Maximize Returns Through Portfolio Rebalancing
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- Опубликовано: 8 янв 2021
- Did you know that rebalancing your portfolio just once over a 16-year period can make a huge impact on your investment returns? In “Maximize Returns Through Portfolio Rebalancing” I look at the reasons why you might need to rebalance your portfolio and the impact that different rebalancing strategies can have on your investment returns both before and after retirement.
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Ramin, note that someone has responded to my comment below, cloning your account. All readers, please be vigilant.
Thanks @@talbotsunbeamer! We've reported them and deleted their comments.
I've just had a scammer trying to impersonate your account in the comments. Please see reply to comment I made 5 days ago. Their account/profile name is "Pension Craft"
Thank you @Mike A that was really helpful. All reported deleted and blocked
Hey Ramin! your videos are super understandable and your presentation excellent. Most resources give vague instructions without making the newbie understand how things really work. You have gained me as a follower and soon I'll get your paid stuff for sure. You really add value. Keep going!
@Bigfoot HunchBack
This is incredible, I first heard about Ms Lisa at a seminar a few months ago, and she just begun guiding me on my investment journey a few weeks ago. She does the whole thinking and research for me before investing a dime. Outstanding Broker indeed! I didn’t even know people knew about her this much
@Bigfoot HunchBack i just researched her accreditation and qualifications on FINRA and SEC, she seems really solid
Hi. NOBODY talks about rebalancing ONLY from bonds to stocks (in market downturns) and nobody talks about rebalancing from DCA. That would be a GREAT video! Thanks.
Instead of re-allocating through selling and buying, you can also use dividends and interest payments to gradually rebalance the portfolio.
Its ok at the beginnen but a portfolio of 100.000+ its hard to rebalance with 500€ a month
Informative as ever Ramin. Definite food for thought for me
After listening to good ole WB and Peter Lynch a good while also, I've come to agree with the mentality that Volatility != Risk (i.e does not equal) with respect to an asset. Where volatility does create risk is more for the individual who cannot "stomach" the volatility and then does something dumb like selling during a crash. Great stuff again Ramin.
Volatility means also unpredictability, which is risk
@@emanueleco7363 I like volatility; you get buying opportunities near the trough.
@@george6977 i like it too. But I don’t like unpredictability
Greetings from Australia.
Thanks for another great video, Ramin.
Happy new year and health to you and your family.
Thank you @crappycommodore and a happy and healthy new year to you too. Ramin
An amazing video and statistical analysis of rebalancing. Saved me a lot of time and so clearly narrated, you've earned yourself one more RUclips sponsor!
Thank you so much @Stephen O Keeffe I really appreciate that! Ramin
Rami, excellent review of rebalancing! I have been managing Canadian retirement portfolios for drawdown for 12+ yrs now and have been recommending 1) drift re-balance and 2) draw down directly from safe assets (bonds/cash). 3)+/-5% portfolio drawdown. Since 2012, portfolio values have stayed more or less level. Of course the last decade has been good to balanced portfolios! Very happy clients and no emotion! Just logic. I have been sharing your channel with friends and clients. Really appreciate that you don't hype things up.
What an outstanding video that was ... thanks and very timely on my part
Thank you @Willl Smith i'm glad it was helpful and thank you for watching. Ramin
Fantastic piece of analysis. Clearly represented in simple terms for an intermediate investor to understand. Keep up the great work!!!
Thanks @Financial Field much appreciated. I will do my best! Ramin
Watching again, it's an important topic.
Great video. The sell bonds first is similar to the counterintuitive bonds tent method described by Michael Kitces to avoid sequence of returns risk; retire with more bonds and increase the equity portion over 15 years. An early crash is an opportunity to buy low, a later crash doesn't matter since the equity has grown significantly.
You're the man when it comes to discussing finance, my feeling is to aim for natural yield by getting your portfolio as big as possible 😬
I'm kinda leaning towards shoving as much in 100% equities as possible myself, so that the gains in the good times will outweigh the inevitable dips. Bonds just don't look as reliable as they used to.
Very interesting video Ramin, thank you very much.
Hi @Peter Ricketts i'm glad you enjoyed it and thank you for watching. Ramin
Ramin, your videos are getting even better if that was possible. Thank you for all your knowledge.
