My allocation is currently 55% US stock, 15% international stock, 30% bond. I am contemplating shifting to 50/10/40 as retirement is about 6 years away and we (wife and I) are getting pretty close to the having enough. I've read a bunch of arguments on 70/30 vs 60/40 and it seems there isn't much difference - the advice seems to be, do whatever lets you sleep better at night.
So in the interest of sleeping well, I'm wondering what happens after a 50% stock market crash (let's assume bonds remain unaffected). If that happens, the allocation changes to 42/12/46. When it's time to rebalance, would you sell a bunch of bond funds to bring the ratio back up to 55/15/30? That would leave us with a reduction of more than one-third of our bond holdings, potentially impacting our ability to retire early. Or is the idea to simply keep the allocation floating at whatever the market dictates until stocks top 70% total again, then start rebalancing again?
I guess I'm (sort of) asking, for the retired/about to retire person, is rebalancing only to sell stocks when allocation is greater than the target, but not to buy stocks when the allocation is less than the target? Or is it to maintain the target no matter what?
The answer impacts the decision to change from 70/30 to 60/40. If we anticipate having to sell bonds to buy stocks after a market crash, I'd be more comfortable with having more in bonds to do that with (and of course less in stocks to lose in a crash), arguing in favor of going to 60/40 (or even 50/50). If we anticipate not having to sell bonds after a stock market crash, then there is some justification for keeping the current 70/30 allocation, which might provide enough in bonds to allow us to live on while the stock market recovers.
So in the interest of sleeping well, I'm wondering what happens after a 50% stock market crash (let's assume bonds remain unaffected). If that happens, the allocation changes to 42/12/46. When it's time to rebalance, would you sell a bunch of bond funds to bring the ratio back up to 55/15/30? That would leave us with a reduction of more than one-third of our bond holdings, potentially impacting our ability to retire early. Or is the idea to simply keep the allocation floating at whatever the market dictates until stocks top 70% total again, then start rebalancing again?
I guess I'm (sort of) asking, for the retired/about to retire person, is rebalancing only to sell stocks when allocation is greater than the target, but not to buy stocks when the allocation is less than the target? Or is it to maintain the target no matter what?
The answer impacts the decision to change from 70/30 to 60/40. If we anticipate having to sell bonds to buy stocks after a market crash, I'd be more comfortable with having more in bonds to do that with (and of course less in stocks to lose in a crash), arguing in favor of going to 60/40 (or even 50/50). If we anticipate not having to sell bonds after a stock market crash, then there is some justification for keeping the current 70/30 allocation, which might provide enough in bonds to allow us to live on while the stock market recovers.
Statistics: Posted by snic — Sun Dec 29, 2024 12:32 pm — Replies 5 — Views 164