Reallocation Bands

[rnmike10]

Do we reallocate in the 15/35 bands @ the current portfolio value or the value when the portfolio was started? IE: my pp is down  5.7% since I started 9/11/12.  Gold is now @ %19 (down %28.5 since purchase) of the total asset value of my pp.

[rickb]

Do we reallocate in the 15/35 bands @ the current portfolio value or the value when the portfolio was started? IE: my pp is down  5.7% since I started 9/11/12.  Gold is now @ %19 (down %28.5 since purchase) of the total asset value of my pp.

Current value.

[MarySB]

I have the same question and, with all due respect to Rick, don't quite understand the answer. Is one to look at the total of each asset or the amount gained or lost in each asset?

For example, my gold asset gained to the point that the gains were more than 35% of the portfolio, but the total dollars were not. So, I've watched my gains in gold evaporate with no rebalancing bands met, if I looked at the total amount.

[Khisanth]

A recent discussion laid out some actual math: http://gyroscopicinvesting.com/forum/pe ... ing-bands/

Basically, all other assets remaining the same, it would take a 62% increase in a single asset for it to become 35% of a portfolio:

Starting Portfolio: 100 : 100 : 100 : 100 = 400    100 / 400 = 25.00%

62% increase in one asset: 162 : 100 : 100 : 100 = 462    162 / 462 = 35.06%

Of course we'd expect some volatility from the other two non-cash assets, so it's unlikely we'd have to wait for a single asset to gain 62%.

A more likely scenario: 40% increase in A, 20% decrease in B, 10% increase in C.
140 : 80 : 110 : 100 = 430
This still doesn't reach a hard rebalancing band.
32.55% : 18.6% : 25.58% : 23.25%

For the 4x25 Permanent Portfolio I prefer 20/30 rebalancing bands. Because I like to do something.

[dualstow]

Is one to look at the total of each asset or the amount gained or lost in each asset?

Mary, for rebalancing purposes, you're supposed to look at the total, the value of your current holdings.
Not the cost, not the gain or loss.
If the value of your gold today represents 15% or less of the value of your four assets combined, you need to rebalance (buy more gold).
If it hits 35% of your total, you need to rebalance (sell gold).

[Xan]

Right.  The goal is to maintain a portfolio with the right exposure to all four assets.  That's path-independent: it doesn't matter how you got to the allocation that you have; it just matters that you keep 25% of your wealth (give or take your chosen bands) in each asset.

[MarySB]

Thanks to all for your answers to my question. I will look at the link provided. It sounds like it is an interesting discussion.

[rickb]

I have the same question and, with all due respect to Rick, don't quite understand the answer. Is one to look at the total of each asset or the amount gained or lost in each asset?

For example, my gold asset gained to the point that the gains were more than 35% of the portfolio, but the total dollars were not. So, I've watched my gains in gold evaporate with no rebalancing bands met, if I looked at the total amount.

Sorry to be too terse.  As others have elaborated, the bands refer to the percent of each of the four assets relative to the total portfolio amount - so gold/total, stock/total, LTbonds/total, and cash/total.  If any of these is less than 15% (i.e. 0.15) or greater than 35% (0.35) it's time to rebalance.

[MarySB]

No problem, Rick. I could just have easily been too obtuse

[frugal]

But if we do it yearly at the same day each year, the end result after several years, will be the same.

Correct?

[Ad Orientem]

But if we do it yearly at the same day each year, the end result after several years, will be the same.

Correct?

Probably not. The 15/35% rebalancing bands serve a couple of purposes. First they give room for the asset that is hot (currently that's stocks) to run. And secondly it keeps you from rebalancing too frequently and generating unnecessary tax bills.

That's not to say you can't rebalance annually. Some people do. It is a more conservative approach that will reduce your volatility, but also your potential gains. And you will likely pay more in taxes over the long run.

[frugal]

But if we do it yearly at the same day each year, the end result after several years, will be the same.

Correct?