Hi @TemptationJewellery i'm glad you think so and thank you for your support. That gold crown lots great! Ramin
That took a lot of work Ramin, appreciate it!
No problem 👍
My only complaint is the choice of red/blue for the graphs
Maybe next time use the pallet to tweak their brightness?
Excellent video. You are an excellent Financial Analyst + a Data Scientist !!
Thank you @ashish290574 that's very kind of you! Ramin.
Excellent video, as always.
Hi @Alan Mason, I appreciate that and thank you for watching! Ramin
Another amazing video and well timed as I was due to balance my portfolio!
I was battling with getting my head around the need to sell my big winners (mostly equity) to re-balance into the lower returns (mostly bonds)to maintain my “risk” level and the overall ration of bonds be equity in my portfolio. I often felt if the equity began to tank, the bonds “should” perform better and organically re-balance things and vice versa without me necessarily having to do anything.
Thanks again and hope you don’t mind me sharing this with others.
@@pensioncraft2622 you are a terrible scammer. I understand it's a tough world we live in but it's really horrible of you to try and take advantage of people who are trying to learn how to better themselves.
All this bad karma you are building up is not going to do you any good in life and it's never too late to change.
Your graphs are amazing. Exquisite, really.
Hi @Glenn Crowe Thank you very much! Ramin
@@Pensioncraft what software do you use, if you don't mind me asking.
Hi@@lastairbender_883 I use the statistical language R, and the graphs are generated with the ggplot2 library written by Hadley Wickham. It's all open source and I'd recommend it as a great way to visualise data. Thanks, Ramin.
@@Pensioncraft R Markdown for the win! Excellent work.
Thank you Ramin, great information once again. I do have questions from this but will wait until your next live session (will of course pay into superchat for your time).
Hi @talbotsunbeamer good to see you again and this time with a gold crown! if you post a question with a crown like that Laura will spot it and let me know so I can answer it. Thanks Ramin
@@Pensioncraft thanks, no idea what earned the gold crown but it looks very dapper! Have a good Sunday.
I've found that it is effective when in the accumulation stage to add to the asset that is underweight and when in the decumulation phase to sell the asset that is overweight. In this way excessive taxes from rebalancing action can be avoided.
Hi Ramin, another very insightful video! I look forward to these videos each week and have learnt a huge amount about finance and investing from this channel over the past two years or so. As an investor in my 20s, you've had a huge impact on my financial education and I'd just like to thank you for all the fantastic independent content you have provided!
Hi @Adam that's very kind of you to say and i'm pleased I could help. Ramin
@@Pensioncraft The 2004 $1 is still $1 in 2020. It’s just that prices have tripled. Btw Twitter stock is about to get smoked...
Excellent Information!
Hi @Richard Lewis Thanks for watching! Ramin
Important topic. Great video!
Hi @Scott Maughan Glad you enjoyed it. Ramin
Hi Ramin,
Love your videos - always very thoughtful and informative.
How do you complete the analysis that goes into your videos? Datasets from online and Matlab?
If you put your mind to one topic you could probably write a research paper
Thank you Ramin!
My pleasure! Ramin
Great video! The difference between buying Boeing and not buying Apple is a rebalancing outlook
Fantastic Ramin! respect!
Thanks for listening
rebalancing amongst two assets where one consistently outperforms the other over long period has somewhat predictable results - that is selling the better asset to buy the worse asset periodically just reduces the return than letting the better asset grow unchecked. Here is another study which may be more interesting - take two assets that perform similarly over time, but is not just perfectly correlated. For example, if you take two commodities - gold and copper, or if you take small caps vs. large caps, or emerging markets vs. US. Then look at rebalancing - I think it would help more in this type of asset mix. So maybe its right to rebalance certain types of assets...
I would love you to revisit this from a 2022 perspective and any pearls of wisdom on if the 60/40 rule has changed?
I like this vid. Good insight.
Thank you for your comments as always GerrysPlace - I am glad you are enjoying the videos. Thanks Ramin
It would be interesting to show the drawdown of the portfolios. It looks easy when you see a 30 year window time, but I can assure you it its not easy to see your portfolio 50% or more down!
