What if rebalancing takes at least two years?

[StepRightUp]

I’m 39 and have a 90/10 retirement fund AA. Based on my research, most recommend 80/20.

Stocks seem high at moment, bonds are middling it appears. It’s tempting to convert 10% all at once but that feels risky and smells like timing the market.

However, if I were to rebalance via future contributions, that could take ~two years assuming the status quo in the market and what I’m able to contribute monthly.

Perhaps a mix of the two?

Thoughts?

[disneysteve]

Perhaps a mix of the two?

I think all or nothing is rarely the right choice. You can direct new money toward rebalancing and also gradually convert holdings perhaps on a monthly basis. The great thing about retirement accounts is that you don't have taxes to worry about with each transaction.

Of course, recalculate the allocation regularly because market changes up or down will also alter the equation. A market correction may rebalance for you.

[StepRightUp]

Agreed. All or nothing doesn't feel right.

Good point about the taxes. A mix sounds appropriate.

Thanks.

[AJ444]

I recently made the decision to alter my asset allocation to 10% more bonds.

For my taxable account I am making the change by adding to the bond muni fund with new contributions. This is to avoid the tax hit and will likely take a year.

For retirement accounts I made the change immediately.

I am not one to change asset allocation on the fly, I had pondered it for a while and it is the first change in several years, I don't anticipate changing it again anytime soon if ever (besides moving 1% more to bonds each year until I have 50/50).

[kork13]

One way you can help get it rebalanced faster is to change how you receive dividends. Typically, they default to bring reinvested. However, you can set it up to get those dividends sent to your settlement account (money market, etc), then buy into the bonds that way as well. It's technically rebalancing from one to the other, but doesn't require selling off a bunch of assets.

[disneysteve]

One way you can help get it rebalanced faster is to change how you receive dividends. Typically, they default to bring reinvested. However, you can set it up to get those dividends sent to your settlement account (money market, etc), then buy into the bonds that way as well. It's technically rebalancing from one to the other, but doesn't require selling off a bunch of assets.

That's a great idea.

[amarowsky]

One way you can help get it rebalanced faster is to change how you receive dividends. Typically, they default to bring reinvested. However, you can set it up to get those dividends sent to your settlement account (money market, etc), then buy into the bonds that way as well. It's technically rebalancing from one to the other, but doesn't require selling off a bunch of assets.

I did the same in my taxable account. Since I have started to take a more index approach to investing. I had a bunch of close ended funds that are paying a 10% monthly dividend (bulk of their portfolio holdings are bonds). I wanted to move my account to be roughly 75% in SP500 index. So now they help fund my settlement account by not reinvesting, and my monthly contribution to the account + the dividends from the CEF's all go towards increasing my SP500 %.

I will definitely use that strategy for my retirement accounts once I get a bit older ( currently 30 w/ a 80/20 split). Maybe approaching 40 I'll start to change the distribution closer to 70/30.

[Petunia 100]

You aren't talking about a huge shift in your portfolio. Honestly, I don't see it will matter much either way.

In 2 years, you will know with certainty which choice would have been better. Unfortunately, the only way to know which is best right now, is to know how bonds will perform relative to stocks during the next 2 years. And of course, there is no way to know that.

Flip a coin?

[snafu]

In the big picture, your 80/20 choices may change over the 26 plus years of contribution. On retirement day, you will not withdraw a total, merely make arrangement for the monthly sum needed to give you the monthly fill to facilitate your plan for the year. Further, changes can be initiated in investments as the picture changes. What is the current economic strategy?

Using Kork's suggestion as a starting point and adding a matching sum based on Fed Chair's factual reports offers some help in a foggy economic picture. How many retirement years will you need to fund?

[GrimJack]

I have a TSP at work and split my contributions evenly between the 5 funds - the bond funds are slowly falling behind but I do not care because when I begin taking my mandatory distribution, it will be from the bond fund giving me time to move money from the stock funds when needed.

When I get closer to retirement (I am 68) I will figure out what to do then. Since i am a seasonal employee, I started taking SS when I turned 66 and upped my contributions to match the extra income. I am contributing about 30% of paycheck now and will up it when I get my next step increase. I also get about $200 a month from a company retirement plan that I left in 1999, I just started getting it so I will probably up my contribution to 40%. Since I am a seasonal, I do not get to contribute or get a match for about half a year - but get to collect UI (unless I can find a company that will hire me knowing i will leave in December or whenever I get a mandatory recall). I am smart enough to have tax withheld from my UI.

I roll my 401ks into Vanguard stock whenever I leave a company so I have a couple different plans with Vanguard. I have been debt-free for almost a year now so I plan on figuring out now much more I can throw into my TSP - I think I will start a Roth version of the TSP.

Question: If i start a Roth TSP, can I call it my catch up contribution even though I am not maxing out my regular contribution? This question might actually deserve its own thread.

[corn18]

I’m 39 and have a 90/10 retirement fund AA. Based on my research, most recommend 80/20.

Stocks seem high at moment, bonds are middling it appears. It’s tempting to convert 10% all at once but that feels risky and smells like timing the market.

However, if I were to rebalance via future contributions, that could take ~two years assuming the status quo in the market and what I’m able to contribute monthly.

Perhaps a mix of the two?

Thoughts?

You want to sell something that is high to buy something that is middling. Seems like a no brainer.

Rebalancing to your desired AA is never timing the market. If you think that, then you do not understand the purpose of an AA.