What is 'Rebalancing'

Rebalancing is the process of realigning the weightings of a portfolio of assets. Rebalancing involves periodically buying or selling assets in a portfolio to maintain an original desired level of asset allocation.

Read more: Rebalancing http://www.investopedia.com/terms/r/rebala...p#ixzz4qSq8UfCJ
Follow us: Investopedia on Facebook

===================

Above is taken from Investopedia. Below is my own 2 cents.

"Rebalancing" is one of the most abused words in this forum.

The other word is "lump sum" when it is used to mean a large sum of money, be it 10k, 20k or 50k or whatever amount that appears large to you. Please get it right... lump sum has nothing to do with 'large amount of money'.

Lump sum as in lump sum payment means a single payment. In lump sum investment, it means a single investment. It is a one-shot investment or a one-time investment.

Now, back to “rebalancing”…

When trimming or moving profits from one portion of the portfolio to another, it can either be described as a 'rebalancing' or a 'restructuring'.

The difference between them is that in a 'rebalancing', the portions are readjusted back to their original ratios. Say, you have a 50/50 equity/bond ratio, and it got out of whack due to high growth on the equity side, then "rebalancing" is adjusting the ratios back to 50/50.

While in 'restructuring', the 50/50 ratio is change to say, 60/40.

Got it? Then read on to see why rebalancing is not often done since it will take time and high lopsided growth on the various segments in the portfolio to make the ratio out of whack.

=================

If one is keeping track of his portfolio, and knows the percentage of each various segments in the portfolio, rebalancing hardly occurs unless when there are very, very exceptional instances of growth that gets the ratio way out of shape.

Example 1: 50/50 portfolio ratio, with bond/fixed-income/money-market/cash portion having 6% growth, and the equity side (consisting various equity funds) having 14% growth, which gives a total growth of 10%.

The 50/50 equity/bond ratio becomes 51.4%/48.6%. Thus the adjustment is only 1.4% - that is if you are so fussy and meticulous to do the "rebalancing".

Example 2: Original equity/bond ratio change to 30/70, with the same 14% and 6% growth respectively. The ratio becomes 31.5%/68.5%. If rebalancing is needed, then it is an adjustment of 1.5% from 31.5% to 30.0%.

Example 3: Same as in example 1 with 50/50 ratio. Let's give it a total initial investment amount of 10k. This time the profit is trimmed and moved to the bond side. With the same growth rates as in above, the growths in dollar amount are $700 and $300 respectively. The equity/bond amounts increases to $5700 and $5300. After moving the profit out of equity, it becomes $5000 and $6000, giving a ratio of 45.5/54.5.

Hence, in trimming the profits to the bond segment, the ratio is restructured from 50/50 to 45.5/54.5.

In summary:
Sometimes, people say they are rebalancing and/or trimming profits, when they are restructuring the portfolio.

This post has been edited by j.passing.by: Aug 22 2017, 02:58 PM

Please read further in Investopedia... it has further info.

Moving things around is not the only method to do rebalancing. The ratio can be rebalancing by adding in new purchases, ie topping up certain funds. Which, I believed, is what is usually being done by most people/investors in this forum.

So to noobies to UT investments, DCA does not necessary means buying the same fund regularly. DCA means making purchases regularly. Period. It does not have to be the SAME fund. Which is in essence a sort of VA (value averaging) - putting more money into funds that had dropped.

Cheers.

I don't think what I wrote in the recent posts are anything new... more a rehash of older posts. If you're reading this in desktop version, click the 'show posts by this member only', and read the 1st 10 posts. (You might be LOL at these Feb/Mar posts... )

The 10th post might be of interest to you and other well-paid individuals who are EPF contributors.

Nothing much more to say without repeating myself...

There's this guy I knew... his company's epf contribution is 19% (maybe 18%, not too sure), his own contribution is 15% - so it is one third of his gross salary into epf without fail for every month of his working life.

One of the major withdrawal out of epf is for purchasing a house. Which he don't need to do so, since his wife is a civil servant and they have low housing loan from her employer. So his epf will be running into a couple of millions or so...