Nice Job Ramin!
Agreed, and also past results aren't a guarantee for future returns (in both equities and bonds). It's all about creating an investment glidepath so you can de-risk as you ability to take risk reduces.
You’re a genius! Thanks for your time in creating this video!
Brilliant video! Thanks for the clear explanation of rebalancing! 🚀
My pleasure and thank you for watching! Ramin
Very nice video. It might be interesting to make rebalancing decisions (or retirement drawdown decisions) according to some relative valuation metric. Maybe like the ratio of the earning yield of stocks to the earning yield to bonds exceeds some threshold, sell bonds, otherwise sell stocks. Or base it on inverse investment flows - sell the asset the has had the most inflows compared to history.
Hi Ramin, really good videos. Have you done a similar analysis of an 100% Equity portfolio and the effect of different rebalancing strategies across different markets? Im still in early wealth building phase of my life (35 years old) so hold 100% equity over 8 different index funds, so would be very interested to see if i can use some type of opportunistic rebalancing to accelerate that.
Hey Ramin what kind of graph would you call the one you used to plot the asset weightings over time? I'm looking to replicate it in python with a 5 asset portfolio. Thanks for being the best financial educator on RUclips 🙏
Great video, but would have loved to have seen the effect of rebalancing vs. not rebalancing onto an all equity portfolio made up of home market equities (such as UK or Australia); remaining DM (cap weighted) and fixed % allocation to EM equities which I suspect would perform better (or at par) over a 30 year period compared to a all equity. VDHG is a very popular fund in Australia (in part for this reason).
Great video. I'm curious about dynamic asset allocation strategies if one had perfect insight into the market.
Hi supernumex that's not so interesting because if you know which asset will outperform you'd just buy 100% of that asset or even buy a leveraged version of that asset. Thanks, Ramin.
I'm starting to think whether it's worth me having bonds at all in my portfolio. Currently it sits at about 13%. I also have gold at 2%.
But as my knowledge broadens, I feel like I can take a lot more volatility. in fact right now, volatility does not phase me one bit. I saw my portfolio drop about 25% back in March, and I didn't have an inkling of worry. Risk has a lot to do with how much DD you do. The real risk is not knowing why your buying a specific stock/fund. I'm in my mid-20's, so I feel like now is the time to take the risk to maximum returns. I guess it comes down to what you want out of investing as well. I don't want to wait until im 65 to have a comfortable retirement, I have far bigger aspirations. Volatility reduction becomes more of a priority what you have the wealth to protect and sustain. As a result, if/when there in a US correction, my bonds may be tuning into equity quite fast.
josh, I would say if you are in your mid 20,s then you can safely be in 100% equities (global). You actually want as many declines as possible to be able to pick up cheap shares through your working career. Only as you approach your retirement do you want to accumulate bonds. That is unless you cannot stomach declines at all, then best to diversify now. As well as this website read everything by william bernstien.
If you can handle it. Personally I couldn't as my portfolio gets bigger I find it harder. I like to keep some bonds because in my mind if the market dropped by a certain amount I was going to sell the bond portion and buy equity. However in reality it didn't work that way because when the market dropped in march I was expecting a double dip, the second dip never came by the time I increase my share portion I was late and missed alot of the rebound.
@@johndoh539 Yes I agree and it's an opinion that I'm seeing on a frequent basis. I certainly want to take advantage of the many dips in the future. Thank you very much for the reading recommendation, I'll be sure to add it
@@mutton_man Yes I'm sure I will become more defensive once my portfolio reaches certain levels. There's certainly a level on mental exercise. Thanks for sharing your experience.
@Mr Brightside Thank you for the very detailed response, I'll certainly take this into consideration
Great video
Thanks @loutol this is one I knew would be helpful but which isn't popular i.e. it would be good for people to watch in terms of learning but few people search for "rebalancing". I'm glad you found it useful! Ramin.
I rebalance as I buy even in tax efficient accounts this is similar to the dual momentum strategy.
Ramin, how do you feel about choosing the 80% bonds/20% equities Vanguard fund earlier this year?
So, optimal rebalancing strategy is, sell all your bonds and buy equity. Good to know. Next week, how much leverage is optimal?
