Opportunistic Rebalancing--How to Rebalance Your Investments Like the Pros

Rebalancing an investment portfolio doesn't need to be difficult, and it can actually increase your returns over time. Specifically, one study shows that Opportunistic Rebalancing can improve your returns by as much as 0.50%.
In this video, we look at that study and walk through how Opportunistic Rebalancing works. I'll cover some things to consider as you construct your investment portfolio, and give you a free tool that makes rebalancing easier.
Join the newsletter: robberger.com/newsletter/?utm...
------------
Video Resources
------------
Opportunistic Rebalancing Paper: resource.fpanet.org/resource/0...
Investment Tracking Spreadsheet: robberger.com/investment-trac...
Video: • Free Investment Tracki...
------------
Investing Tools
------------
My Book (Retire Before Mom and Dad): amzn.to/2MsRJ9B
📈 Personal Capital (Investment Tracking): go.robberger.com/empower/yt-
⛱ New Retirement: go.robberger.com/new-retireme...
💰 M1 Finance $30 Bonus (IRA & Taxable Accounts): go.robberger.com/m1finance-bo...
📈 OnTrajectory (Retirement Planner): robberger.com/go/ontrajectory...
📊 Morningstar (Fund Research): go.robberger.com/morningstar/yt-
💵 Tiller (Budgeting): go.robberger.com/tiller/yt-
------------
Popular Videos
------------
1️⃣ How to Create a 3-Fund Portfolio: • How to Create a 3 Fund...
2️⃣ How I Manage 28 Accounts in One App: • How I Manage 28 Financ...
3️⃣ 7-Step Financial Checkup: • A 7-Step Annual Financ...
#rebalancing #investing #robberger
ABOUT ME
While still working as a trial attorney in the securities field, I started writing about personal finance and investing In 2007. In 2013 I started the Doughroller Money Podcast, which has been downloaded millions of times. Today I'm the Deputy Editor of Forbes Advisor, managing a growing team of editors and writers that produce content to help readers make the most of their money.
I'm also the author of Retire Before Mom and Dad--The Simple Numbers Behind a Lifetime of Financial Freedom (amzn.to/3by10EE)
LET'S CONNECT
KZbin: / @rob_berger
Facebook: / financialfreedomguy
Twitter: / robert_a_berger
DISCLAIMER: I am not a financial adviser. These videos are for educational purposes only. Investing of any kind involves risk. Your investment and other financial decisions are solely your responsibility. It is imperative that you conduct your own research and seek professional advice as necessary. I am merely sharing my opinions.
AFFILIATE DISCLOSURE: Some of the links on this channel are affiliate links, meaning at no cost to you I earn a commission if you click through and make a purchase and/or subscribe. However, I only recommend products or services that (1) I believe in and (2) would recommend to my own mom.

[@rob_berger]

Due to an abundance of spam comments, I'm now holding ALL comments pending my approval. The only comments I won't approve are spam or those that are inappropriate in nature (fortunately these are very few). As a result, you may see a delay before your comment is published. I've taken this action because some spam comments pretend to be me and include a Whatsapp number to call. Those comments are NEVER from me. I don't use Whatsapp and I don't encourage or offer a way for anybody to call me. As they use to say on Hill Street Blues, "Let's be careful out there."

[@rob_berger]

@Curious Mind A viewer emailed me last night and only then learned the person she was communicating with via Whatsapp was not me. Scary. Once I approve a comment from a legitimate contributor, I won't need to approve their comments going forward. That helps a bit.

[@kevinsislo7160]

Rob, love your analysis and content. Especially like the reference to Hill Street Blues, I watch that on the oldie TV station periodically, and still love it.

[@rob_berger]

Great show. I watched it when it was first released. Loved Belcher.

[@Sylvan_dB]

Thanks for this. I know it is additional work, but the scam+spam problem on youtube is becoming untenable.

[@alastairford7145]

Thanks for this Rob - I enjoy these more conceptual videos which are equally applicable to those of us outside the US. Appreciate the clarity and insight you bring.

[@johntamulonis4626]

Great info! Thank you!

[@stevenobrien595]

Such great info Rob.So helpful. Thank you!

[@OnCashFlow]

Amazing video Rob! during my accumulation phase I never really rebalanced this way since I would simply just contribute more to the asset that needed it!

[@EvgeniusXplorer]

As usual, interesting and really useful. Thanks

[@joeburns3302]

Thanks Rob your videos are always concise and information packed.

[@mdimp1468]

You are a very talented teacher. You break down sometimes complicated issues to easily understandable parts. I can see how that would also have worked well in your legal career. Thanks.

