Jack Bogle: "Never" Rebalance Your Investment Portfolio (and how to do it if you must)
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- เผยแพร่เมื่อ 19 มิ.ย. 2024
- Jack Bogle: "Never" Rebalance Your Investment Portfolio (and how to do it if you must) Join the newsletter: robberger.com/newsletter/?utm...
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Jack Bogle, the founder of Vanguard, argued that one should not rebalance their investment portfolio. He believed that doing so lowered long-term results. In this video we'll understand why he believed rebalancing was unnecessary, along with good reasons to rebalance a portfolio. I'll also cover how I use what's called Opportunistic Rebalancing in my investment portfolio.
#rebalancing #investing #RobBerger
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When this market crashes 90% you won't need to rebalance.
Hey @rob_berger. Thanks for your work. I was revisiting this video and had an idea.
In addition to (or possible without) the opportunistic rebalance method, what do you think about using new contributions as a balancing mechanism? For example, if the portfolio balance is off by more than the contribution amount, simply contribute to the "low" category(s) of the portfolio to bring them towards the target. If the new contribution is more than the deficit, then make up the deficit first and then spread the remaining contribution according to target allocation.
Is seems like an approach like this would have you always investing on the value side, while also minimizing the sale of whatever assets are running up at that time. (Let them RUN!!!) This would also reduce the frequency and/or amount of any kind of rebalancing - regardless of method. I know it's a little more math than the average person wants to do, but that math does not deter me in the least.
Thoughts? (or maybe a future video idea?)
I followed Jack Bogle the last decade, but I wanted to hear Rob's opinion on this as well. Currently retired and I have most of my 401k contributions of $200K going into small cap and utility funds, because these seem to be at a "discount" right now.I'm hoping this is a valid thought process?
IMO, Adding JEPI and JEPQ is smart for retirement. As for staying committed to low-risk investments, it's all about balancing your risk tolerance with your long-term goals. Maybe also consider working with an advisor to help in diversifying your portfolio to spread out the risk.
it remains uncertain which sectors will dominate. If you lack expert advice from a financial advisor, avoid re-balancing. Personally, I work with an advisor and my $1.2M portfolio saw a 30% annualized gain in 2022.
I've been considering getting one, but haven't been proactive about it. Can you recommend your advisor? I could really use some assistance.
There are a handful of experts in the field. I've experimented with a few over the past years, but I've stuck with ‘'Jennifer Leigh Hickman” for about five years now, and her performance has been consistently impressive. She’s quite known in her field, look-her up.
Thanks for sharing. I curiously searched for her full name and her website popped up after scrolling a bit. I looked through her credentials and did my due diligence before contacting her.
Jack actually was a bit more nuanced than just "never rebalance." He believed that rebalancing reduced long term returns due to inefficient allocation of assets and taxes. His approach was to start with a conservative allocation, he suggested 50/50, and if the portfolio started to drift too much to mitigate the drift by moving the income from whichever asset was outperforming into the lagging asset class. (i.e. stock dividends being diverted to bonds etc.). He also recommended adjusting contributions to favor lagging assets in the event of severe drift. And lastly Jack was not dogmatic about much aside from the superiority of indexing. He was quick to note that if you start with a 50/50 portfolio and wake up one morning with a 95/5 portfolio and that exceeds your risk tolerances, then go ahead and rebalance. His argument was not that you should never rebalance. His belief was that rebalancing reduced returns and should be minimized in so far as reasonably possible. If you can handle the risk then avoiding rebalancing altogether would deliver better long term returns. But he was well aware that most people probably would need to tweak their portfolios at least occasionally. Jack's belief was that where the subject is rebalancing, that less was better.
That seems to make more sense since the point would be equally true if you started with 100% stocks and kept it that way. But most people couldn’t sleep at night.
@@kenperlman2204 I certainly wouldn't.
Got it, thanks for the clarification.
50/50 portfolio 🤭
Markets & economies are live phenomenon as such require at least some basic level of management to counteract external factors. Otherwise your assets are essentially ‘blowing in the wind’…
As wise as Bogle was, we cannot just follow him blindly, his situation was different from most of us. He never needed to withdraw any money from his portfolio because he already had a very high income, so he didn't think too much about risk and volatility, but people thinking on retirement will actually need to withdraw, so wee need to consider those factors.
"didn't think too much about risk and volatility..." ...? huh? Bogle? come on.
