Question: Rebalancing - Dick and Jane Version.

[MarketIfTouched]

Looking for guidance on PP rebalancing - 'Dick and Jane' version.



On day one of my PP portfolio I am at 25% of each of the four (4) categories.

OK, going forward:
* When/how often do I check to see if I need to rebalance?
* What is the lower and upper limit that would tell me to rebalance? If the percentage is below 20% and above 30%, or something like that?
* When I have new money to invest in the PP, do I try to 'rebalance' with the added funds, or invest it at 25/25/25/25, like my original investment?

For now I am looking to understanding the basic mechanics of rebalancing itself, you can factor out everything else: cap gain taxes, dividend reinvestment, type of money - qualified/non-qualified, type of investment vehicle - ETF v. gold coins, and so on.

A PP Forum search for 'Rebalancing' gave 4,937 hits; I started to wade through, and couldn't find the answers to my questions.

I am guessing that there might be more than one way to answer these questions, and the main thing is to pick one way and stick with it.

[Cortopassi]

Buy one or both of these books:

https://www.amazon.com/Permanent-Portfo ... 1118288254

https://www.amazon.com/gp/product/B003J ... tkin_p1_i2

--Look as often as you care to
--Rebalance only when hits bands, or yearly, or whatever makes you more comfortable (like quarterly).
--I use 60% and 140% bands (15 and 40% with 25% start). But whatever works for you.

And go here: https://portfoliocharts.com/ Done by Tyler of this forum.

[Tortoise]

+1 for Fail-Safe Investing.

It’s the original book written by the inventor of the Permanent Portfolio, and it’s short enough that it can be read in a single afternoon.

[PrimalToker]

Looking for guidance on PP rebalancing - 'Dick and Jane' version.



On day one of my PP portfolio I am at 25% of each of the four (4) categories.

OK, going forward:
* When/how often do I check to see if I need to rebalance?
* What is the lower and upper limit that would tell me to rebalance? If the percentage is below 20% and above 30%, or something like that?
* When I have new money to invest in the PP, do I try to 'rebalance' with the added funds, or invest it at 25/25/25/25, like my original investment?

For now I am looking to understanding the basic mechanics of rebalancing itself, you can factor out everything else: cap gain taxes, dividend reinvestment, type of money - qualified/non-qualified, type of investment vehicle - ETF v. gold coins, and so on.

A PP Forum search for 'Rebalancing' gave 4,937 hits; I started to wade through, and couldn't find the answers to my questions.

I am guessing that there might be more than one way to answer these questions, and the main thing is to pick one way and stick with it.

Just some points from what my brain has collected on the subject:
You don't need to check often, quarterly, yearly, or when there's a big run up you can check and rebalance if you're out of range.
You want to have a 25/25/25/25. However It will fluctuate with the market prices.
Therefore each should never get below 15, or greater than 35. If it is within these ranges then you're still protected by the portfolio.
New money could be put into the low asset(s) to bring the portfolio in range (DCA). Or into cash until it reaches 35% then use it. Whatever.
It is buy low, sell high built into the portfolio because of the non correlated assets. Rules based, not emotion based.

[pp4me]

As I said in another thread I've been using the PP for 12 years and have never hit a rebalancing band. This could be because I have done some rebalancing by adding to lagging assets and also doing it when needing to shuffle money around in accounts. Whether I would have had to do if had left things alone I guess I'll never know but I do think hitting the bands is probably a rare thing.

[Kbg]

There's really not a hard answer on this. The reality is the best way to rebalance is completely path dependent meaning it's a big "it depends."

There are a couple of generalities that are useful. If in a taxable account, do what avoids/delays taxes as long as possible if that keeps you reasonably close to your allocation. In this case, buying the underweight asset would always be preferred over selling to rebalance assuming you are still contributing.

Generally, longer periods between rebalancings is better in terms of performance. However, most professionally managed portfolios rebalance more frequently rather than less frequently. The reason for this is because they are more focused on maintaining the portfolio's risk profile...which is really the point of rebalancing (risk control/risk profile).

Let's say you are lazy and want something that is pretty good...check once a year and rebalance. In a tax deferred account just pull the trigger and be done with it. In a taxable account, it should be a meaningful rebalance (rough estimate at least 5 percentage points) and done in a way that all cap gains are long-term.

[Kriegsspiel]

There's really not a hard answer on this. The reality is the best way to rebalance is completely path dependent meaning it's a big "it depends."

I agree.

There are a couple of generalities that are useful. If in a taxable account, do what avoids/delays taxes as long as possible if that keeps you reasonably close to your allocation. In this case, buying the underweight asset would always be preferred over selling to rebalance assuming you are still contributing.

This is what I did.

Generally, longer periods between rebalancings is better in terms of performance. However, most professionally managed portfolios rebalance more frequently rather than less frequently. The reason for this is because they are more focused on maintaining the portfolio's risk profile...which is really the point of rebalancing (risk control/risk profile).

I'm frequently grateful I'm not a professional money manager. I usually see where I'm at at the beginning of each month.

[I Shrugged]

My PP is almost all in taxable investments. If I sell something, I pay taxes. Because of that, I use wide bands, at least 15% -35%. So far, so good.

I think I remember that Wm Bernstein's Seven Pillars of Investing book had a lot of good structural advice about rebalancing, tax loss harvesting, and such. It would apply to the PP just as to any portfolio.

[MarketIfTouched]

Thank you all.

This is exactly the information I was looking for.

Hopefully, having all this rebalancing info in one thread will help other too.

[Kbg]

Just for fun for those interested in more advanced rebalancing techniques. A basic strategy is to rebalance not at all (or very infrequently) when volatility is low and rebalance frequently when volatility is high. For those of you who follow my leveraged posts in the VP, this is basically why I am able to eek out a percent or two over the annual buy and hold version with 3xETFs. It would be much, much tougher to do with an unleveraged PP. However, with 3xETFs if you are able to nail one good pivot point a year pretty closely it can definitely add to your bottom line. This year I was able to nail the TMF spikes in March and unless I totally screw the pooch later this year those two trades will add a bit over B&H for the year.

[Cortopassi]

After all my talk here about not rebalancing until hitting bands and/or once a year, I am likely going to take advantage of the recent crazy run in stock prices and rebalance those back down and continue to increase my cash position. Was 10%, increased to 15% a few weeks ago. I may push that up to 17.5-20% in the next day or two.

[perfect_simulation]

Just for fun for those interested in more advanced rebalancing techniques. A basic strategy is to rebalance not at all (or very infrequently) when volatility is low and rebalance frequently when volatility is high. For those of you who follow my leveraged posts in the VP, this is basically why I am able to eek out a percent or two over the annual buy and hold version with 3xETFs. It would be much, much tougher to do with an unleveraged PP. However, with 3xETFs if you are able to nail one good pivot point a year pretty closely it can definitely add to your bottom line. This year I was able to nail the TMF spikes in March and unless I totally screw the pooch later this year those two trades will add a bit over B&H for the year.

I have a small VP with 3x etfs based on the PP. It's doing very well but is extremely volatile so I rebalance weekly. 25% each TECL TMF UGL SCHO

[Kbg]

I highly recommend that you do not re-balance that frequently. It can do some serious damage to the overall portfolio in a sustained down trend, as in multi year downtrend.