Probably not. The 15/35% rebalancing bands serve a couple of purposes. First they give room for the asset that is hot (currently that's stocks) to run. And secondly it keeps you from rebalancing too frequently and generating unnecessary tax bills.

That's not to say you can't rebalance annually. Some people do. It is a more conservative approach that will reduce your volatility, but also your potential gains. And you will likely pay more in taxes over the long run.

I'm still in the middle of the book...

So, the day after 15 or 35% bands have been reached we immediatly make the REBALANCEMENT of the assets?


thanks

[Ad Orientem]

But if we do it yearly at the same day each year, the end result after several years, will be the same.

Correct?

Probably not. The 15/35% rebalancing bands serve a couple of purposes. First they give room for the asset that is hot (currently that's stocks) to run. And secondly it keeps you from rebalancing too frequently and generating unnecessary tax bills.

That's not to say you can't rebalance annually. Some people do. It is a more conservative approach that will reduce your volatility, but also your potential gains. And you will likely pay more in taxes over the long run.

I'm still in the middle of the book...

So, the day after 15 or 35% bands have been reached we immediatly make the REBALANCEMENT of the assets?


thanks

That's the idea. Don't get silly about it though. If your wife is in labor or your on a cruise you can wait a couple days. But yeah, once you hit the rebalancing bands you want to hit the reset button as soon as you can conveniently take care of it.

[frugal]

Probably not. The 15/35% rebalancing bands serve a couple of purposes. First they give room for the asset that is hot (currently that's stocks) to run. And secondly it keeps you from rebalancing too frequently and generating unnecessary tax bills.

That's not to say you can't rebalance annually. Some people do. It is a more conservative approach that will reduce your volatility, but also your potential gains. And you will likely pay more in taxes over the long run.

I'm still in the middle of the book...

So, the day after 15 or 35% bands have been reached we immediatly make the REBALANCEMENT of the assets?


thanks

That's the idea. Don't get silly about it though. If your wife is in labor or your on a cruise you can wait a couple days. But yeah, once you hit the rebalancing bands you want to hit the reset button as soon as you can conveniently take care of it.

One more doubt that I would like to know how you do it:

- if you have a 100k PP

- and you have new 10k to add

- it is time to rebalance, but 2,5k to each asset is not so much ...


How do you proceed?

1) Rebalance and then add?

2) Or just add to to make it all 25%

[Pointedstick]

One more doubt that I would like to know how you do it:

- if you have a 100k PP
- and you have new 10k to add
- it is time to rebalance, but 2,5k to each asset is not so much ...

How do you proceed?

1) Rebalance and then add?
2) Or just add to to make it all 25%

Just do whatever makes you most comfortable. There's not gonna be a test or anything. 

[Ad Orientem]

One more doubt that I would like to know how you do it:

- if you have a 100k PP
- and you have new 10k to add
- it is time to rebalance, but 2,5k to each asset is not so much ...

How do you proceed?

1) Rebalance and then add?
2) Or just add to to make it all 25%

Just do whatever makes you most comfortable. There's not gonna be a test or anything. 

+1

[Pet Hog]

One more doubt that I would like to know how you do it:

- if you have a 100k PP
- and you have new 10k to add
- it is time to rebalance, but 2,5k to each asset is not so much ...

How do you proceed?

1) Rebalance and then add?
2) Or just add to to make it all 25%

There's no difference between the two: you'll end up with the same dollar amount [($100,000 + $10,000)/4 = $27,500] and same number of shares/bonds/ounces of gold regardless of the path you follow.  Except that rebalance-then-add might require eight trades, while just-add-it-to-25% would require at most four trades. So to keep costs down, I would do the latter.

[frugal]

Hello all,

in my case and if gold continues the looser than I will just add some money to gold to put it near 25%.

Pet Hog is correct at the end what I was saying is the same.

I started in January 2013 with the EU-PP, and only add more money to GOLD is not so confortable, but I don't know where to put the money!?

Please advice.


With my very best regards.