We are still 100% in equities (Roth IRAs and a lone Roth 401k) at age 50 and sleep well at night. We have rebalanced between total stock market or S&P indexes compared to small cap indexes at times. For our HSA account, a substantial amount in the investment side is 60-40 VIIIX and VWINX. We never flinched in 2002, 2008, or worried during the latest pandemic. The lack of personal debt, a pension, and SS (lower earner @62 and higher earner @67) is our plan. It may seem very crazy to some and OK to another, but we are comfortable with it (for now).
The pension is essentially your bond
I don't have a head for business or numbers, yet I find myself learning from Rob in a way that surprises me.
Really enjoy and appreciate your videos. Thanks for taking the time to share your experience!
This discussion is why I like what M1 does. Set your target allocation and as you make contributions they are directed toward assets that are below the target percentage. This of course is not helpful once you are no longer contributing, but for those of us still accumulating, it is a huge help if you care about your asset allocation.
Thank you so much for this video. I have been running the numbers and was beginning to question the rebalancing strategy myself. It is so good to see I was on the right track! Now - whether I will be able to put most of my retirement savings in bonds and never rebalance, we shall see!
I get where Jack is coming from: your buckets will rise and fall naturally, so don't mess with them. Perhaps rather than rebalancing the portfolio, one should rebalance one's monthly contributions so that the bucket that's doing well doesn't become over-weighted. Put more into the one doing not-so-well so you can buy into them at a discount.
Great point
100%
So what happens if the "bad" part of your portfolio is going down because the stocks in it are a bunch of perennial losers on their way to absolute zero?
Wouldn't that be throw good money after bad?
The newsletter is "free, and worth every penny!" Wait what?
Free and worth every penny invested with the savings 😀
@@jikkujonty123
A newsletter invested?...
@@WestCoastUSA546 going from free to worth Pennys could also be said to have “infinite return” on investment
Always great information, thank you
I rebalance quarterly, but also keep an eye on things monthly. During COVID, I did a lot of opportunistic rebalancing. The main thing I watch is the Fear-Greed index. As long as the needle stays near the middle, the less opportunity there will be. When the needle swings, I look for which asset class is on sale.
I don't think to rebalance is for more returns. To compare returns, in this case, proves anything at all. Rebalancing is more for risk management. Max drawdown is the real factor we should be looking at. Then, there are different ways to rebalance your portfolio. Unless you retired already, you should save and invest on a regular basis. That is how you want to rebalance. Simply put more money towards the lower parts you want to add.
You are so clear and helpful. Thank you!
Great job on explaining rebalance ratios
I love your videos. Leaning a lot from them.
This is a very solid investment channel. Its a pleasure listening to Rob. I was looking for some content on rebalancing for my all stock portfolio and here it is, with backing research and all.
59 planning on retiring within 6 months. My thinking currently is that I won't reinvest dividends, Fidelity will just drop them in my cash account, then every quarter I'll use that money to rebalance (to whatever extent I can with that money). Maybe I won't get 100% back to my ideal asset allocation but it will be good enough.
Then why have the money in dividend paying stocks? Go growth company!
LET YOUR WINNERS WIN
I agree with Jack, right into retirement. As far as risk is concerned, do not look at %. Rather, consider how much you need to live on for around 2years, to minimize stock withdrawals when stock market tanks.
Great advice, you have a lot of great insight!
Your awesome, Mr bogle was a legend
Fantastic video as always! Thanks :)
It would be VERY beneficial to see the numbers ran in the portfolio visualizer using the banding method for the same 50 year period
When deciding on asset allocation, rebalancing, etc, I find it helpful to compare portfolio allocations by looking at worst-case scenarios. So for example if you compare rebalancing and not rebalancing beginning in 1972, is there ever a time when annual or quarterly rebalancing would have left you with more money vs not rebalancing if you had to sell following a market downtown? The answer is yes but it's a brief period in early 2009 So if you start with 10,000 at 60/40 quarterly rebalancing and had to pull all your money out on Feb 28, 2009 - the worst day to pull out of the market over the last 50 years, with a drawdown from the previous high of 29.66% you would have pulled out $235,180. If you had never rebalanced during that time, the drawdown would have been worse at 38.29% so you would have pulled out on Feb 28 about $201,000 so for this brief period of a couple of months, rebalancing would have been better. All other periods, more stocks meant more money. In fact, if you compare a 75/25 portfolio to any portfolio with more bonds over the same period of time and assume selling everything at the worst possible moment, the 75/25 basically always leaves you with more money. This appears to hold true even with regular withdrawals. It would seem the value of more bonds is thus purely psychological. The "risk" you are taking on with more stocks up to about 80% is not a real financial risk, at least looking at the past 50 years
Rob, great video...
I think this concept of rebalancing is a bit of a fool's errand for some/many people. Do this thought experiemet:
You start with a 50/50 stock/bond portfolio. Let's say it is $100 total.