[@brianjp18]

Thanks again for the great content Rob! I use your spreadsheet and switched out the formula to 20% or absolute 5% for the threshold trigger to utilize the research findings 👍

[@weliveinsf]

Thanks Rob for very informative videos. There are also scammers who start by bragging about their investments, give contact info of their investment adviser/planner, start a conversation with some of your viewers in the comments section...good you are screening the comments. This is happening in a lot of financial/investment videos, I hope KZbin will find a way to filter this out.

[@krihanek117]

I would like to thank you for the leveraged NASDAQ video. It's not enough for them to say it's re-balanced daily, they should include a sentence that says the annual 3, 5, 10 year returns are garbage and not what the fund actually returns.

[@jpturner171]

Another great video! Thanks Rob.👍🏽

[@Beachdudeca]

I have made a few recent moves at the DIP for example I moved from VIAC which is flat to TQQQ , and out of FB to Energy stock CNQ

[@johnnyboy5142]

I took John Bogle's advice and almost never rebalance. So far so good. If stocks make the money, stocks keep the money. If stocks crash, it will hurt, but usually the market comes back in 6-18 months and I can wait. I understand a lot of people can't tolerate this emotionally (my wife included), but what the hell, life is full of chances you take.

[@brianjp18]

That works if you are ok with your asset allocation shifting into more stocks. Your risk increases if you avoid rebalancing over a long period of time. You might start with 80/20, but after stocks grow a long time with no rebalancing you would be shifting towards maybe 90/10.

[@howardfriedman7077]

This seems to be a common sense method I have been using for years, although my trigger point and reset points are different.

[@naturenut8790]

Thanks for sharing the article about Reba lancing and the spreadsheet you created. I'm 67 years old, retired and am invested with Vanguard where they currently manage my portfolio. I told my advisor that I want to move to a 60/40 split. My current portfolio is about a 41/58 split (VBTLX, VFIDX, VFSUX, VTABX, VTIAX, VTSAX). I am considering managing my own portfolio. What steps are involved with transitioning from a managed to self-managed portfolio?

[@polymath5119]

Rob, thanks for another good lesson and the template spreadsheet. Why did you set the US Stocks and Cash thresholds in the spreadsheet with a MIN formula but the other thresholds are simple percentages?

[@rob_berger]

I'm not following your question. Each asset class as a percentage associated with it. FWIW, don't read anything into the asset classes and percentages. They are just placeholders to show how the spreadsheet works.

[@jonfebus4018]

Rob, this looks a lot like Statistical Process Control, SPC, which helps one make adjustments only there is a significant process shift and not just for the natural variation of the process. I wonder what the statistics are behind the +/- 20% control limits of the target?

[@rob_berger]

The author of the article I referenced believes that smaller rebalancing bands get in the way of momentum and a larger band (say 25%) doesn't take enough advantage of "sell high/buy low." As for SPC, keep in mind that I was an English major! (although I did take statistics in both undergrad and law school, so I've got that going for me.).

[@Katsuya89]

I try to rebalance only when my stocks are down, since stocks tend to go up a lot more than bonds. I was 80/20 before the Covid crash, and saw a great rebalancing opportunity so not only did i rebalance my portfolio i switched to 90/10AA, so i ended up buying even more stocks on the low. It paid off for me handsomely so far. Im currently debating on whether or not i should go back to 80/20 since stock valuations are so high. But bonds don't look very appetizing right now either.

[@bluegillmich]

You and me both: i told co-workers of that strategy and there dumbfounded. I have moved bond fund to stocks recently on some of these down days. It will pay off for You and me both in the long term.

[@VietnamSteve]

What about reallocating your new deposits to your portfolio to bring the allocation back to the desired risk tolerance over time, e.g deposit less to the allocations that are high and more to the allocations that are low? It’s what I do, but I don’t see much conversation on allocating portfolio deposits to effect desired asset allocation. It eliminates selling, and gets the same result, over time (maybe 6 months). Thoughts?

[@Sylvan_dB]

I consider time triggered rebalance to be the absolute worst case acceptable. Without cash flows I prefer to rebalance using tolerance bands of 20% (e.g. target is a 25% allocation, rebalance if under 20% or over 30%). If an account has cash flow in or out then often the rebalance can be minimized or even avoided by strategic allocation of the flows. Harry Browne introduced me to the concept of bands with his "Permanent Portfolio" discussion. I think that dated from the 1970s.

[@ronmcgee9192]

I'm getting closer to retirement and need to start increasing Bond exposure. What do you think of buying some I bonds directly? A big downside would be not having the ability to rebalance.

[@rob_berger]

I'm a fan of I Bonds, They are a pain to buy and you are limited in amount, but the rates today are excellent.