What I'm trying to say here is that there is no fixed formula or financial advice that suits everyone... that even if we are gainfully employed with excess savings to invest into ut funds, we are still invididuals with diverse and different social backgrounds and financial means.

Even if we have the same take-home-pay and similar expenditures, there could be differences in our epf contributions, or working in a job that draws a pension; hence not every advices or ideas we read is of value to us.

Broadly speaking, investors in UT funds can be broken down into 3 segments or stages: the beginning stage (age 20-45), the mid stage (age 45-55) and the retired stage (age 55 and above). The ages are rough ball-park numbers, don't look at them too specifically.

All 3 stages would look at their investments differently, as their financial objectives and the length of their investments would be different. I have written more on this 3-stages in the Public Mutual thread, please read them there if you are still not bored by this post by now!

===========


Unthinkable! Who would dare to laff at our CFO?

===========

For the record, that post on bringing forward any planned purchases before the closing deadline was posted a few days after the closing date. Not "when the fund announced softclose" as claimed above.

It was purposely posted a few days after the closing date as it was a general viewpoint on closing funds without tying it to any specific fund; to avoid any misunderstandings that the fund or any other fund was recommended.

In short, that post was on the opnion that it is better to top-up when it is still possible to do so. Softclose does not means you cannot sell. You can top up first before it closes... later trim it back, if needed to do so.

Cheers.

===========

The future's so bright, i gotta wear shades.

MorningStar best YTD funds: http://my.morningstar.com/ap/FundSelect/re...ce&Type=YTDBest

1st 2 pages of all funds... YTD gains... all above +20%

The bull is still charging...

1st trading day of the 4th quarter...
HSI +2.25%
H-shares +3.62%



.... anyway, let's talk about reits in sg.... hahahahha...

Sorry, have no idea what you're talking about!

When the Greater China and Asia Pacific region is going great and all the fund managers seems to be hero/guru/master of the universe getting high returns on their funds, we don't have to look elsewhere for something more exotic... just continue the ride and buy the dips.

Ok... the link seemed to be not working as intended and will open a subset list of funds if you browsing the same site and set it to some specific fund company.

The list of funds I intended to show was a list of all funds available in Malaysia - about 850+ funds, and it is sorted on the YTD column with the highest YTD gains at the top.

All the funds in the 1st 2 pages are 20% and above.

AmSchroder European Equity Alpha with YTD gains of about 11% is in page 8.

Anyway, aside from looking solely into any fund, I think it is advisable to consider why we need to have it in our portfolio. Any reason to add it into the portfolio? Is it solely for the sake of "diversification"? How long do we intend to hold it?

If it is relatively short term, then consider the returns it is expected to give in the short term.

If the purchase is for the longer term, then consider what you think would be its longer term returns. If you think any of your existing funds could do just as good or even better than the new fund in the longer term, then the reason of having another fund to diversify away from the existing funds for a more stable shorter term returns holds no meaning.

It would be better to have more of the funds you have faith in and trusted... by buying more of them when they dips. Keeping in mind, this is for the longer term.

For the shorter term... well, chase performance and high returns loh. Pump in fast, pump out faster!

If I could hit a re-do button, it would be not getting into any physical properties for the long term as a passive income for retirement.

With properties, one need to save up for the 1st payment and take a loan. Taking any loan is a necessary expenditure in that there is interest incurred. And not to mention to whole gamut of legal fees, stamp duties and whatnot. Unit trust funds is the better choice.

The extra money left from the monthly salary, I believed, is better utilised and more efficient when it is put to work (in an investment) almost immediately; instead of waiting for the right investment opportunity as in looking and waiting for the right property to have.

There is simply too much work involve in getting passive income out of a physical property. Reits funds, dividend funds, or balanced funds on the other hand... just sit and the passive income will roll in by itself.

At the moment, extracting myself out is another batch of work to handle. So many things to do, so many people to meet.

It is so much different from dumping a UT fund - just a press a button on the keyboard, and its done.

