Everything you wanted to know about rebalancing

General Discussion on the Permanent Portfolio Strategy

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Hal
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Everything you wanted to know about rebalancing

Post by Hal » Tue Jun 16, 2020 2:18 pm

Fredmong
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Re: Everything you wanted to know about rebalancing

Post by Fredmong » Mon Jun 29, 2020 1:06 pm

It's funny how since I am in the accumulation phase, most of my time has been spent thinking about how to add funds to the PP. I always assumed, without really thinking about it, that I would draw money out of the cash portion upon retirement. But the same way one could add to cash or add to the lagging asset, this video points out that money could be drawn out of the cash portion or by selling the best-performing asset. The symmetry is interesting.
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mathjak107
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Re: Everything you wanted to know about rebalancing

Post by mathjak107 » Mon Jun 29, 2020 2:20 pm

Fredmong wrote:
Mon Jun 29, 2020 1:06 pm
It's funny how since I am in the accumulation phase, most of my time has been spent thinking about how to add funds to the PP. I always assumed, without really thinking about it, that I would draw money out of the cash portion upon retirement. But the same way one could add to cash or add to the lagging asset, this video points out that money could be drawn out of the cash portion or by selling the best-performing asset. The symmetry is interesting.
i don't believe in touching the cash in the pp as a spendable asset anymore then i consider the other parts non essential .

we are retired but i wont spend down pp cash unbalancing things in the pp , we keep separate cash for living on .

that cash is for two specific purposes .

it is to act as the other side of the barbel with the long term treasuries bringing the duration down .

it is also there to act as options to buy other assets when they are cheap
ahhrunforthehills
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Re: Everything you wanted to know about rebalancing

Post by ahhrunforthehills » Mon Jun 29, 2020 3:12 pm

Very interesting video!

This makes me wonder... if you are investing in a fully taxable account, the conventional wisdom was to rebalance everything back to 25/25/25/25 after hitting a 35% band. It has already been discussed how little your PP allocation really matters (as long as you are roughly in the ballpark), but what really matters is the frequency of rebalancing (which kills a taxable account).

But now, I wonder if you wouldn't be much better off just bumping that 35% asset down to 34% or 33%. Afterall, if the name of the game is to "trigger a taxable event as a last resort", going all the way from 35% to 25% is the nuclear option tax-wise.

Thoughts?
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Re: Everything you wanted to know about rebalancing

Post by Fredmong » Mon Jun 29, 2020 3:28 pm

mathjak107 wrote:
Mon Jun 29, 2020 2:20 pm
(...)
i don't believe in touching the cash in the pp as a spendable asset anymore then i consider the other parts non essential .

we are retired but i wont spend down pp cash unbalancing things in the pp , we keep separate cash for living on .

that cash is for two specific purposes .

it is to act as the other side of the barbel with the long term treasuries bringing the duration down .

it is also there to act as options to buy other assets when they are cheap
I understand the fundamentals on the cash portion of the PP.

But what about someone with 100% of investable assets in the PP and no other source of income ?

That cash got to come from somewhere, right ? Either one draws out from the cash portion or annually put aside an amount for living expenses and then rebalance to 4x25%. Either way, the cash comes from the PP.

And if the amount withdrawn doesn't trigger a rebalance that means the amount was insignificant, but if it was to trigger a rebalance, then you end up selling the highest worth asset, so in the end you haven't really withdraw from the cash portion.

If one had other portfolio and other income sources, yes, I agree with you : you leave the portfolio alone and let it balance by itself. But at that point your investments aren't really 4x25% (not accounting about your variable portfolio, which I wouldn't plan on drawing funds out of except on occasional windfalls).
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Re: Everything you wanted to know about rebalancing

Post by mathjak107 » Mon Jun 29, 2020 5:18 pm

Fredmong wrote:
Mon Jun 29, 2020 3:28 pm
mathjak107 wrote:
Mon Jun 29, 2020 2:20 pm
(...)
i don't believe in touching the cash in the pp as a spendable asset anymore then i consider the other parts non essential .

we are retired but i wont spend down pp cash unbalancing things in the pp , we keep separate cash for living on .

that cash is for two specific purposes .

it is to act as the other side of the barbel with the long term treasuries bringing the duration down .

it is also there to act as options to buy other assets when they are cheap
I understand the fundamentals on the cash portion of the PP.

But what about someone with 100% of investable assets in the PP and no other source of income ?

That cash got to come from somewhere, right ? Either one draws out from the cash portion or annually put aside an amount for living expenses and then rebalance to 4x25%. Either way, the cash comes from the PP.

And if the amount withdrawn doesn't trigger a rebalance that means the amount was insignificant, but if it was to trigger a rebalance, then you end up selling the highest worth asset, so in the end you haven't really withdraw from the cash portion.

If one had other portfolio and other income sources, yes, I agree with you : you leave the portfolio alone and let it balance by itself. But at that point your investments aren't really 4x25% (not accounting about your variable portfolio, which I wouldn't plan on drawing funds out of except on occasional windfalls).
my feeling is they are investing to much in the pp then ....they should start with at least one years draw out side the pp in my opinion , preferably even 2. whats left are invest able assets .

Once the cash is depleteted regular rebalancing creates more cash .......everything is done exactly by the book carefully not unbalancing things
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