How often do you rebalance ?

L

luisHK

Hi
Wondering how you guys deal with portfolio rebalancing.
I've been 60% long equities for a while now, and rebalance at least once a month when doing the monthly accounts, and sometimes several times.
Problem with that is one end up selling when the market is going up, and buying when it's going down (equities value get higher than 60% during an up month, and lower during an down month), it limits the gains in an up market and increase the losses in a down market.
Actually rebalanced today and added longs shortly before the market sell off, main position down over 5%.
So how do you guys deal with your whole portfolio ?
 
i seem to remember reading about a thing whereby they tested rebalancing a bond/stock portfolio years ago. they concluded you should only rebalance annually. more often than that you were cutting off your winners mid run to invest in the losers mid run. like you indicated. but its been years. decades probably. hell maybe even centuries.
 
Reading this, from vanguard, in the introduction they write :

Our findings indicate that there is
no optimal frequency or threshold when selecting a rebalancing
strategy. This paper demonstrates that the risk-adjusted returns
are not meaningfully different whether a portfolio is rebalanced
monthly, quarterly, or annually

yet (a part which makes sense but doesn't concern me too much)

"however, the number of rebalancing events and resulting costs (taxes, time, and labor) increase significantly."

https://www.vanguard.com/pdf/icrpr.pdf
 
1) Whenever "out of balance".... ("Lame!" :rolleyes:)
2) Whenever material drops afford Buying opportunity(ies)
3) Whenever significant climbs suggest Profit-taking.

#1 is an overall and largely time-driven policy statement.
#2 + #3 are simply driven by opportunism -- *subject*to* #1.
(which is to say, if the market drops big, and there has already been a #2 Buy made {in accordance with #1}, ensuing drops of the market do not automatically entail further Buys.

"Balance!" in your re-balancing.... :cool:
 
Don't balance or rebalance -- just go All-In in your area of expertise and wisdom o_O, :confused:
If you don't have an area of expertise and wisdom...then Get one.

You're not a retirement fund, public investing manager. -- You're an ET, trading...your own, personal account for cowboy gains.
hoo-Wah`
 
luisHK said:
Hi
Wondering how you guys deal with portfolio rebalancing.
I've been 60% long equities for a while now, and rebalance at least once a month when doing the monthly accounts, and sometimes several times.
Problem with that is one end up selling when the market is going up, and buying when it's going down (equities value get higher than 60% during an up month, and lower during an down month), it limits the gains in an up market and increase the losses in a down market.
Actually rebalanced today and added longs shortly before the market sell off, main position down over 5%.
So how do you guys deal with your whole portfolio ?
More...

When I hear "rebalance", I presume exiting those positions that have failed to perform to your expectations or are near/at/beyond your loss metric, AND trimming those positions that have performed that now consume over X percentage of your entire portfolio. IOW, taking some profit, thereby reducing the position to the original position percentage. If your definition is different, then this does not apply. Hell, it might not apply anyway since I trade futures only, but otoh, it doesn't mean I speak from my arse without topic knowledge and experience.

So, it's simple... like all other areas of trading it requires discipline to execute your plan, period. It doesn't matter what your plan is. In the case of re-balancing (per my definition), failure to execute as your plan prescribes exposes you to trying to time the market. Market timing is something that an investor talking about monthly, annual, or some different time marker "rebalancing" would be avoiding. So do what you need to do with the portfolio, when you've been prescribed to do it, and live by your plan.
 
tiddlywinks said:
When I hear "rebalance", I presume exiting those positions that have failed to perform to your expectations or are near/at/beyond your loss metric, AND trimming those positions that have performed that now consume over X percentage of your entire portfolio. IOW, taking some profit, thereby reducing the position to the original position percentage. If your definition is different, then this does not apply. Hell, it might not apply anyway since I trade futures only, but otoh, it doesn't mean I speak from my arse without topic knowledge and experience.
More...

Nah, that part I would do almost constantly, buying and selling usually everyday, also hold a bunch of shorts, although nowadays mostly short indexes. What i mean is the net equities positions need to stay around 60% of the overall portfolio.
Say on a 10 000 000 portfolio i'm long 6mil, at the end of a good month, especially that i hold quite a few emerging markets and high beta stock, equities position might be worth 6.3 mil, total portfolio is now worth 10.3 mil minus monthly expenses, say 10.270 000
60% of 10270000 is 6162000 so I would reduce the net long position of 138000usd
 
Actually i often adjust 100k or more, if it amounts to cutting winners short and adding to losers it looks ugly in the long term.
Feeling a little better reading the Vanguard study introduction.
Wondering how you guys deal with it.
 
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tiddlywinks said:
Market timing is something that an investor talking about monthly, annual, or some different time marker "rebalancing" would be avoiding. So do what you need to do with the portfolio, when you've been prescribed to do it, and live by your plan.
More...

But yes the idea is to avoid market timing, try just to stay long a specific percentage no matter the market situation, although with portfolio management it gets complicated (asset allocation is also naughty)
Than trying to get alpha with active trading within those 60% long.
 
Maybe wait to re-balance only when things get out of whack by more than x%.
So if the model is 60/40 stock/bonds, and stocks have been very strong and now represent, say more than 70% (70/30) then re-balance.

Interesting question. Def. an area that needs more study.
Another idea: Assuming your stock portion is individual stocks and not funds/ETF's, maybe look at how your stocks are performing relative to their industry group. Keep the out performers, sell the laggards, and buy other stocks to maintain the % stock
 
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