Over the years the stocks quadruple in value, but the bonds only double. That leaves you with a portfolio that is worth $300, and is broken into 200/100 split, or 66/33.
OK, that deviates from the original 50/50 substantially, but what have you lost? What have you gained?
The concept is that you have more volatility in the portfolio, but you are also working with more money than previously because of the gains in the funds. Because you have more money, you can handle more volatility before it might cost you losses that are impacting your portfolio in a way that a more conservative portfolio might not.
For example, take that original $100 and 50/50 split.
Instead of leaving it where it was, you rebalanced regularly, so now you have two funds that are both worth about 2.5X what they were at the beginning, resulting in a total portfolio of $250, $125 in each.
You have $50 less than you would have had if you didn't rebalance. That $50 missing potential profit is the penalty for rebalancing but you have to look at situations where that $50 penalty is a better deal than the downside risk of the unbalanced portfolio. That $50 is "extra" money that you have in the one account that you will never have in the other, and it gives you room for the portfolio to move an awful lot downwards before it is at the break-even point with the conservative approach.
When you graph the potantial portfolios over time, is there ever a time when the greater risk approach actually performs worse than the lower risk approach? That is, where the greater risk approach shows a higher penalty in total cost (value of the portfolio) than the lower risk approach. There will likely be some, like when the market is a bear, but these periods aren't normally too lengthy and then the market starts to recover, maybe slowly, but it does recover. If you start the portfolio NOT ON A DOWNTURN OR SIMILAR BEAR MARKET, you may never see the situation where the higher risk approach performs worse than the lower risk approach, even though it may have more strong movement at times and the volatility will be higher. It doesn't mean it is performing worse.
Yes, for short snippets of time here and there, the higher risk approach will perform worse, most specifically when the market is in down or bear territory. But as long as the market trends toward gains, this isn't going to be the case. And if you had more money in the high risk approach before that began, you could still end up ahead anyway. Additionally, thinking in hindsight about periods when one approach is better than another is akin to timing the market. You can't do it effectively anyway, so don't beat yourself up about what you did or didn't do in the past.
All of these caomments are from the perspectinve of a long-term investor and not someone who wants to get in and out of the market quickly, where a completely differnet approach would be warranted.
What about rebalancing your stock portions to maintain the allocation of domestic to international stocks? What about rebalancing stocks via future contributions instead of selling?
@@pspublic13 You are missing the point...
Agreed. The only reason I would rebalance is if it could be shown to support a higher swr. I haven't looked into that much.
Drawdowns are unavoidable. If that is so (and it is as no one can guess when the trends will turn, idc what savant literature they are selling), then that means with a higher risk ratio, larger drawdowns will occur. It's unavoidable. All the mini-crashes, and 2 major over the past 20 years have seriously crippled account health for investors. I see your point, however. The riskier avenue can tend to bear more fruit for periods of time, but it also has the added risk of losing the whole basket in one fell swoop, which will happen if a portfolio is invested 100% of the time. Obviously an investor would be wise to keep a good percentage as cash, but why go riskier when market crashes are inevitable? I've viewed several strategies mapped over historical timeframes and the riskier approaches always have larger drawdowns while more conservative ones land closer to a flat line than going negative. Perhaps it's the strategies I've looked at that are inferior but I suspect not as they were commonly known and utilized. Your thought experiment is cool, but not complete. You must account for major market corrections that could potentially wipe out all gains.
I think you have answered the questions I've had about rebalancing, risk tolerance and how they may affect how one's portfolio may grow...I just didn't know how to put together the questions, but you have read my mind! I totally agree with your arguments and position.
Thank you.
It would be interesting to back test large vs small cap and value vs growth. Just stocks vs bonds seems like a poor comparison given the performance of bonds over the long term.
Re-balancing is the one thing I disagreed with Bogle on, since I personally only invest in diversified stock funds and a little in cash, no bonds. I want to maintain the same level of stock diversification in my portfolio over time. However, if you have a bond allocation, Bogle's view is probably correct, until you near/enter retirement. At that point, you need to manage your risk more closely. I automate re-balancing in my 403b and HSA accounts, but my Roth and brokerage accounts (at Vanguard) don't offer any re-balancing feature at all, so I have to do it manually by actually selling and buying shares, which is ridiculous, so I rarely do it. I love the fact that Vanguard is an investor owned company, which is why I chose them in the first place, but their pitiful outdated website and lack of features occasionally make me consider switching to Fidelity.
