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I drink the odd can of Coke Zero — sugar free, caffeine free. Unfortunately the caffeine free version is rarely on offer, but on those odd occasions when I discover it at a good discount I buy multiple cases. I enjoy a good bargain.
My instinct for a bargain extends to my retirement portfolio. I scratch that itch by having a policy statement around rebalancing during market volatility. Normally I only rebalance once a year, but my policy statement has a clause to enact a threshold rebalance if the equity portion of my portfolio drops more than 15% — a once and done strategy. It’s only been triggered four times in the last ten years. While it’s not a process everyone would be comfortable with, I thought you might find it interesting to see what it looked like in April 2025.
The “Liberation Day” tariff announcement triggered a tariff tantrum in global equity markets, with a corresponding drop of 15% that activated my rebalance strategy. Being a few weeks away from completing the sale of my business and entering retirement, I nearly decided not to bother, but after a few hours of contemplating I thought “what the hell” and went ahead anyway.
It’s not a difficult thing to do. I simply identified the overweight bond allocation and sold down into the underweight equity portion of my portfolio. The swap brought my asset allocation back to target with a few clicks of a mouse on the Vanguard website. I wasn’t buying the dip on a gut feeling, it was happening because my rules mandated a return to my target allocation after a 15% drop. No emotion required.
One small but worthwhile footnote: I carried out the rebalance within a tax-advantaged account, which meant no capital gains tax to worry about, the swap happened in a sheltered environment and I could act without a tax bill arriving the following spring. Whether that’s relevant to you depends entirely on your own account structure and circumstances, so it’s worth a moment’s thought before you click. The mechanics of a rebalance are simple; the type of account you do it in can matter quite a bit.
After that I ignored the market noise and political kerfuffle and got on with my life, which at that stage meant dealing with all the small hassles that come with selling a business.
So what was the outcome? It turned out there was a very small window of opportunity to capture the equity sell-off. Within three days the market stabilised and started to rebound. The capital I redeployed from bonds into stocks outperformed the rest of my equity portfolio by a margin of 20% over the following nine months, all because of a simple rebalance back to target allocation.
Would I have regretted it if I hadn’t bothered? Honestly, probably not. My portfolio was already built to carry me through retirement, the rebalance was a bonus, not a necessity. Missing the equity discount would have been a bit like walking past the Coke Zero on offer and shrugging. Nice when it works out, but the day goes on perfectly well either way.
Would I do it again? Yes, because the policy says so, not because I knew how it would turn out. The rebalance worked well this time. Next time the market might keep falling for another six months after I pull the trigger. The point isn’t the outcome, it’s having a rule you can execute without needing to be right.
I’ve since retired, sold the business, and opened a fresh can of Coke Zero. The portfolio is back to target allocation and the policy statement sits in a drawer, waiting for the next tantrum. Although, at the moment, I’m more interested in finding some discounted coke zero, my stash is running low.
I view policies such as re-balancing portfolios once a year as one step removed from simply buying and forgetting. Auto pilot investing. And that’s fine. If you approach investing simply, you’ll do well with index funds. The only policy I subscribe to, and it’s new for me, but I’m sticking with it, is one I learned by reading about Herbert Wertheim who sells individual company shares if their valuations drop twenty percent. If that happens, I must of missed something about the company or the market has turned against a company. I’ve experienced valuation drops greater than twenty percent of individual companies and in the past, I was too preoccupied to cut my losses. Not any more. I can always buy the shares again, or invest in other assets. There is always somewhere financial assets worth investing in. In bear markets, such as the one we are in, there will be rallies and that’s when you should sell. David Lancaster makes very valid remarks in his post by mentioning the long-term duration of bear markets that the US stock market has experienced. If you want to get reacquainted with how long bear markets can last, read Maggie Mahar’s superb book “Bull! : A History of the Boom, 1982-1999: What drove the Breakneck Market–and What Every Investor Needs to Know About Financial Cycles.”
The Only Three Questions That Count by Ken Fisher argues for a method for making better investing decisions by asking three core questions: “What do I believe that’s wrong?”, “What can I fathom that others can’t?”, and “What is my brain doing to mislead me?”
I think you addressed the first question. You might want to also work through the other two.
Your strategy sounds right for you, though as an index investor it’s not really relevant to my situation. I am curious about one thing though — a bear market? How did you arrive at that conclusion given the current market cycle?
The market has experienced turmoil since Liberation Day 2025 with subsequent declines June 2025 and March 2026. My perspective is that declines have only just begun and will continue over a few years (not with a rapid, one-time drop), because the foundation for elevated returns has fractured.
Inflation is back as reflected in food, housing, transportation and medical costs.
Historically high P/Es (by a significant factor).
Cap-ex expenditures for data centers that appear unsustainable by any financial metric.
AI companies that lose money with every compute: we are in the ‘big hammer’ phase with primitive value-add applications and questionable business models.