[Kriegsspiel]

in my case and if gold continues the looser than I will just add some money to gold to put it near 25%.

I started in January 2013 with the EU-PP, and only add more money to GOLD is not so confortable, but I don't know where to put the money!?

I began by rebalancing with new contributions (adding to the lagging asset), but recently switched to equal contributions to all 4 asset classes. This way, I hope, I will hit rebalancing bands and lock in gains/harvest volatility. As it happens, my monthly contributions don't really change the %s of my assets very much.

[frugal]

in my case and if gold continues the looser than I will just add some money to gold to put it near 25%.

I started in January 2013 with the EU-PP, and only add more money to GOLD is not so confortable, but I don't know where to put the money!?

I began by rebalancing with new contributions (adding to the lagging asset), but recently switched to equal contributions to all 4 asset classes. This way, I hope, I will hit rebalancing bands and lock in gains/harvest volatility. As it happens, my monthly contributions don't really change the %s of my assets very much.

Hi,

how do you add to your 4 assets every month?

Isn't it expensive?

I was talking about doing it annually or when bands are touched...

[Kriegsspiel]

I began by rebalancing with new contributions (adding to the lagging asset), but recently switched to equal contributions to all 4 asset classes. This way, I hope, I will hit rebalancing bands and lock in gains/harvest volatility. As it happens, my monthly contributions don't really change the %s of my assets very much.

Hi,

how do you add to your 4 assets every month?

Isn't it expensive?

I was talking about doing it annually or when bands are touched...
[/quote]

3 of them I do without transaction costs (Vanguard funds, bonds/bills at Vanguard, I-bonds through the US Treasury). Gold coins kinda have the +/- built into the pricing, since if you buy 1 coin or 10, there is a % on it. IAU is the only thing that has a transaction cost, usually about 1%, but it depends on how many shares I buy, if I saved up extra cash one month, then the transaction cost would be very low.

Rebalancing I'd do when I hit rebalancing bands, and maybe once a year around my birthday?

[frugal]

I began by rebalancing with new contributions (adding to the lagging asset), but recently switched to equal contributions to all 4 asset classes. This way, I hope, I will hit rebalancing bands and lock in gains/harvest volatility. As it happens, my monthly contributions don't really change the %s of my assets very much.

Hi,

how do you add to your 4 assets every month?

Isn't it expensive?

I was talking about doing it annually or when bands are touched...

3 of them I do without transaction costs (Vanguard funds, bonds/bills at Vanguard, I-bonds through the US Treasury). Gold coins kinda have the +/- built into the pricing, since if you buy 1 coin or 10, there is a % on it. IAU is the only thing that has a transaction cost, usually about 1%, but it depends on how many shares I buy, if I saved up extra cash one month, then the transaction cost would be very low.

Rebalancing I'd do when I hit rebalancing bands, and maybe once a year around my birthday?
[/quote]

Unfortunately in EU-PP we can't do that.

I wish to be american :-)

[blackomen]

What I currently do:

I use a combination of actual "cash" plus short-term bonds and UUP (dollar index) for cash.  This portion should sum up to around 25% by default.

Money that I periodically contribute to the portfolio goes in to the cash portion.  If the cash portion is overweight, I rebalance accordingly.

My "hard" rebalancing bands are 15/35..  meaning whenever something hits 15% or 35% weight, I must rebalance.  It doesn't matter if I'll incur unfavorable tax treatment (i.e. wash sale, capital gains, etc.) or if the technicals, fundamentals, and/or sentiment doesn't justify.

I also use "soft" rebalancing bands of 20/30..  they can be acted upon if it doesn't incur a wash sale and preferably if it results in a Long-term capital gains..  I can also opt out if the technicals or fundamentals don't justify such a trade.

[frugal]

OK, good

I think I am going to invest on myself or add fresh money to my EU-PP

US-PP will add more risks for me: currency, money abroad ...

[vnatale]

Yet another Topic attempting to address the unending Topic of reallocation bands!

Vinny