New viewer - I don't rebalance my portfolio any more. That applies to both pre-tax and post-tax retirement accounts. I let it drift...never knew that Mr Bogle said that it was ok (under the right circumstances).
Nice video.
Hello Rob, I just discovered your channel and you work. Your explanations are very clear, congrats. Looking forward to watching your other videos.
The idea in not rebalancing is that as your portfolio grows the chance of it dipping down near or below your principle, reduces over time, thus, your stock volatility tolerance increases. In most retirements, it is the first decade that matters most, due to sequence of return risks, and it is also in that first decade that your portfolio will still have a decent amount of bond exposure. Rebalance if you need or want something predictable. If you can take out enough each year, that you can take out less and be fine, then you can tolerate more stocks.
Good one thank you
As an occasional rebalancer myself, I think Bogle is mostly right IF you aren't bothered by increased volatility as your original 60/40 becomes 75/25 or even 85/15 over many years. In the long run, as in decades, yes, stocks have long produced superior returns.
That said, asset allocation isn't *only* about managing risks, but at least in the Bill Bernstein tradition, it's also about taking advantage of the tendency of asset classes to mean-revert. You are trying to balance between a short term tendency of "winners" to remain hot, but a longer term tendency of asset classes to revert to the historical mean.
So by letting winners run for a while (say, 12-18 months), and then rebalancing, you are selling hot asset classes "high" and buying not-so-hot asset classes "low", and hoping mean reversion kicks in. So even if one doesn't think you should move some of your stocks to bonds, it can make sense to rebalance within broad asset classes. You may decide on 70/30 initially, but within that you may allocate stocks by growth and value, by large and small cap, by US and international. Recently, everything other than US large cap growth has looked terrible relative to US large cap growth, but is it a case of "it's different this time", or will things eventually change? It could still run like this for a while -- the old saying is, "the market can remain irrational longer than you can remain solvent" -- but there could be a catalyst that triggers a shift. Part of the point of asset allocation and rebalancing is that we aren't smart enough to KNOW these things ahead of time.
Great Video!
I agree with jack, why take funds out of growth and fast appreciate asset and put it into a lower growth asset …
Thank you for explaining this. I've never liked the concept of rebalancing and now I know why. To me, logic says that between now and when I need to cash out my investments, one asset type is going to be more successful than another. Why would I want to take money from a winner to supplement a loser? Having more money means more to me than keeping my original percentages. A ten percent difference is a lot and I assume if the original allocation was 70/30 the difference would have been much more.
Why would I want to take money from a winner to supplement a loser?
The answer is pretty simple. Its called "positioning." Positioning for the following year. Last years winner may not be next years winner. You want to be in a position to benefit from the unknown.
@@DavidEVogel True you can't predict the future other than to know that in the end some investments will win and some will lose. We do know that, according this video, in the last 50 years, you would have lost a lot of money had you "positioned" your money. The next 50 may be different of course but I see no reason to gamble on that.
@@DavidEVogel If you are a passive investor who has allocated their contributions already, positioning would be an active move.
If someone is ok with letting their portfolio drift, they shouldn't be invested into bonds to begin with.
Avoiding capital gains taxes if and when you rebalance is optimal. Use your dividends to gradually rebalance when you reach your allocation limit. I suppose this technique is similar to dollar cost averaging when investing, and may be too slow for some. I would like to see how this would turn out on the spread sheet.
Question: say you have 4 different allocations, if one of those funds becomes necessary to rebalance, how do you determine which of the other funds to move it to?
Good info for simple guy with 2 fund 60/40 . .thanks!
@Rob Berger,
Thank you again for the great content! Do you recommend to apply 80/20 (IE) to each of accounts like taxable, differed taxable, and tax free accounts? thanks
If you like the 80/20 mix, it applies to the total of all accounts. The taxed deferred account allows you to sell equities and buy fixed-income securities without any income tax consequences.
Hi great video! like to know if the both stock and bond together move lower and hit the band, lowering overall porfolio, do we still rebalance?
I just read you book, and gave bought 3 more for my siblings. Such a great book for newbies packed with directions! Right after reading it I was able to create my Vanguard Target-Date fund using my Roth IRA as my employer do not offer 401K. I am also trying to max out my HSA contribution. Appreciate the guidance and can't be more excited for my journey as an investor here in the US. P.S. I am a new immigrant with prior investing experience in the Philippines.
Why let it drift? To ease you in to better returns/more risk over time.
I agree 100% with your thought process. If you wanted to be 90-10 do it to begin with. Where can I find the excel spread sheet you referenced in your video (rebalance versus tolerance bands).
never mind... I found your link. Thanks for what you do !
