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March 31, 2011


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Some recent articles on how to withdraw funds during retirement make the case for rebalancing once every 4 years. It was tied to the presidential election cycle. They looked at actual historical stock market data, not just random Monte Carlo analysis.

Apparently rebalancing too often is a drag on performance because there is a certain amount of momentum and due to selling winners too early. And there is some statistical benefit to the specific year in the cycle.

I too rebalance once per year-but even then it means looking things over. Doesn't mean I actually sell or buy unless indicated.

Mark's comment above is interesting re 4 year cycle. Will have to look into that.

I examine things quarterly, but don't necessarily act. Which reminds me - today is the end of 1st quarter.

My assets are still low enough that I've never sold anything to rebalance - I just redirect more of the the inputs to the trailing class(es). I hope someday assets rise to the point that doing this will not be enough to bring it back into balance, but so far I'm nowhere near that point.

my decision isn't based on timing, but rather on how much my allocation has drifted from its target. if I get more than +/- 5% from target, I will try to reallocate, or redirect incoming investments if that helps get back to my target percentages.

I don't believe in rebalancing my investments, never have, and never will.

I look at a chart of each investment at the end of every market day. The chart is generally for either the last 3, 6, or 9 months. I currently only hold 4 income type mutual funds since 2/3 of our investments are laddered in CDs and Municipal Bonds which are being held until maturity.

If one of the funds has weakened and is underperforming the other three I immediately start looking for a replacement. I never have to decide what to do with a fund that is in downtrend because I never allow that to happen.

One thing you have to be very aware of with income funds are the distributions that they pay out, usually at the end of each month. Yesterday one of my funds dropped 1.7% which would normally have had me quite concerned except that I knew that today they were due to pay a quarterly distribution. Today the distribution of 2.04% in the form of additional shares was made so in reality it went up yesterday. The fund is actually yielding 8.16%/annum in interest, which in addition to some small capital gains result in a current annual rate of return of 9.05%. The fund is an institutional type with its major investments being preferred shares in commercial real estate companies. It may not be suitable for many investors since it has a minimum investment of $250K for retirement accounts.

In my way of thinking, the only reason to re-balance is when the asset allocation strays significantly from your desired target allocation. For me, 5%+- isn't a big deal either way, i have found it takes a drift of ~10 % to actually cause me to make a buy/sell/exchange move. Vanguard , TRowe Price and Fidelity all over nifty " what if" tools on the web sites so that its easy for me to see what moves will get me to the asset allocation goal that I'm seeking.

I was wondering if anyone know's whether or not Target Retirement funds 'rebalance' over time?

I have a lot of my money in Vanguard's Target Retirement 2045 due to simplicity and low costs, do you think rebalancing is done automatically by Vanguard?

I am assuming something is going on since Vanguard advertises these funds as a 'all in one' approach to retirement investing (they change over time to more conservative holdings).

I am just not sure if this is the case.

@ Brent. Yes the whole idea of the Target date funds is that they rebalance for you, so you don't have to worry about it. And over time they will change the stock/bond allocation depending on your retirement date.

I look at my investments almost daily. I make any changes as I see them. No time schedule at all. I don't make a lot of changes frequently though. Most recently ( in the last 2 months) I have been pulling some money out of my bond funds. I do this because I expect interest rates will be going up. Some might view this as trying to time the market. But I think its a good idea to make some change's when it really looks like conditions are changing. In 2008 I pulled a portion of money out of stock funds. Not all of it, but some. I'm glad I did since we did see such a big drop. I still lost a lot like everyone else. But.. I think I didn't get hurt as bad as if I had left it all in.

About 9 months ago I set up my 401K plan so that it rebalances automatically every quarter. I like this. It may not be perfectly optimal, but I think it will be better than what I was doing before, where I was too often switching between fixed income/stable value and high risk stock funds at the wrong times. I learned the hard way that I'm like most people when it comes to investing--if I don't automatically take the emotion out of the process, I will buy high and sell low.

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