As for having a business (to generate some passive income), can't comment too much without sounding silly as I don't think I have a buisness mind. Nevertheless, I don't think there is any lucrative business waiting for eveyone out there on the street.

The returns from the business could be slim and marginal. I believed, most of the time people open a business so that they can hired themselves. This way, in other words, the returns from the business can be considered very good when it includes the withdrawal as salaries even though the net profit is slim and marginal.

But I want to retire because I don't want to work. I don't want to work for any salary because my passive income from my UT funds and EPF would be enough.

(I hope it would be enough. Otherwise, cannot retire... work till I die. )

Do they really get an advantage by trading? I mean, if there is something extra to gain from switching here and there, then by all means we should be switching more frequently, and on a very regulaly basis.

Does it means that we are not only expecting but want the port manager to trade almost every day... since we are paying him AUM fees not to sit on his butt.

On the other hand, all the stats and theories established out of university-street (as opposed to wall street) points towards consistent returns are from consistently asset-allocated portfolios, with hardly any 'rebalancing' or at most, once a year..

(Note: the theory on rebalacing is that it should be from category of fund to another, like from bond to equity or equity to bond; not from one equity fund to another.)

(By rebalancing from one equtiy fund to another, it is moving from one better performing fund to another lesser performing fund - which is going against logic, as there is no valid reason to have more of the lesser performing fund.)

It reminded me of a bunch of college students talking among themselves; one of them claimed to have a 'winner's formula' in betting on the blackjack or roulette table, and asking others to chip it to fund a gambling trip to Genting.

Would you want to chip in? Or would you rather have the fun in making your own bet?

FD vs Bonds? Forget them if you still have the time and youth to take on risk.

If I am 60 and new to UT funds, I would consider putting money into EPF for the higher interest.

In the previous post, I should not have implied that if I can rewind time, I would do it differently... of course given the same circumstances, it is highly likely I would do the same thing again!

Given what we have today in terms of the number of UT funds available and the ease of online services, and what I knew about UT funds, property investment is out.

Flipping property is like making a business deal or a business project - it is only happening if it is open and available to you.

Like any lucraive business deals, they are not sitting by the roadside waiting for everyone and sundry to grab. One would have to have time and luck to be at the right time and the right place to grab the opportunity.

If you are not born lucky such that the golden opportunity will drop itself onto you, you will have to make the time, and spend more time in search of the right property to invest.

You will have to spend many weekends checking the right property to buy - just like checking out many funds to select the right one to have. Needless to say, I don't have to show which is easier to do without getting your butt off your chair and out of the house.

Also you will have to be fortunate to be living in a hot zone or nearby, and don't have to travel too far to check the location and its surrounding areas. While one can buy or sell any UT fund even when living in a very remote area like, Jeli or Muadzam Shah.

The property, a condo, I have was for passive income in the form of rentals. I have the money sitting there... so using leverage or making money by using other people's money is not in the picture. Just that I happened to be there at the right time at the right place, without too much work, and got an investment opportunity for the idle money.

Don't get me wrong... it is a good investment - the building is a good central location, and the unit is in good 'feng sui' location too ... good rental income and property appreciation.

(Both the building and the unit is nicely well located. When the unit is not nicely located, like facing the car park on a lower floor, you may get good rental and any property appreciation will be based on any possible higher rental.)

Yes, it is advisable in general to listen with a pitch of salt to any boast or brag that this or that investment is giving such-and-such profits.

Given that the returns from UT funds can be in a wide range, it can also be said that the returns of property investment or property flipping has a similar range too.

Given that NOT all of us investors in UT funds is keeping track of our purchases in an Excel file and getting the XIRR function correctly done, can one estimate accurately the effective rate of returns made by flipping properties?

And given that the investment scenery has changed since the last 10 or 15 years ago, and even if the returns from both type of investments can match each other.... I would not think of property when it is so much easier to have a portfolio of UT funds to generate a passive income.


===========


As for gold, one would have to be fabulously rich to indulge in it - like having liquid cash of at least 100 million or more.

Because it would only make sense to have 10% in gold, as one can't invest all the money into gold. 10% sounds right.