Much appreciated, Rob. Love this and i am glad i stumbled over you, lol.
1. Can i purchase portfolio visualiser for Australian funds...i am a licensed financial adviser;
2. You mentioned to keep a portfolio simple by having 3 funds; could these be across the 5 asset classes - stocks, property, bonds and cash?
3. Love the concept of opportunistic rebalancing...we have superannuation here in Australia for retirement, and using the same concept of dollar cost averaging (that is, the employer paying into the superannuation account) how does this affect opportunistic rebalancing?
Good video, thanks. I like that you provide links to some of the documentation. If an asset class becomes a greater portion of your portfolio, that is good news, the asset class is working for you. Stocks are thought to be mean reverting, so rebalancing between equity asset classes may be beneficial. Fixed income investments are not mean reverting and generally produce a lower return compared to equity. Consequently, rebalancing to fixed income will only reduce your total return further. If you had a bank account that paid 3% to 8% but over time you had a return of 6%. Your other bank account is very steady, and always pays 4.5%. Your 6% account will grow larger than your 4.5% account, true. When the difference reaches a certain percent, why would you transfer money from your 6% account to your 4.5% account?
Bogle also said one should (as a rule of thumb) have bond allocation that match one’s age. How does he take both positions without rebalancing? Is it that he changes allocation as he contributes over time?
When I rebalance, I get charged over and over for balance adjustments (rebalancing) plus before I watched this, I always said, "why punish my winners and reward my losers?!!" yuck!
I like winners and low fees, thanks.
Rob: I think the core mind-shifting that Jack and a few others have shown is akin to the FIRE movement's mindset change from "how much do you make (read: assets)" to "how much do you spend". This talk about percentages of assets in bonds vs stocks does not really make sense -- the amount of bonds should be relative to spending to help you get through hard times -- a longer-term emergency fund of sorts. For simple math, assume $2.5 million assets and spending $100k per year (4%). Having 40% tied up in bonds ($1 mil) does not make a ton of sense -- that will last ~10 years. I believe from prior videos that's why you find the 60/40 split non-ideal and favor a 90/10 -- I agree.
I think the conversation should change to "how many multiples of your spending do you have in bonds". The using the 4% rule as starting place, it works out to be: 10x for 60/40 stock bonds; 5x for 80/20; 2.5x for 90/10. The choice of 2.5x, 5x, or ?? is highly personal, but for rebalancing discussions it does not matter which you pick.
Now if stocks go from $1.5 to $2.5 million (now ~71% of portfolio) with no change in bonds. Do you really need $400k (40% of stock gain) shifted to bonds if you are spending nominally the same each year and have not touched bonds (eg remain at $1 mil)? And this only gets more important as the stocks take off. I believe that's what Jack and a few others I've heard arguing, and the math supports, that it does not makes sense to keep the initial 60/40 split anymore, and force bonds go from 10x (1 mil) to 14x (1.4mil) spending.
This works *if* stocks (and thus the portfolio) perform well initially -- for example the past decade -- and they take off to never approach 60/40 again even with a future downturn. Data has shown that if there is a major downturn tomorrow after several good stock years, you are probably are still better off with a 50% loss on a concentrated amount of stocks than a 50% loss on a 60/40 split, namely because the stocks have appreciated significantly creating a higher basis and net win. Eventually when your stocks become high enough, you can increase your *spending*, which rebalances bond needs. The key here is weathering any storms until the first stock run up and rebalancing based on spending.
Setting spending amounts can be made using existing strategies similar to guard rails -- thus allowing some run up/down depending on how the overall portfolio is performing. This comes at a cost of being more conservative -- instead of 3% & 5% guard rails, as your portfolio increases, it will become more akin to 3 to 4% as there is higher risk (less bond percentage), but the basis number will be higher for an overall win -- particularly in 15-30 years.
That said, I do not think this approach applies to everyone. If you retire with 10x spending in assets, you probably want to err more conservatively even though the math suggests otherwise -- the low probability crash is high impact. For Jack and others with both the means of greater than 25x rule in assets, some safety nets such as using SS as a non-risky income to help cover baseline expenses, and ability to easily modify spending down if needed in poor years allows for not rebalancing other than to maintain a baseline long-term emergency fund in bonds of say 4x annual spending. Percentage-wise, this means starting with 10 or 20 or 40% bonds, but allowing them to decrease over time -- theoretically to nothing in Jacks/others calculations, but I personally cannot subscribe to that extreme measure.