This is an excellent analysis, many thanks. Re rebelancing during accumulation... It really surprised me at first that rebalancing a 60/40 portfolio didn't perform better over 30 years than no rebalancing. But... without rebalancing, as you mentioned, you essentially end up with a portfolio dominated by equities over time. That means that at any given moment you are highly vulnerable to an equity crash. That could happen just before you retire. It can take decades for equities to recover, and you'd have to sell them at their nadire to finance retirement. There's also the psychological difference in experiencing periodic equity crashes between having mostly equities or a 40% bond cushion. So perhaps on reflection that small difference in performance (5.5% vs 5.3%) is a small price to pay? It fits my temperament anyway, I think :-)
Great point!
Thought provoking content as always👍🏻
I am glad you enjoyed it Phil Shaw
Superb
Thanks 🤗
I instead recommend 100% equity until you're 3 years from retirement, then go into bonds to the extent such that one has 3 years' spending worth of assets in bonds, selling bonds first while in the draw down/retirement period only during an equity market downturn, otherwise selling equities for spending purposes (which will be at relatively high prices).
But if you had retired in March 2012 your stocks would fetch the least and bonds would have been expensive.
@@stevo728822 Perhaps, though equity still +20% from 2007 high. Edit: actually that's QQQ, whereas the whole US equity market was break even. You are right, though that period was highly exceptional/rare.
very interessting. But what would happen if you buy bonds with a returnover like the stocks and therefore also the same risk, but because they don't correlate and you do rebalance, that this would end up with a higher returnover but with the same risk as just stocks? Maybe like a bond etf on emerging markets
Thanks for the great content!! Just a bit confused between video title and conclusion as I had always thought rebalancing forced you to sell high and buy low which would increase your expected return, right? But you're saying this doesn't ultimately make a significant difference than sticking with a 60/40 portfolio without rebalancing? 🤔
I had always thought rebalancing forced you to sell high and buy low
It does. If within a 12 month period, your fixed income securities are hot and equity return is dismal, you will be selling high and buying low.
That's so interesting that rebalancing made no difference and that selling the bond first at retirment increased your chances of money not running out.
Hi Jon I agree the result is surprising at first. But when you consider that equity outperforms it's not so surprising. Thanks, Ramin.
Thumbed down, not enough graphs! : )
Does the etf ntsx address the key points you make here? Many thanks.
I realize that expecting future returns to imitate any time period of past returns is a fallacy but, with real rates being negative right now, the biggest point this analysis is telling me is to stay out of bonds for now.
I mean... yields have basically gone straight down for the past three decades, and what I'm seeing here is that they STILL provided meager returns relative to equities.
Maybe TIPS is the only way to go with bonds for now?
And if you're looking to limit portfolio volatility, maybe you should keep a healthy portion of your portfolio in cash as long as the VIX is below a certain threshold.
Thoughts?
The paper by Spitzer and Singh suggests that with a bond-first withdrawal approach that approximately 15 years elapses before bond investment is exhausted (and withdrawals then tap into equities). It is argued that equity volatility is thus minimized since the investment is equities spans 15 years. How about a strategy of rebalancing once bonds are exhausted?
I was thinking the same , we should leave equities alone until bonds are depleted. That vouches for max return
Can one sell bonds whenever they want? I thought bonds were contract that cannot be sold until they mature?
Hi Thuy Nguyen, you can sell the bond to someone else but only before it matures. Once it matures the debt is paid back and there is no longer a bond/contract.
What if I rebalance within my equity portfolio as well? Sell or starve my outperformers and biy my underperformers?
I’ve invested into the Vanguard FTSE Global All Cap Index Fund. Is there any added benefit investing into the Vanguard FTSE All-World UCITS ETF as well? What I mean is, by investing in the latter does it increase global diversification, or am I just duplicating?
If your example potfolio contains 2 stocks, would rebalancing make the performance better? Thank you!
Hi Virtual Chris that depends on the behaviour of the stocks. If one continually outperforms the other then the results would be the same as bonds and equity i.e. rebalancing would reduce return. If one outperforms for a while, then the other outperforms for a while and the relative outperformance keeps yo-yoing then rebalancing could actually increase return. Thanks, Ramin.