The historical software per seat licensing model doesn’t work with AI agents and none of the companies have figured out consumption pricing.
AI companies who cross invest in themselves: similar to the high debt era of Drexel Burnham Lambert and Global Crossing, when broadband bandwidth offered infinite possibilities, until they didn’t.Private credit valuations that in no way reflect the devaluation of public credit companies: in the past three months, public shares of Blue Owl Capital have declined by 44%.
Consumers who for the past twenty years obtained free Google searches are unlikely to pay for AI (behavior is hard to change, free is hard to compete with).
The capital flight to non-US indexes who offer quality companies with an average P/E of half that of American companies.
Sovereign nations buying gold instead of automatically buying US Treasuries.
Then there are the accounting gimmicks of the Magnificent Seven. Free cash flow, which is essentially cash from operations minus capital spending, is supposed to be a pure metric of a firm’s value creation. But there are ways to make it look better. Stock-based compensation is one. The companies take an expense, which would reduce net income, and put it in the investing section of the cash flow statement, below the calculation of free cash flow, where companies report stock buybacks. Accounting expert and Zion Research Group founder David Zion estimates Nvidia used $50 billion of its free cash flow to buy back shares issued to employees as stock-based compensation over the past three years. Said another way, non-employee owners of Nvidia stock were entitled to $100 billion in free cash flow, not $150 billion.
The Magnificent Seven (minus Tesla) reported free cash flow of roughly $1.2 trillion over the past three years. $432 billion of that cash flow was driven by stock-based compensation. That’s one-third, which isn’t available to non-employee owners. Zion calculates that Meta currently has the most acute problem. Meta’s compensation-related share buybacks consumed about 70% of free cash flow generated over the past 12 months.With about 33% of the total market capitalization of the S&P 500 consisting of the Magnificent Seven, a re-evaluation appears to be in order.
Professional investors on CNBC start talking about the broadening of the market and sector rotation instead of using the dreaded phase “bear market” which is too harsh for delicate investor ears.
Reversion to the mean is real. No one likes it when the historical mean is lower than the current mean.
Please don’t say “this time is different.”
I certainly hadn’t considered saying “this time is different”. A bear market, by definition, is a 20% decline from a market high — we’re nowhere near that threshold. We haven’t even hit correction territory, let alone a bear market.
My thinking is simple: I don’t need to go looking for one. I know with absolute certainty that a bear market is coming eventually. That’s not pessimism, it’s just history. Scouting for the specific mechanism that will collapse the market feels like an exercise in futility — unpredictable and a distraction from what actually matters.
What isn’t a distraction is making sure my portfolio is built to survive the eventual downturn and rebound strongly during the recovery. That’s where my focus stays.
Bear markets rarely happen when everyone is talking about it and definitely not for the reasons everyone believes it will happen.
Agreed , which is exactly why I’d avoid going down the rabbit hole of predicting how the next collapse happens. Just accept that it will, position your portfolio to weather it, then get back to things that actually matter… like debating whether your foot was in the kitchen zone on that smash 😉
I understand that and agree which is why I’ve gone from a portfolio that for decades was 100% equities to primarily fixed income that provides sufficient funds no matter what happens, and enough dry powder to purchase equities when valuations become reasonable. I read the market in order to understand how to position my portfolio. I have friends who are are distressed about the drop in value of software enterprise companies. I had shares of such companies and the Magnificent Seven but I started selling about 18 months ago. I missed the top, but also missed the drop. I’m not looking for a bear market, it will definitely come and from where I sit, the bear is coming out of its cave.
I use almost the same approach and it has been ideal to capture the best market shifts and be poised for future rising markets. I check my asset allocation when I take a draw, each 6 months. If they are 5% out of my preferred AA, I rebalance. And my written Investment Policy Statement has me rebalance when the market moves me more than 10% away from my target AA.
Having a WRITTEN Investment Policy Statement has been a bigger help than I imagined. Bogleheads has good examples and guidance on how to write your own IPS. This gives me guidance based on overarching principles rather than emotion. Eliminates the fear of making a change in turbulent times, and has reaped benefits every time I’ve done it, either greater profit or greater safety.
I’ve thought about dropping my rebalancing trigger from 15% to 10%. Over the past ten years, that would have meant eight threshold rebalances instead of four. It’d be a fascinating exercise to work out whether the more active approach would have generated positive or negative alpha compared to the lazier one. Unfortunately, I’m far too lazy to actually run the numbers. Lol.
Brilliant, Mark, I’m poaching your process.
Yeah. I’m gonna try to figure this out as well. And I’m all in on caffeine free coke as well Mark but none of that sugar free nonsense. 😉 (Or as my doctor calls it ‘liquid death’ vs ‘new and improved liquid death’)
Oh my…I really, really want to be under the care of your doctor!