Another great video. Thank you. You're a great educator. I would appreciate and value your comments on this scenario. A retirment portfolio for a 55 year old with tax advanatage, Roth and taxable accounts. It's simplified to a 2 Fund Portfolio: Vanguard Total Stock Market Index and Vanguard Total Bond Market index. Income is needed. Stocks have done well. Is it best to take your income from the stock gains, especially in the taxable account(the taxable account only has VTSAX, quaterly) and some from your tax advantage account(holding VTSAX and BND)(spending down some in the tax advantage account to minimize RMD's at 72), then rebalance within your tax advantage account and leave your Roth for high growth? Thank you!
Yes if it make sense to you. Otherwise no.
Enjoy your videos.
What is the approach if one's portfolio is breaching the rebalancing bands but most of the assets are down? Do I want to sell and lock in my losses? Do I sell what lost least? Or do I just ride it out until some assets start to show a Total Gain? My back story is I emigrated here, cashed out of where I was living and lump sum invested into the market just before it took the hit last year. I am well diversified but with the exception of Gold all my assets are currently down on a Total Gain/Loss basis. Thanks.
When rebalancing does it matter on how high or low you change the percentage. Say o have 80 percent of my portfolio balance in one stock. Would it be bad to change tbat to 30 percent at once. Or how should I do that it’s a company 401k plan
I started investing in march. I always thought rebalancing meant using your contributions to balance.
That will work. At some time in the future, you will no longer be buying. Then it will be sell something and buy something else.
Vanguard have research paper showing rebalancing annual all the way to daily doesn’t have material difference, so annual rebalance ain’t no “end of the world” in fact it’s most efficient.
If you are constantly investing ie adding money to the portfolio on a constant basis, then rebalancing is the only way to implement dollar cost averaging (closest thing to buy low on the stock market).🤔
Rob, great content. Do you provide 1 on 1 going over the portfolios service? Thanks.
No
Can I get the link to the spreadsheet? I can't find it in the website :-(
I Have kept a 65/35 portfolio for most of my adult life. When the market crashes (as sooner or later it does) i move 2 to 5 percent into stock index funds at a predetermined rate. Such as stocks down 10 % then 2 percent to the index fund. if down 30 % or more i bump up the 5 % more from bonds into stocks. DId well in 2009 and 2020 and 2022. When mkt bounces back i rebalance back to 65/35. Would love to see a historical study on this method.
For a Roth IRA would the opportunistic strategy be optimal, considering that withdrawal ( on time) are tax free?
So if both stock and bonds are in bear market, you should sell one at a loss to rebalance?
Jack Bogle is a G.O.A.T
Hey rob, I’ve got a question for you regarding rebalancing (stocks only) by buying only. For example, purchasing more of the loser and less of the winner to get them back to normal weight without having to sell. My question is this: would you recommend this strategy or should I just let them “drift?” I think it might be good that I am buying up more of the cheaper stocks and less of the expensive ones, but then again I think it would be good to be naturally buying more of the winner because I don’t want to starve the flame. Thoughts?
Ah yes, buy high sell low.
Mr. Berger, I’m new to stock investing however, I have 401k of over $200k, and I’m in the mid 50s. What do you recommend for me to “balance” my account. Should I put 80% in Large Cap? Your suggestions are appreciated. Thanks
Thanks Bob. I’m a fan of your sans clickbait approach at educating. A little constructive criticism on this video in particular. There was quite a few meandering examples of allocations 60:40, 50;50, 80;20 that seemed to be swapped in and out. Maybe a whiteboard or another visual aid to summarize the scenario as a whole could help. I also missed the concept, not sure if it was explained, with regards to the 1mil and 1.1mil result of jacks method. What was the purchase strategy after the unbalancing that resulted in 1.1 mil. I assume 60:40 but your overview of strategy was not clear. Again maybe you had said so and I might just in need of visual aid
Excellent….very helpful …. I long ago decided that bonds weren’t for me … but I realized at the start of the pandemic that I needed a good portion of my portfolio to be cash… cash is my bond
And of course you realize cash has been outperformed by bonds in almost every long term time period
In later years, Mr. Bogle was interviewed about how to determine asset allocation. He very plainly stated that although an investor should never be entirely out of the market, there are times when either external (i.e. market) conditions, or an investor's personal situation (health, age, family) can point to a path of adjusting the stock/bond percentage in his or her portfolio -- and noted the times in his life when he did this, and why. It's all right here: th-cam.com/video/oJynLAvzccc/w-d-xo.html
This year both stocks and bonds are down significantly, but my long term treasuries are down the most, so they are the most off target. I don't want to sell my small cap value, which have lost the least, to rebalance my treasuries. I'd rather wait until I can sell small cap value at a profit to rebalance treasuries. Otherwise, I would be selling stocks at a loss to rebalance bonds that don't have as much long term reward as stocks. So it seems to me that 2022 is an outlier when it comes to rebalancing according to rebalancing and tolerance bands, because such band strategies assume that both stocks and bonds have not suffered significant losses at the same time and that treasuries have not lost the most.
