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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.
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.”
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.
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.