Great article. I also over-rebalance. Do you have a formula or methodology for calculating how much to increase your stock allocation? Or do you just do what feels right? What I do is:
Draw a long-term trend line on the SPX chart (log scale) centered around its midrange.
Monthly, measure the percent that SPX is currently above or below that trend line.
Subtract the result from step 2 from the target stocks allocation.
Example (using current conditions): SPX is currently 42% above my trend line. My target stocks allocation is 60% (at the trend line). So, my current stocks allocation is equal to 60% minus 42%, which equals 18%. Of course, a more aggressive investor could raise that trend line higher up the chart, or increase the target allocation, or even apply a ratio to the calculation in step 3 to bias toward a higher stocks allocation. My main point is that, in my opinion, it's best to have a mathematical methodology for deciding the amount to increase or decrease one's allocations, rather than going by feelings or emotions.
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Great article. I also over-rebalance. Do you have a formula or methodology for calculating how much to increase your stock allocation? Or do you just do what feels right? What I do is:
- Draw a long-term trend line on the SPX chart (log scale) centered around its midrange.
- Monthly, measure the percent that SPX is currently above or below that trend line.
- Subtract the result from step 2 from the target stocks allocation.
Example (using current conditions): SPX is currently 42% above my trend line. My target stocks allocation is 60% (at the trend line). So, my current stocks allocation is equal to 60% minus 42%, which equals 18%. Of course, a more aggressive investor could raise that trend line higher up the chart, or increase the target allocation, or even apply a ratio to the calculation in step 3 to bias toward a higher stocks allocation. My main point is that, in my opinion, it's best to have a mathematical methodology for deciding the amount to increase or decrease one's allocations, rather than going by feelings or emotions.Post: My Investment Sin
Link to comment from September 9, 2023