Rebalancing Bands: Traditional 35/15 or a Modified 30/20?

[MediumTex]

Also, do you have a PP? Last I remember you were light in the Treasury department.

I've been 100% full PP, no VP, for over one year. Maybe 2 years now. I don't remember exactly. I wound up buying 30 year treasuries at auction from VG last year, after deciding I didn't like VUSTX for the bond position due to the shorter duration.

Which asset did you hate buying the most when you set up your PP?

How has that asset done since?

I'm just curious.

[TripleB]

Which asset did you hate buying the most when you set up your PP?

How has that asset done since?

I'm just curious.

I hated buying Long Term Treasuries the most. I bought 30 year issues last year at 4.25% and thought for sure interest rates would rise and I would lose money in that asset. However, I respected the PP and knew overall I would do well. The actual treasuries I bought have gone up 10% since I bought them. 8% in principal because they are worth $10,800, even after yesterdays 5%+ drop, and I got one coupon payment.

I was using VUSTX for my LTT before that, and it was a nice compromise because it let me use the PP for about 1 year, on a shorter-duration LTT with less downside risk in that individual asset. Once I was comfortable with things, I went all-in and sold VUSTX to buy the actual auction treasuries. I'm really happy with the decision because it gives me the proper protection from that asset class, and also, I can essentially keep those physical treasuries for 10 years without touching them. Once they get to 20 years remaining, I will sell and buy new ones. Thus, no holding cost for 10 years.

[craigr]

Which asset did you hate buying the most when you set up your PP?

How has that asset done since?

I'm just curious.

I hated buying Long Term Treasuries the most. I bought 30 year issues last year at 4.25% and thought for sure interest rates would rise and I would lose money in that asset. However, I respected the PP and knew overall I would do well. The actual treasuries I bought have gone up 10% since I bought them. 8% in principal because they are worth $10,800, even after yesterdays 5%+ drop, and I got one coupon payment.

I was using VUSTX for my LTT before that, and it was a nice compromise because it let me use the PP for about 1 year, on a shorter-duration LTT with less downside risk in that individual asset. Once I was comfortable with things, I went all-in and sold VUSTX to buy the actual auction treasuries. I'm really happy with the decision because it gives me the proper protection from that asset class, and also, I can essentially keep those physical treasuries for 10 years without touching them. Once they get to 20 years remaining, I will sell and buy new ones. Thus, no holding cost for 10 years.

Good move!

[captain3d]

I was playing with the numbers a bit myself this week.

I grabbed the VTI, SHY, GLD, TLT, five year historical closing prices from yahoo and dropped them in a spread sheet. Starting with $10,000 I rebalanced in various ways...

Daily Rebalancing
$10,000 becomes $16,038

Weekly
$10,000 becomes $15,903

Monthly (four weekly)
$10,000 becomes $15,808

5% either way
$10,000 becomes $15,854
(six rebalances)

10% either way
$10,000 becomes $16,573
(two rebalances)

---------------------------------
No rebalancing
$10,000 becomes $16,132

VTI Low = 12.58%
VTI High = 28.56%

SHY Low = 18.29%
SHY High = 27.31%

GLD Low = 22.38%
GLD High = 42.85%

TLT Low = 20.97%
TLT High = 32.61

Final % after 5 years
VTI = 16.41%
SHY = 18.54%
GLD = 42.51%
TLT = 22.54%

Although it does look like Harry wins again with the 15% - 35% bands, I would not be surprised if it is more due to random luck as to which one wins. My feeling is that the closer you get to constant rebalancing the closer you get to the 'Average' return. Kind of like indexing. The more you let things get out of balance the more volatile your result will be. Some time for good  and sometimes for bad.

Maybe rebalancing triggers could be more profitable if based on unusually rapid changes rather than over all slow drifts. I am thinking of times when gains or losses go more parabolic suggesting bubble or panic like behavior like to correct it self soon.

Certainly rebalancing more often creates a more stable looking portfolio and maybe a less anxious investment method.

Or maybe Harry knows best.

cheers...phil

[stone]

Captain3D, Its so impressive how the HB plan holds up so precisely even after he has passed away.  I guess a key thing  is that the past five years have not crossed a transition between say gold being in a secular bull market to stocks being in a secular bull market. To cope with such transitions, it is neccessary to rebalance but I guess it is not neccessary to rebalance frequently. I guess if your five year back test had spanned 1997-2002; then the non-rebalanced version would have been worse but the HB 15-35 bands would still have held up (as would the more frequent ones with small differences between them).  Iceland leading up to and through 2008 would be the ultimate example of the need for some rebalancing (galloping stock market and fat yields then everything other than gold evaporating to nothing).

[stone]

Clive, "Stocks in 2010's  (PE's are certainly getting low enough to be indicative that could be the case)."

Do you not buy into the Schiller cyclically adjusted P/E idea that says that (after being cyclically adjusted) current stock prices are not now so cheap? For me personally, I can only imagine growth coming from emerging markets (if at all) unless the austerity policy is abandoned. If time shows me I'm wrong, I'll have to re-configure my conception of how the world works (again ).
Perhaps the unfolding changes will cause a transfer of what were taxes into being corporate profits as companies buy up rights to charge road tolls, tolls on walking on the pavement, breathing air or whatever. Thats the only source of new earnings I can imagine coming from the developed world.

[stone]

Clive, isn't it true that the UK exported more to Ireland recently than to all the BRIC countries combined? If we are going to have export led growth it is going to be starting from a tiny seed.
What you say about us being more communist than China is telling. From what I can see, the private sector is steadily slipping into just becoming a financial apperatus for harvesting deficits and the state sector is encroaching and taking over the real economy. I'm not sure that the austerity drive will cause the private sector to regain lost ground in the real economy. Instead the real economy could just contract. It takes customer demand to support the real economy and austerity does nothing to support demand.