Hi, please could you recommend the best SIPP to invest in as a LTD company to offset corp tax and NI. Ideally i'd like access to SMT and have access to a wide range of ETF's and funds. I know Vanguard has this option, but no access to SMT etc.
Hi David I suggest you have a look at comparefundplatforms.com Thanks, Ramin
Hey Ramin, what if you were to have a more complicated rule based rebalance such that when the market drops A% you sell B% of your bonds and buy equity. Is it reasonable to allow your percentage allocation to vary depending on present prices?
Probably a niaive question, but is there any mileage on rebalancing based on risk. Have risk bands and when the risk, weighted by the sector share, falls too low or high then you rebalance to get back to your target risk. And further, have the target risk getting more conservative with age? Tx
Hi @Hougrel if your strategy is risk-based e.g. risk parity then that would certainly make sense. And reducing equity exposure would reduce volatility so I suspect that this approach would end up doing the same thing as a target retirement fund. Thanks, Ramin.
If only you were 20 years younger. Then you would be a millionaire
Hi tom111 I'm not too hung up about being a millionaire. PensionCraft is helping people learn to invest while feeding me & my team which is just fine. Thanks, Ramin.
@@Pensioncraft can anyone else smell something not quite right
Have you left the gas on @@coolmonkey619?
@@Pensioncraft bloody hell mate. You are a lad. Nice one
Hi,
I'm very interested in this kind of balancing techniques and listen/read a lot to get new ideas.
My conclusion until now is that portfolios with fixed percentage between bonds and assets is not working well.
From ”GHAUS Asset Allocation” by Javier Estrada i found a research paper on short term investing. Based on that I have made following conclusion:
I look at the amount of cash that is needed from the portfolio for x month (could be 12 - 36). This can be placed in cash or short bonds. rest goes into assets. (Normally i prefer a world index).
rgds
Instant upvote for the Monty Python depiction of God
8-)
Ramin - some account cloning issues possibly?
Thanks @GillieG reported and hopefully all deleted now. Ramin
If increasing the bond proportion only increases your chance of money running out at retirement, why do a lot of financial advisors alway advise that as you get older you start increasing your bond proportion of your savings/pension?
Hi Jon there's "sequencing risk" which is a very high sensitivity to a big drop in equity markets in the few years surrounding your retirement date. If equity markets fall during that critical period it disproportionately reduces the number of years your money lasts. So it does make sense to take a bit less risk around those years but then to increase risk as time goes on e.g. by drawing down your bond holdings first. I discussed this in depth in a video for Patreon supporters www.patreon.com/posts/43216315 Thanks, Ramin.
Is volatility risk?
Hi @Jason Min This video I created a while ago should help answer your question. Thank you for watching. Ramin ruclips.net/video/wA9kZonlUYY/видео.html
@@Pensioncraft Thank you! I've been learning a lot from your videos for a while now.
and now check 60% equity 40% gold portfolio...
How can you talk of rebalancing without referring to how your examples compare them based on risk, so comparison of return divided by risk? Are you sure rebalancing doesn't make a difference!??
Everything is a bubble right now. Just invest when the market crashes.
might take 10 years and drop only 30%
Hy
Every example you shown in this demo gold out stripped these other investments.
Anyone over the age of 60 should never have bobs or equities. In their portfolio
@@pensioncraft2622 blocked
Sadly I think people concentrate far too much on return rather than risk. So many 100% equity portfolio's out there.
He literally just said in the video that it gives you the best chance of success.
@@barnstar2077 Fine if you can stomach a 50% loss, or greater. Take a look at what happened in the great depression, equities can be extremely volatile. There is no guarantee for success either, but that is the risk you take. Pensioncraft himself has said he is 20/80 equities to bonds. It's all about the need, ability and willingness to take risk.
Any other SKLZ bagholders searching for inventive about ways to spread their bagholding lol?
So tripled your portfolio value in 8 years !! In bitcoin you can quadrupled your portfolio in 2 months .
Cherry picking which 2 months.
No one has a crystal ball though. Wonder what bitcoin and other similar assets will do in another 2 months! Could easily be down 50%.