Rebalancing is over-rated unless you are near the time of needing to withdraw money. Yet if drift becomes extreme, it can be mitigated by adjusting how future contributions are allocation. Otherwise just reap the rewards during the accumulation phase of your life. If your money is in low cost diversified funds the only thing you need to worry about is having enough time with your money in the market.
Hey Rob: You really need to "Rebalance" that lamp shade of yours. It's crooked as all get out and it's driving me absolutely bonkers! :) It's screaming for help. Please help the little guy and get him straightened out. :)
Great video rob, I’m currently dealing with my taxable account and still not sure how I want to handle this. Among other things related to a taxable account.
Do you have a video on what you hold in your taxable account and how you plan on using it in retirement? Would love more insight when it comes to the taxable account.
Why would you sell stock when they're low, that locks in the loss? I don't understand why thats good for a long game? Makes sense to rebalance on top threshold..
Rebalancing isn't about maximum returns, it's about risk tolerance. It mitigates short term volatility, which is a big deal for those that are close to retirement or in the early years of retirement. This is in tax-sheltered accounts mind you, I wouldn't bother in taxable accounts. In that case you should do something called active rebalancing. Basically you rebalance when you buy new shares. You're never selling shares to rebalance.
I prefer to rebalance by having all dividends paid in cash and not auto-reinvested. Then I, on a monthly basis, go through my holdings and add to the top 10 most under valued as compared to the entire pool of investments. Seems to work out ok for the most part as over time various stocks move in and out of my top 10 screen.
M1 Finance does it for me. Buys undervalued holdings first until they reach their targeted percentage.
seems ok but i only want to rebalance annually to save me work
How about Index funds with 70 prevent stocks and 20percent bonds and the stocks in such funds, as per experts, is self cleansing and does not require a rebalancing at all?
@@blakejohnson3864
Definitely, first let me make a killing as per your advice.
Downloaded and started to pop in my 401k elections here and found, frustratingly, that not all company 401k plans have a ticker symbol. ex. T. Rowe Price Blue Chip Growth T6, US Extended Equity Market Indx, etc... This spreadsheet was what I have been looking for but looks like I am back to manual entry instead of leveraging the google finance lookup features you built in. Ugh
when that happens I just look for fund (listed in the program) that is similar and has a history of returns that mirror the fund i have that is not in the program
what if I don't sell my high performers but instead allocate my new money to laggards to do the rebalancing? How does that sound?
What about just putting it in a balance index fund.
You are just taking more risk by not re balancing. I'd say do re balancing 1/year, but bump up your target stock allocation. Not re balancing seems like just a way to trick yourself into using a higher stock percentage. Then you thought.
When I make my monthly contribution I just decide how much money I want to put into each category to reduce certain the need to sell something to rebalance the portfolio.
I think you also need to consider what the two markets are doing. If bonds were paying a decent yield it may make sense but the government has bent over backwards to reduce bond interest rates by their easy money policies. The investor needs to understand what their government is doing to mess with investments.
But isn't the point of rebalancing to mitigate risk and be properly diversified rather than to maximize returns?
I don't know what the hell I'm doing but in my Roth, I have 80% stocks (total, s&p, high dividend) and 20% (REIT ETF and International) because bonds have no return right now but I will add in future. My strategy, if you wanna call it that, is that all my contributions are in that spit and let it grow however it grows. Without this being financial advice, is that a good or should I look at rebalancing the gains? Other useful info is im 41 and just started this year, have no kids and no specific goes like buying a house. this is just for retirement.
He has several videos on this. End result is not that different. I’m about your age and 100% in shares with no bonds. Later on in life, a couple of years before I retire, I’ll divert all my investing cashflows into term deposits and bonds until I have about 4 years living expenses. If there’s a massive crash shortly after I retire, I can take 1 year of expenses from bonds and buy the dip via $ cost averaging and live off term deposits for a year
Thanks for the video! Great to learn different concepts on rebalancing! When rebalancing, should I include both taxable and non-taxable account into the calculation as a whole, especially in relation to early retirement planning? If that’s the case, should the balance percentages be applied inside each account as well?
I look at asset allocation and rebalancing across all of my accounts. I try to rebalance as much as possible inside retirement accounts to avoid the tax hit. For that reason, I spread asset classes across both taxable and retirement accounts where possible (except for REITs--always in retirement accounts--and munis--always in taxable accounts).
