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October 02, 2012


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Banjo Steve

I do love both your values and your strategic investing. Trying to make a "killing" on the market, IMO, becomes the kind of "kill or be killed" situations that so destroyed so many retirement dreams of others in the recent financial debacle. Attentive stability is my preference. Thanks for your insights.


Good post, Syd, not only explaining what rebalancing is but what it is not, too.

Many investors have ranges in their asset allocations (AAs) so they will only make a rebalancing move if they fall out of that range. For example, someone (like me) with a 55/45 stock/bond AA (in my IRA) will stay put if their AA is within 5% of their target. Therefore, a 53/47 AA or a 57/43 AA is not enough to buy/sell to get back to 55/45. My own range is about 4% so 53/47 still keeps me within my range. Otherwise, I'd be adjusting all the time.

These days, both stock funds and bond funds are at relatively high points, so my AA is actually pretty stable and within my range. Also, if I sell something, what would I buy? I can surely "sell high" but I'd also have to "buy high," too, the heart of my dilemma.

One of my best rebalancing times was in 2002 when the stock market had tanked but bond fund prices were rising. That was a perfect time to sell some shares of my bond fund and buy more shares of my stock fund at bargain prices, buying low and selling high at the same time. The same thing happened in 2009 and 2010.

A question for you, Syd. If you have an IRA, have you been gradually adjusting its AA over time so its stock % goes down as you age? I don't ask this for your taxable account because you are probably using it for mainly income purposes in the short-term.

new at this

Another great post! One question I'm still wondering about though is frequency. I read Bengen's book (the 4% guy) who concluded the optimal rebalancing frequency is 6 years for people withdrawing 3 or 4% from their nest egg each year.

But he later acquiesed to once per year, concluding that you'd give up a little bit of gain in order to not let it run too far off your original AA.

However, I find in my own case, its very difficult to not want to "continuously" rebalance to keep it kind of "neat and tidy", but I don't actually know if I'm hurting or helping myself by my zealousness. (I am at least careful to use my 401K acct whenever possible for this exercise to avoid triggering a taxable event).

Any insights welcome on whether you are better off to just set it and go fishing for a few years; or whether you can actually create some value by micro-managing....

Retired Syd

So, as it turns out I have a lot of time on my hands, and I really like looking over my portfolio over and over again. Remember, I'm an accountant at heart. But like deegee, I only rebalance when it's over/under by 2% in a particular category (remember I have 8 categories/asset classes.) Consequently, while I look at it at the end of each quarter, I only wind up moving stuff around every year or so. You'd be surprised how little the market swings actually impact the %'s--you need pretty big uncorrelated swings to move those percentages significantly. We've experienced a lot of swings these last few years that go the same direction as each other.

Deegee--to your question about changing my asset allocation as I age: I look at all the assets together (taxable and non-taxable) and do the allocations on a aggregate basis. I won't shift my retirement assets toward bonds until I can actually start getting at that money at 59 1/2. Otherwise, I'll have a bunch of liquid assets in a place that I can't get to them for awhile. Now I put those in my taxable accounts so I can use them to live on.

Right now my quarter-end allocations are getting pretty out of whack so I'm using this rebalancing time to shift toward the 40/60 allocation that will help me sleep better.

Retired Syd

Banjo Steve: You and John Bogle both! I was just reading his Little Book of Common Sense Investing last night and there are far more people in the "be killed" category that are of the make a killing mentality. Attentive stability, I like that one.

new at this

Any background on how you arrived at over/under 2% strategy...? This kind of approach resonates with my tendency to want to "do something" when markets do something interesting, but is there any reason to think its actually adding any value...? Bengen's finding of only rebalancing every 6 years really goes against my instints....

Retired Syd

New: There are a lot of opinions out there on this, from what I can tell it's not going to make a whole lot of difference (although I would not feel comfortable with a 6 year timeline.) I don't have any really good answer for you on that other than I don't mind looking at it often and I don't pay any transaction costs (and I tend to trade in my retirement accounts to eliminate tax costs.) I can't think of any downside to looking at it pretty regularly. But I think the trick is to just not let it get away from you. As I said, even looking at it quarterly, I haven't ever had to rebalance more than once a year.


Do you know of an easy way -- a website perhaps -- where you can compare the holdings of mutual funds you may own -- so you have the info. to balance and rebalance among growth and value stocks; domestic and foreign stocks; stocks and bonds, etc.?

Retired Syd

Sightings: Well that's a great question. I do it the hard way, with an excel spreadsheet that keeps track of my allocations, and on which I have entered manually the allocation that I chose to fit my risk profile. But it sure would be easier to do with software or through a website! Now that you mention it, I'll start to look around for an easier way. Here's one article I found in the NY Times that has a few suggestions. Perhaps one of the companies that hold your mutual funds has a tool listed in the article.


Hi Syd - I've been reading your blog for sometime (over Tamara's (Early Retirement Journey) shoulder given her interest in your postings!). I've watched this exchange on how to keep track and "easily" rebalance a portfolio. I've found that BofA and Fidelity do a reasonably good job of doing this for us for the assets that they get access to. I have some monies at employer based sites that I can't get to automatically update to BofA or Fidelity. However BofA and/or Fidelity do track and report on probably 80-90% of my portfolio. However, I too use a spreadsheet to track and then re-balance the entire portfolio (I try and shoot to do this quarterly if possible). Hope this helps.

Retired Syd

BiknMike: Excellent, thanks for chiming in!

new at this

So while rebalancing per the above instructions, with just a little over 2 months to go til declaring my freedom, the topic I seem most obsessed with, is simply confirming to myself that I really, really, really do have "Enough".

To that end, I've come up with a personal definition that thought I'd put out there with the hopes that others might reciprocate...

My Definition of "Enough":
When you realize that the thing you'd buy with the income from one more year of work, is one more year of vacation. (eh hem, not to mention, the abillty to cover annual expenses with 3% of Assets, After-Tax)

Retired Syd

New: I like that definition!


Actually, that is exactly why I just turned down a consulting job. I couldn't think of anything to really do with the money, other than go on a vacation that would last about as long as the consulting gig. Which clearly made no sense.

Syd, I see my husband finally posted here. He's been a reader for about a year now, and frequently comes down to comment on something you've posted. I suggested he start telling you instead! :-)

Retired Syd

Tamara: Yes, I love hearing a new voice! And I guess, in a way, I've been following him too, thorough your blog!

Retired Syd

New & Tamara: You both just reminded me, that when I took up that consulting gig two years ago, I had it in my head that I would use the money to rent a little furnished studio in San Francisco so we could go up and enjoy it any time. We're up there quite a bit, so I thought that would be something I'd like to use the extra money from working for.

Guess what? I never did that. I just pocketed the money. Go figure.

Clearly, whatever the extra money can be used for, I'm not really all that interested in. I guess that means I should be retired after all!

fred doe

Well shades of Benjamin Graham :)

J. Rockwood

Do you usually compose exclusively for this site or you do this for other Internet or offline portals?

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