[@brianjp18]

And tomorrow we will know the next I bond rate for the following 6 months. Looks like it could be 6+%

[@johnbrown1851]

Hi Rob, what emerging market fund do you like?

[@rob_berger]

I've always used VEMAX.

[@politicscommentator]

Hi Rob, is the rebalancing method applicable to mutual funds and ETFs?

[@rob_berger]

Absolutely.

[@Brent233]

So, if I have a portfolio of bonds, large index, mid index, small index, and international index and one asset class, say small index, drifts enough to trigger the 20% threshold then I rebalance the entire portfolio (even if none of the other classes are close to the 20% threshold)? One thing I get out of this is that I’ve been rebalancing far too often.

[@Brent233]

Would it make more sense to rebalance funds from your most out of alignment fund to your 2nd, 3rd, etc fund in order of most out of balance rather than rebalancing all funds back to original allocation?

[@Brent233]

Maybe you already answered this question in the video and I didn’t understand? Just looking for clarification, thanks!

[@bencarter7839]

Rob, would you do a video on how viable it actually is for the fed to raise interest rates (presumably to restrain inflation) given the significant negative impact such rate increases would bring to the federal government's ability to pay the debt? Don't they just have to let inflation rip in order to inflate their way out of the debt?

[@rob_berger]

Interesting idea, but I don't think the Fed can let inflation rip. The consequences would be worse than higher rates on the debt. Frankly, I welcome higher rates on the debt. I suspect it's the only thing that will force Washington to address the fiscal issues that tax and spending policies have created.

[@bencarter7839]

@@rob_berger But if 5% inflation is sticky for 3+ years, wouldn't rates have to rise to at least 5% which, given the amount of treasury debt maturing soon would mean over one trillion a year in interest alone?

[@rapfreak7797]

I could’ve sworn in a previous video you stated you’re a purchase and hold investor and don’t do rebalancing. Is this a new thing you’re exploring or am I just misremembering?

[@TravelingtheWorld96]

Thanks again for the videos Rob. Sucks about the spam part. Was reading the paper and if I understand Figure 4 correctly, there is a sweet spot for opportunistic rebalancing between 60-80% equities. Seems to be closer to 0.7% benefit. Might need to add a new column or two to the spreadsheet (which is great already) for rebalancing back to the tolerance levels rather than fully to your baseline allocation.

[@joycekoch5746]

The best rebalance I ever did was in March 2020. I tripled the value of my portfolio in less than a year. A person I knew traveling in China was in Nov 2019 warning about a kind of pandemic and she thought it would go worldwide. I went to cash and waited months begining to think nothing would happen but then in March 2020 the markets shook hard. By late March I went out of a all cash portfolio and went all in on stock. It made me wealthy in a matter of weeks and took me out of the Middle class.

[@MyTittyballs]

Not a rebalance that’s market timing

[@robertryan3490]

In the video you mention you have too much US stocks in a taxable account. I thought you want US stocks in a taxable account and bonds/fixed income in pre-tax accounts?

[@rob_berger]

U.S. stock index funds are ideal for taxable accounts, but I don't want 100% of my exposure in taxable accounts. By having some in retirement accounts, I can rebalance without triggering taxes. And bonds are often thought to be best in retirement accounts due to the income they produce. That said, bonds funds today aren't producing much income. But again, I don't think it's all or nothing. For taxes, I think you should consider not only the annual income an investment produces but also the taxes that would be triggered on rebalancing.

[@robertryan3490]

@@rob_berger good strategy, thank you!

[@danhanson9101]

Unless I'm wrong, your example rebalancing spreadsheet goals don't add to 100% (?).

[@rob_berger]

You're right. The row of TIPS got deleted some how. I've added it back, but of course, you'll want to replace all the rows with whatever asset allocation you use. Thanks for the heads up.

[@danhanson9101]

@@rob_berger ok, great and thanks for the update. I was just trying make sense of the number, pausing the video.

[@auricgoldfinger8478]

Rebalancing is overrated, and really gives no better returns than buy and hold - Edesess and others have shown that when performance diverges in assets, than rebalancing is underperforming. I retired with 28 % bonds, now 21%.Munger doesn’t even endorse strict asset allocation, overused tool of cfps

[@ld4974]

cfps?

[@michaelmarks1391]

@@ld4974 Certified financial planner (service?)

[@rob_berger]

I don't think it's overrated--like most things in life, there are pros and cons. I do see the advantage of opportunistic rebalancing between asset classes with similar expected returns.

[@ld4974]

@@michaelmarks1391 Thanks. I'm going with Certified Financial Planner(s).