@@rob_berger Thanks for the tips!
I rebalance once per year in my IRA because I'm not taxed. For taxable accounts, I don't rebalance.
I just rewatched your terrific video against the Bucket Strategy. I can’t wait to watch this one. Outstanding!
If you think stocks will give you a better return then go 100% stocks. If you have a different target allocation e.g. 70/30 because that is the risk you are hapy with then you need to rebalance to keep that risk profile. Otherwise you are just drifting into a different risk profile.
I have been 100% stocks most of the time with an unbalanced buy and hold portfolio. I received income from employment so did not need bonds which produce a poor return and lose their value whenever inflation increases. Spare savings going into whatever regional equities seem cheap. Have I been doing it all wrong?
It kind of depends on a persons age. Somebody closer to retirement or retired should have safer investments that they can sell if they need money especially if the market isnt doing well.
This is the best unless you have any inflexible, short term need to draw down funds. If so then you may choose bonds for stability but if course, that would sacrifice performance.
@@nemoretime7466
Yes, so I have now rebalanced into cash for income and dry powder. Treasuries seem expensive and their price will fall once tapering starts causing interest rates to rise, so I can’t bring myself to buy them.
I do the same. Being employed and a net saver I feel I need more business risk (equities) rather than stable cash flows. Furthermore, govt bonds these days provide returns which I am not sure are sufficient for the duration risk, while at the same time global equities were overall less volatile than usual. While in retirement I will probably keep a cash allocation to live off, and the rest all in diversified equities.
@@blakejohnson3864 so true
The trick to avoid rebalancing taxes is to keep some of everything in your tax sheltered account, and rebalance there. But that takes some planning.
Rob. in a vanguard 60/40 balanced mutual fund. Don’t need the money but must take first rmd. Want to move out of balanced fund. Same value of course but will be buying shares at higher price thus will have less shares. Been in market 20+ yrs so I bought lower, selling higher but also buying
higher yet. Does my concern
make sense to you?
Jack Bogle and Warren Buffett have been my North stars throughout my saving and investing. Amazing advice always delivered in clear and easy to understand language.
Maybe I'm slightly incorrect but I think JB has talked out of both sides of his mouth for many years, including when he defended a new actively managed Vanguard mutual fund. Before then he was "index only". A broken record. I don't remember what he said his new precise reasoning was but I do remember how surprised and let down I was. Wall Street never changes. Never x 100
Them why does Warren Buffet rebalance? Explain, please
maybe i'm not looking long-term enough or seeing enough of the big picture, but are bonds still a useful hedge against volatility? they seem to come at the cost of significant asset depreciation. e.g. look at 5yr and max timeline of BND. seems like a one-way street to losing value...
As usual, Jack was right. Never rebalance.
Cagr increase by few decimal but drawdown goes up significantly
I found your video on opportunistic rebalancing made so much sense, thank you.
Am I able to get a copy of the spreadsheet you demonstrated?
Best
David
A link to the newsletter is right below the video.
My view in retirement it all depends on the overall value of portfolio and spending rate. Example if I have $2M in My portfolio and I spend $100k. I may want to have $400k in Bonds and cash and the rest in stocks for a 20/80 mix. but if my Balance was $4M and spending the same rate I would still only have $400k in Bonds and cash and the rest in stocks. 10/90 mix. The concept is stocks always do better in the long run, and pick a $ value for Bonds and Cash to equal to your spending that you think the longest stock market down turn might last.
Great video and analysis. While I agree that NOT rebalancing can ultimately result in a higher rate of return, it also means that someone's portfolio will continue becoming more aggressively allocated the longer it is invested and the older they get. This makes it increasingly inappropriate from a risk-exposure perspective.
Once you start Social Security you’re probably better off to let it drift upwards since the SSI is a de facto bond
But you’ll have a higher amount compared to rebalancing along the way into bonds, so the risk doesn’t come into play until the market crashes enough to meet what you’d have had if you went bonds too.
@@bennyl7224 This makes a lot of sense actually.
I look at it this way..the older you get, the closer you are to being dead. Then, asset-allocation doesn't matter very much, unless the financial well-being of survivors is a consideration. My approach is; I don't have ANY money in equities, that I know FOR A FACT, I am going to have to draw, within the next ten years, and I figure I'm pretty safe..since there are VERY few 10yr time periods, when equities do not have positive returns.
If I didnt rebalance daily Id be down 30%-33%..i went from down about 30-33% in Sept to maintaining 15-20% down since. Starting to hedge with inverse etfs and bullish dollar etfs