Rebalancing the Pandemic

I’ve spent a lot of time on the Bogleheads forums this weekend. Not because I’m looking for advice or reassurance that what I’m doing is correct, but more from an unshakable interest in seeing the mettle of hundreds of investors tested in real time.

It is incredibly interesting to go back and read some of the threads from individual investors during the Financial Crisis, real people who had no idea if the market they were invested in was ever going to come back. There have also been a number of great retrospectives about that time period, where people evaluate what they did right and wrong.

Snap back to present day. There have been a tremendous number of threads started in the past week by people rethinking their asset allocation at best, and pulling out entirely into cash at worst. These are investors who post on the Bogleheads forums, and are ostensibly the folks most educated AGAINST doing this sort of thing. Nevertheless, there are apparently a ton of people out there who think This Time It’s Different, and they are going to be ones to beat the statistics and prove that market timing works.

Of course I, like everybody else, have no idea how this will all ultimately shake out. It may very well be that we are on the precipice of a decline that will dwarf the Great Recession. Or this could be another 2-3 week long crash and recovery. What I do know is that I have an investment policy statement that tells me what to do with market movements, and it is not something that gets tweaked and ignored out of fear in times of uncertainty, exactly when it is likely to be most valuable.

What have I done in the past week? Well, the dramatic dip in stocks saw my portfolio move away from my intended asset allocation of:

60% US equities
20% ex-US equities
10% REITs
10% US bonds

As of Thursday evening, it was:

59% US equities
19% ex-US equities
9.5% REITs
12.5% US bonds

Obviously no big deviation (though it does represent a six-digit ‘loss’), but my ISP tells me to rebalance when any asset class is off by 5% absolute, or 25% relative. That means 2.5% for bonds or REITs, so a rebalance was triggered. So I sold bonds to buy back into the very things that have been dropping.

Contrast that with the panic-selling that is currently on display over at the Bogleheads, where several folks are going to 95% or 100% bonds or cash, with no structured plans as to when they will ‘get back in’ the market.

If things continue on like last week, I will have a lot more rebalancing to do in the weeks ahead.

Only time will prove when the exact right moment to buy and sell turned out to be, but I am confident that mechanical rebalancing will be better than any emotion-fueled call I could possibly make.

2 thoughts on “Rebalancing the Pandemic”

  1. So smart to have a system and the discipline to follow it. You are being a great example of how to respond to an event like this.

    • Thank you! For sure it is emotionally easier when cash flow from work >>> portfolio size, but it is still amazing to me to see so many people bailing (and after only a week!). I guess if it were easy we could all be 100% stocks.


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