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  • FIRST POST
    • k6chris
    • By k6chris 7th Feb 18, 6:31 PM
    • 214Posts
    • 363Thanks
    k6chris
    When to rebalance a portfolio??
    • #1
    • 7th Feb 18, 6:31 PM
    When to rebalance a portfolio?? 7th Feb 18 at 6:31 PM
    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.....
    EatingSoup
Page 1
    • bostonerimus
    • By bostonerimus 7th Feb 18, 6:33 PM
    • 1,820 Posts
    • 1,169 Thanks
    bostonerimus
    • #2
    • 7th Feb 18, 6:33 PM
    • #2
    • 7th Feb 18, 6:33 PM
    I use a +/-5% band.
    Misanthrope in search of similar for mutual loathing
    • jaymerchi
    • By jaymerchi 7th Feb 18, 6:38 PM
    • 8 Posts
    • 1 Thanks
    jaymerchi
    • #3
    • 7th Feb 18, 6:38 PM
    • #3
    • 7th Feb 18, 6:38 PM
    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
    • By JohnRo 7th Feb 18, 6:58 PM
    • 2,599 Posts
    • 2,414 Thanks
    JohnRo
    • #4
    • 7th Feb 18, 6:58 PM
    • #4
    • 7th Feb 18, 6:58 PM
    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.
    Last edited by JohnRo; 07-02-2018 at 7:18 PM.
    'We don't need to be smarter than the rest; we need to be more disciplined than the rest.' - WB
    • Superscrooge
    • By Superscrooge 7th Feb 18, 7:13 PM
    • 1,081 Posts
    • 775 Thanks
    Superscrooge
    • #5
    • 7th Feb 18, 7:13 PM
    • #5
    • 7th Feb 18, 7:13 PM
    See below link on rebalancing strategies

    http://monevator.com/series/how-to-rebalance-your-portfolio/
    • Thrugelmir
    • By Thrugelmir 7th Feb 18, 8:03 PM
    • 58,462 Posts
    • 51,842 Thanks
    Thrugelmir
    • #6
    • 7th Feb 18, 8:03 PM
    • #6
    • 7th Feb 18, 8:03 PM
    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.
    Financial disasters happen when the last person who can remember what went wrong last time has left the building.
    • darkidoe
    • By darkidoe 8th Feb 18, 4:18 AM
    • 923 Posts
    • 1,071 Thanks
    darkidoe
    • #7
    • 8th Feb 18, 4:18 AM
    • #7
    • 8th Feb 18, 4:18 AM
    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.

    Save 12K in 2018 #31 0/15 000
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    • Audaxer
    • By Audaxer 8th Feb 18, 8:56 PM
    • 1,042 Posts
    • 602 Thanks
    Audaxer
    • #8
    • 8th Feb 18, 8:56 PM
    • #8
    • 8th Feb 18, 8:56 PM
    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
    • By Alexland 8th Feb 18, 9:55 PM
    • 2,388 Posts
    • 1,789 Thanks
    Alexland
    • #9
    • 8th Feb 18, 9:55 PM
    • #9
    • 8th Feb 18, 9:55 PM
    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?
    Originally posted by Audaxer
    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
    • By bowlhead99 8th Feb 18, 9:59 PM
    • 7,830 Posts
    • 14,300 Thanks
    bowlhead99
    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
    • By Audaxer 8th Feb 18, 10:47 PM
    • 1,042 Posts
    • 602 Thanks
    Audaxer
    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.
    Originally posted by bowlhead99
    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.
    • grey gym sock
    • By grey gym sock 9th Feb 18, 1:43 AM
    • 4,331 Posts
    • 3,861 Thanks
    grey gym sock
    i use the dividends to rebalance my SIPP. (i am not currently making further contributions to the SIPP.)

    i have a target % of the portfolio for each investment held, with rebalancing bands (upper and lower limits, either side of the target).

    1) i wait until enough cash from dividends has accumulated inside the SIPP that it's worth reinvesting it.

    2) then i check whether any holding is over it's upper limit, or under it's lower limit. if it has, i'll sell or buy enough of it to put in back between its upper and lower limits, and if possible will put it exactly back on target.

    3) otherwise, or if there's still some cash left over after that, i'll use the cash to buy more of whatever holding is under target and closest to falling under its lower limit. if there's enough cash to put it back on target, i'll do that; otherwise, i'll use all the available cash (putting it nearer its target). if this step leaves a non-trivial amount of uninvested cash, then repeat the step.

    in practice, it's rare that any action needs to be taken in (2). so usually, it's no sales, and just a purchase under (3).
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