Heidi, using the ‘portfolio’ tool on the Morningstar website, I set up an ‘equity only’ portfolio that will make it easy to track my stock ETFs, separate from my fixed income stuff. I suppose we could simply wait until the entire market is considered to be in correction territory as well.
Of course, we have to come up with a catchy name for all this. Perhaps the Crothers Theory of Economic Faffing About, or something similar.
Faffing around is definitely my specialist subject 😉
I don’t generally rebalance because of political whims. Many seem to reallocate after the horse has left the barn. I rebalance from my winners, to lock in gains. Doing so when losses occur merely locks in those losses. Recently foreign ex-US stocks became in-vogue, ditto for gold and precious metals. What’s next? A renewed interest in oil and gas stocks? (State Street Energy Select SPDR ETF XLE is up 25% since January and in 2025 it paid a 2.57% dividend.). I’m seeing articles in the popular press. Where were people a year or two ago? That’s my point.
My strategy, as well: rebalance with gains, not losses.
I must be missing something as I don’t understand this reply thread – “rebalance with gains, not losses”. When stocks go down significantly, I’m buying more – not selling. There’s never a (realized) loss. When eventually my asset allocation is exceeded on the high side I’m selling stocks for realized gains (in a tax advantaged account so no taxes). So rebalancing, at least as I understand and practice it, never results in a realized loss. I don’t understand the concept of rebalancing with losses.
If you have broad index funds such as us, only Vanguard Total World (VT) in our Roths. Our traditionals contain Vanguard Total (US) Stock Market (VTI) and Vanguard Total International (VXUS) for equity investing. With these funds you are not buying the “in-vogue” other than what the market values. We have these two equity funds in our traditional accounts along with bond funds to allow for rebalancing to our allocations.
I don’t rebalance because of political whims, I do so because my policy statement says rebalance after a 15% drawdown. Simple as.
You are very bold since the day you made the rebalance; it was a coin toss! Taco was still a tasty Mexican dish on that day 🙂
I asked Claude to do some research for me and here is what it told me:
“Liberation Day’s VIX spike to 52 and ~19% S&P drawdown ranked among the worst in history by speed, but the market treated it as a reversible policy shock rather than a structural crisis like 2008 or COVID (both VIX 80+). The full round-trip took just three months — compared to five months for COVID and four years for the GFC — because the source of uncertainty had a visible off-switch.”
I could say I got lucky, but that would involve a conscious choice, the magic of a policy statement is it’s blind. Whether TACO was a Mexican dish or a market thesis on that day was entirely irrelevant to the trigger being pulled. My policy statement had never heard of TACO — and unlike certain world leaders, it doesn’t chicken out either. It just counts to 15 and reaches for the mouse.
Mark,
Have you ever considered one additional mechanism that I utilize to harvest drops in the market? As I have written previously I rebalance quarterly to our target allocation as we are living off our investments until we claim Social Security at 70. One other trigger that I use in my (unwritten) investment policy statement. When there is a market correction (5% drop from the recent high) I overweight my portfolio towards stocks by 5%, and when a bear market (10% drop) occurs I overweight it by 10%. After that I keep the overweight position until the market reaches a new high, but quarterly rebalance to those higher targets. During COVID I kept investing more at every 5% drop with the last purchase within days of the bottom, but in that case sold back 5% at every 5% increase in the market as I was not sure how long the market would be depressed. I made a fair profit, but if I had been greedier I could have made a killing.
David. That’s a well constructed system and clearly tested in the field — the COVID execution in particular is impressive. I have genuine admiration for anyone who has the discipline and temperament to run something that nuanced. For me personally though I have to admit I don’t, the simplicity of my approach is a deliberate feature. The fewer decisions my policy statement requires me to make, the less opportunity there is for me to get in my own way. My single trigger, one swap, back to target approach leaves some return on the table compared to your method — but it also means I can execute it half asleep without breaking anything by accident. I just don’t have the temperament for all that faffing about lol
Obviously everyone has to have a plan that allows them to sleep at night. BTW this was a thought that I had at the time and obviously had never executed before. My thought was a little at a time (what turned out to be quite frequent tradings) because I would not know when the bottom would be reached and that way I didn’t have to guess ie truly market time.
I think this strategy works in fast V shaped recoveries but not so sure about bear markets like the 2000 one. You might want to backtest your approach and see how it would have done. I didn’t own any bonds back in 2000, but I vividly remember the cuts from catching that falling knife.
I have at least 10 years worth of bonds and cash to cover “normal” spending so wouldn’t have to touch equity position unless the downturn lasted longer than that. Even at that point we could cutout our significant spending for travel and home upgrades.
Per AI:
Based on historical data, zero US stock bear markets (defined by a 20%+ drop) have lasted longer than 10 years; the average bear market lasts less than one year, with even the most severe, like the 1929–1932 Great Depression, lasting less than four years. While “lost decades” (2000–2013) exist, they are not classified as continuous bear markets.