 7:38PM

There is no correct answer on when to rebalance, depends on how keen you are to stick to your portfolio weights vs the trading costs.

Onto the recent sell down, I would definitely buy this particular dip if I had a time horizon > 5 years. (opinion not financial advice). Maybe transition into value stocks instead of the pricier growth stocks that have vastly outperformed over the last decade. Use cheap ETFs

JohnRo · 7 February 2018 at 7:58PM

Are you adding new money to the portfolio?

If not then once a year is enough or as suggested use some pre-defined percentage out-performance as a trigger.

If new money is going in, is it regular or ad hoc?

Simply add the new money to the investment(s) requiring the biggest lift to catchup and reconnect with their assigned portfolio allocation.

**
I'm rebalancing monthly with CSD, that's not because it's a good rebalance strategy though, it's because one monthly trade negates the platform fee which saves money, and complements nicely by helping to maintain a reasonably tight allocation.

Superscrooge · 7 February 2018 at 8:13PM

See below link on rebalancing strategies

http://monevator.com/series/how-to-rebalance-your-portfolio/

Thrugelmir · 7 February 2018 at 9:03PM

Bonds, i.e. UK Gilts and US Treasuries currently offer very low yields. If you want a real rate of return above inflation from "bonds" then you'll to accept investment risk. Central banks have effectively made equities the only place to invest.

darkidoe · 8 February 2018 at 5:18AM

I rebalance when I have extra cash to pump into my portfolio. I have a predetermined allocation which I will match with the extra cash I put in to rebalance. This is the probably the cheaper way to rebalance for me based on my portfolio of less than 100k.

I think it is only worthwhile to rebalance using the +/- 5% out of desired target allocation method on a major correction if used on a sizable portfolio.

Probably better fixing a rebalance date regularly, ie yearly or twice a year and stick to that rather than keeping your eye and head busy debating when to rebalance. Try to remove as much decisions you have to make so you don't go around on a fool's errand.

Audaxer · 8 February 2018 at 9:56PM

I've got an income portfolio and have accumulated some dividends over the past few months that I plan to reinvest. Rather than reinvesting the dividends for each fund in which they were generated, I was thinking of putting the dividends just into the equity funds that have fallen most recently in the mini correction. Although the overall weightings haven't changed that much, I think it would help to rebalance the portfolio. Is that the best strategy for reinvesting dividends?

Alexland · 8 February 2018 at 10:55PM

Audaxer wrote: »

I've got an income portfolio and have accumulated some dividends over the past few months that I plan to reinvest. Rather than reinvesting the dividends for each fund in which they were generated, I was thinking of putting the dividends just into the equity funds that have fallen most recently in the mini correction. Although the overall weightings haven't changed that much, I think it would help to rebalance the portfolio. Is that the best strategy for reinvesting dividends?

It depends if it would leave you over-rebalanced so overweight on the highest droppers?

Personally across equities I would want to keep the same proportions as I don't see this as a reason to change your sector or geographic layout.

I do think there is an opportunity to increase weightings towards equities slightly within your risk tolerance range however from our previous discussions that might be more suitable for my situation where I still have 20+ years before needing to draw on any investments.

Alex

bowlhead99 · 8 February 2018 at 10:59PM

If your goal is to have a balanced portfolio with your preferred percentages in each fund, then the practice of always reinvesting the dividends back in to the specific funds from which they were paid out may well be counterproductive.

Whereas the action of putting those dividends into the funds which are below their target weightings (perhaps in proportion to the relative deficits you observe, i.e. most into the ones that have fallen the most) is quite sensible.

Audaxer · 8 February 2018 at 11:47PM

bowlhead99 wrote: »

If your goal is to have a balanced portfolio with your preferred percentages in each fund, then the practice of always reinvesting the dividends back in to the specific funds from which they were paid out may well be counterproductive.

Whereas the action of putting those dividends into the funds which are below their target weightings (perhaps in proportion to the relative deficits you observe, i.e. most into the ones that have fallen the most) is quite sensible.

Yes, that's what I was thinking - best to take advantage of the volatility by only reinvesting the dividends into the funds that are currently lagging behind the others.

When to rebalance a portfolio??

Comments

Categories

Get our FREE Weekly email full of deals & guides - and it’s spam-free