Re: Rebalancing...............JWR vs John Bogle   ElLobo   4 hours, 12 minutes ago | Post #2533575

DG,

Well, rebalancing was mentioned in your other thread, and I stated that my opinion of same was more consistent with JWR then with the traditional thought, which you tout.

I have not "Touted" anything. I answered what my personal stance was when asked. I am not a "tout." Catch me and call me on it if I do it.

In this thread, you made a simple statement, that you rebalance to maintain some personal risk/reward profile.  I ask you what you mean by that simple statement, and you now walk away.

(deep sigh) Look, let's be clear:  I have not presented myself as some sort of "rebalance master."  I am not an accountant. Or CPA. Or tax attorney. Or broker. Or analyst.  I am not writing a book. I do not promote a website. I am not inclined to tell others what THEY should do with their finances, unless they ask. I answered the question. MY personal; (you do see the word, right? PERSONAL) view of risk is that short term swings in SD are no big deal. I also think that choosing assets for my portfolio which have long-term trends that are negatively correlated, or at least uncorrelated is a help. Now, that does flatten the SD, but the main thing is to keep from losing principal and earnings over time. My concept of risk is pretty straightforward -- anything that could stand between me and my goals is a risk. Anything that has low probability of impacting is not a major risk. From that extraordinarily generic framework, even things I haven't considered can be measured against my risk framework.... Hey -- saw a hot tip on tanker stocks. Am I interested....? Hmmm, well, that means I have to blow my current asset allocation, research something I know nothing about, engage in the new and added risk of a single company failure versus a risk spread through an index...sector risk.... so, I am pretty sure where I end up on that score...


Now, I threw down the gauntlet to you.  Specifically, if 'risk' ISN'T volatility, but, say, the amount of income generated by one's retirement portfolio, how would THAT risk factor tie in to rebalancing?  You obviously haven't gone there, while some of the I&D regulars have.

Well, you apparently want to put words in my mouth, and I'd prefer you wouldn't. I'll try to do the same for you. I already told you that risk is anything potentially getting between me and my goals, and that includes major tax policy changes, economic changes, inflation, elder parent leaving me a big unexpected bill, etc. And I said risk, in my personal situation, is not characterized SOLELY short term SD. But volatility is certainly a constituent, in that I will allow as much volatility risk to creep in as is required for the returns I need/hope to get. If I can get buy with lower returns AND lower volatility (TIPs/CDs, etc) , I certainly would not opt to swing for the fences on a stock that leaves me with wild beta as measured at the portfolio level. I am not a gambler.


Or the other risk factor I mentioned above, portfolio survivability.  How does rebalancing lead to a portfolio that lasts (survives) longer then one that isn't rebalanced?

I never claimed that the act of rebalancing in and of itself has a dang thing to do with intrinsically mitigating risk -- it is merely a mechanism to put your portfolio allocation back to where you WANT it to be, consistent with your desired risk profile. If your risk profile is relatively 'spicy', and your portfolio had drifted towards fixed assets, due to losses on the equity side, rebalancing could conceivably, if the holes in the swiss cheese line up right, be more likely to drive you to ruin, i.e. depletion, if the tail of the distribution gets ya.  One assumes, however, that you NEEDED that risk profile to meet your goals. This brings me to mind what Frost spoke of:

Some say the world will end in fire,
Some say in ice.
From what I've tasted of desire
I hold with those who favor fire.
But if it had to perish twice,
I think I know enough of hate
To say that for destruction ice
Is also great
And would suffice.

Being found frozen with the electric shut off in old age would conceivably be less dramatic than a youthful flame out crash-n-burn from 20,000 feet, but a tragedy nonetheless.

If you are going to spew forth the Max Headroom mantra (regarding traditional retirement portfolio withdrawal strategies) and NOT be interested in a critical review of same, then, no, don't bother posting.  Nor criticize someone (JWR) who has done extensive work (good or bad, your opinion) in that area.

I'm not 'spewing' anything, sir. I am trying to respond in good faith to your rather insistent line of questioning regarding my own positions! And the fact that I can see error and danger in an area does not mean I have to 'fix' his work. If that's tehe requirement, I won't play -- his work is noxious enough without me needing to don a harnes and pull it out of the ditch and make it my own!  Remember one of the first things I said "He who proposes; defends." If it's his theory, and he wants to 'sell' it, then let him answer questions. I am not "selling" my own personal theory or methods to anyone. Do you not see that clear distinction between myself and the one you are knee-jerk defending, even though his analytical methods are frankly, indefensible? The child who tells you "Hey, the light in the hall is burned out" does not have to engineer a new light source to make that observation.

Regarding rebalancing, the whole argument centers around why, when, and under what conditions, one should sell assets being held in their portfolio.  The traditional reason, which you have stated a few times now, is to maintain some predetermined equity/debt allocation.

Look, I don't care from "traditional" versus "invented yesterday", dammit. I am agnostic on "Schools" and "labels." I will select what WORKS, what can be shown to be EFFECTIVE. When I 'mention' something, I believe it is in response to you ASKING me what my take is. You can't have it both ways -- insist I tell you what I think, and then excoriate me for having those beliefs.

[snip long, drawn out hypothetical]  I'll answer your hypothetical very simply -- that person (and you) should do whatever makes you happy. If the assumptions you make, and the unknowns you incorporate are consistent with your model, knock yourself out.

Finally, hidden in this 'example' is the second risk factor that I asked you to consider.  That is, if the overall weighted yield of your portfolio (the income it throws off) is 4%, and your rate of withdrawal is also 4%, then the yield of your portfolio covers your withdrawals, and you don't have to touch capital/principal (to fund withdrawals).


Yeah. That's the whole deal in a nutshell, isn't it: "If I can find a source of X (say, preferred stock) that throws off Y, then I can finance my retirement and [cue holy singing chorus of angels] "never touch principal." [exit chorus, stage left].  I get it. And it works. If you can secure the investment that does that, and it holds together for the duration. I would say, though, that tinkering and playing and sticking fingers on the scale tends to mess up all 'systems' I have ever worked with. Just an observation.

So, let's discuss rebalancing, if you want.

For Pete's sakes -- I already gave MY take on rebalancing long ago. It was simple. For ME, it is not about securing some mystical rebalance bonus (in a few basis points of return) it is simply to maintain a desired  asset allocation  mix (fixed only in that in matches my current lifestyle/age/balance needs, which can change over the years -- but I intend to manage it, not the other way around.) Is this idea some sort of sacrilege to you? Because you seem to take great exception to it.

Whew.