And if you only have 2 million or so, 10% is 200k. 200k in gold is neither here or there.

200k is too big an amount to have on some pieces of metal that gives no value until you sell it.

200k is too little an amount to be of any use when you really need to cash it in. That is the time when your other 90% is worthless.

Remember that movie, 2012 ?

200k will not get you aboard the ship.

https://www.bloomberg.com/news/articles/201...by-najib-budget

Southeast Asia's Worst Stock Market May Be Buoyed by Najib Budget

"The 2018 budget to be released on Oct. 27 is likely to include an increase in cash handouts and infrastructure spending that will filter through to consumption stocks, builders and construction material suppliers, said Rudie Chan, the chief investment officer who oversees 40 billion ringgit ($9.5 billion) at Eastspring Investments Bhd. in Kuala Lumpur."

“The budget is going to be expansionary, there’s no question about it,” said Chan at Eastspring, whose Malaysian small and midcap fund has returned an average 24 percent annually over the past five years to beat 90 percent of its peers.


"While Malaysia has received 9.5 billion ringgit in foreign investment since the start of January as its economy grew at the fastest pace since 2015, the FTSE Bursa Malaysia KLCI Index has only added 6.9 percent, lagging behind the 23 percent gain by the MSCI Asia Pacific Index."


You guys better top up the local funds and give support!

"The Bursa Malaysia Technology Index, the best performing industry gauge out of 10, has jumped 77 percent this year and closed at a 12-year high on Friday, driven by the global demand for electronic products that are fed into the global technology supply chain from the country."

Which fund has this index as its benchmark?

Below is copied from its prospectus of its 3 funds, dated July 2017.

InterPac Dana Safi (IDS) registered a total return of 13.54% as at 31 March 2017, against the benchmark,
FTSE Bursa Malaysia Emas Shariah Index (FBM Shariah) which registered a return of 2.50%.

InterPac Dynamic Equity Fund (IDEF) registered a total return of 12.44% against the benchmark FTSE Bursa
Malaysia KLCI (FBM KLCI) which registered a return of 1.31%.

I learned the power of compounding from my grandma. When I was a kid, I used to sit beside her at the mahjong table. And I learned how to count the winning hand, the points are a combinations of 4's and 'fun'.

"Fun" is double. If you have 3 funs, you double the total points by 3 doubles, as in 2 x 2 x 2 = 8 times.

3 funs is chup chup sui; with 5 or 6 funs, it gets serious as a winning hand with 5 or 6 funs can sweep the table.

4 funs is 2x2x2x2 = 16 times
5 funs is 2x2x2x2x2 = 32 times
6 funs is 2x2x2x2x2x2 = 64 times

Using the rule of 72, 9% compounded interest will double the initial sum every 8 years.

By delaying 6 years, the above colleague is missing out the last "fun". A huge difference.

=========

Using rule of 72,
5% is about 14.4 years to double the initial sum.
8% is about 9 years.

The difference in a few percentages is a huge difference too.

It can determine whether or not you can reach another "fun" and "sweep the table".

Lesson learned: Efficient usuage of money and not let it sit idle for too long. Take on more risk to get the extra percentages.

==========

Give your newborn child a UT gift of 10k, and hold it in trust till the child is 60, you will get to see compounding magic at work.

==========

To a previous post by yklooi, alternate solution is delaying the dividend withdrawal by 5 or 6 years and let the nest egg compound itself to a bigger size before beginning the withdrawal.

Wishing everyone Happy Deepavali Holiday.

Cheers... and yam seng.

And as usual, you shoot off mouth talk 3 talk 4 as if you know better.

It is 'ranking' something, which requires a bit more thinking from the participants.

If you want to be helpful and answer the survey, then do it by spending a bit more time on how to rank it.

Do you truly understand what I meant by "ranking"?

The survey question asked to rank them in order of relevant to you. If you think 2 or 3 of them are equally relevant to you, and can't decide, then think a bit deeper and make up your mind.

Here is how I would rank them.

