Valuations and risk are intertwined.It's not an arbitrary ratio, just like a stock:bond AA isn't an arbitrary ratio if it doesn't match the ratio of global stock market capitalization to global bond market capitalization.You are highlighting an important decision pointIf you don't rebalance, you are letting the winners run and your portfolio becomes riskier than initially intended. Nice while the winners are winning.
If you do rebalance, you are maintaining the risk level initially intended and taking profits. Nice when the winners stop winning.
That's just how it is. You decide what you want, and you live with your decision.
Should we just let the market accommodate for changing risk with its changing valuation levels..., and then float along with it...
Or should we over-ride the market by rebalancing (based on changing valuations) back to an arbitrary ratio like 20-80....?
That's the risk profile that some people have chosen for various reasons that they've stated previously in this thread.The market is not some kind of all-knowing and all-powerful entity. It's just the market.Importantly, this action means we are stepping in and disagreeing with the market.Instead of focusing on valuations, maybe make an attempt to focus on risk.Let's decide how best to proceed....and update the OP to reflect our decision....
When the market determines that risk has increased or decreased, valuations adjust to compensate.
So if an investor reacts to these changing valuations by buying and selling, he is simply undoing everything the market just did.
Why would an investor take such a step unless they believe that changes in valuations are actionable, and the market is wrong?
Statistics: Posted by CraigTester — Sat Sep 14, 2024 9:50 pm