When choosing unit trust fund to invest, which is most relevant (or important) to me:
(1 is the most relevant while 7 is the least relevant)

1. Fund return that can meet my investment goals, not necessary the highest return
2. High fund return (absolute & annualized)
3. Fund sales charge
4. Fund portfolio allocation (e.g. asset allocation, country allocation, etc.)
5. Fund volatility and Sharpe ratio (fund's fluctuation and excess return to risk)
6. Recommendation from friends, forum and online community and resources
7. Recommendation from unit trust agents

===========

This is what you said in your previous post:

"Either you adjust it or you won't have your data."

Bloody arrogant, don't you think?

Have anyone ever question why is there 'cut-off' date and ex-distribution' date? Why is one date more important than the other?

If you guys preached that the fund value is the same whether before or after distribution, and that distribution has no meaning... then why is it important to know the cut-off date or the ex-date?

Are you guys saying that because it takes time for the fund company or in this case of nominee accounts, the main accountholder which is FSM, to calculate the distributed units to you? So if you sell the fund before the distributed units are added, you will missed the extra units?

In other words, the fund company or the main accountholder will keep the distributed units and not reimbursed the extra units to you when they finally work out and calculated how many units you should get and entitled to?

If what I am saying is correct, then why can't they write and inform you of the extra units?

Let's say you have sold the fund fully, in other words, if there was 10,000 units in the fund and you sold the whole 10,000 units. It does not necessary means that you have closed the fund's account. The fund's account could still be there, just that the total number of units in that account is zero.

This means 2 things that the fund company or FSM can do if you have fully or partially sold your fund before the distributed units are added or updated into your account:

1. Add the units, and inform you of the added units.
2. Absorb the units.

Correct me if I'm wrong...

This post has been edited by j.passing.by: Oct 20 2017, 02:19 PM

Thank you for sharing your first-hand experince.

So, we can confirm that the extra units "pending" to be released to you will eventually be added into your account.

The only relevant matter for us to further question is then the length of time taken to distribute the extra units.


From what I observed from the industrial leader (Public Mutual), the distribution is only done at the end of the fund's financial year-end, and it takes them 1 day to work out the reinvested units and the fund's account will be updated immediately. You will see the reinvested units on the 2nd day of the month.

Anyway, I would not mind waiting another day to sell or switch-out... but waiting for days or weeks, when the fund has high volatility....

Also in some cases, when some funds seems to be declaring distributions out of the blue, one can be suspicious that the fund manager is pulling the fund out of equities and cashing out for those investors who have opted to have 'pay-out' distributions.

(There are 2 types of distribution option: pay-out or reinvested. FSM investors only have the later option.)

They are terminology just to cause more confusion, so this is the reason of the above FAQ.

Remove the terminology, you remove the confusions, you removed the questions.

Ex-date is Distribution Date. Whether you get any reinvested distribution units depends whether you buy the fund before or after the distribution date. Simple and straight forward.

And it also indirectly makes clear that there is no added value to be gained from distributions.

==============

Q: WILL I BE ENTITLED TO DIVIDEND PAYOUT IF I SELL THE FUND ON OR AFTER EX-DATE?
A: Yes.

From the pevious post, this question can be changed to:

Q: Will I be entitled to the re-invested units if I sell the fund after the distribution date when the reinvested units are still pending to be updated into my account?
A: Yes.

Yes, there is no reason to delay... it will only cause suspicious of wrongdoings or fund manipulation.

When distribution is declared out of the blue, then there must be some reason behind it, and the motive is most likely related to some market news or market outlook (which some would say market speculation).

How much to distribute can be decided earlier - maybe days or a couple of weeks before any financial year-end or term-end.

They have all the data at hand, how much is the total pay-out units, and how much of the distribution will be reinvested.

Then it is a matter of:
a) adjusting the nav price accordingly to the extra reinvested units,
b) the number of reinvested units to allot to each individual account. and
c) writing cheques or direct transfer to those who opted for pay-out.

C may take a bit of time longer than A and B, maybe a few more seconds on a very, very old IBM terminal. Or maybe a few more minutes for the computer operator to change tapes.

This post has been edited by j.passing.by: Oct 20 2017, 03:48 PM