While I understand the reasoning for this sort of thing, and it resonates to some degree, it seems to beg at least two question: (1) how to decrease stocks, and (2) down relative to what?

You addressed question 1, but the answer seems to indicate a less than completely thought out process to get back in. Perhaps that is simply due to the limitations of a short post.

As to question two: Could be down relative to the recent peak, although false rallies and such make that problematic; true peaks are only known in hindsight (same of course on the other side for bottoms). Super peaks also pose a challenge. Given a huge bubble like the late great tech induced bubble in the US markets, 10% down from the peak, or even 20% down from the peak does not necessarily denote a good buying opportunity.

Seems to me down relative to the expected long term mean return would be better, if only there really were a long term expected (in a probabilistic sense) mean, and only if we knew what that value was.

Another related approach would be to do something similar based on valuations; hold more when P/E was low and less when P/E is high. Similar caveats would of course apply as I mentioned above.

Unfortunately for all of this, if it were really this easy, wouldn't all the pros already be doing this and beating the pants off all the amateur buy and hold investors? Only they don't.

Rod

I've been thinking about this for a while and I come to the conclusion that I picked 60/40 quite arbitrarily. Should it be 65/35? 70/30? I think I can comfortably live with any of those. 85/15? Not now, but if stocks go 50%+ off peak, I'll be OK with that too. At no time do I have more in stocks than what Vanguard recommends for my age. So I think a variation from an arbitrarily picked number will be OK especially I'm buying more when the market is down.

This is going to be done on a globally diversified portfolio. So I don't think it will be like your growth fund in 2000.

I am reminded again of the mantra, "Buy low, sell high."

Most people seem to "Sell low, buy high," based on emotional reaction to market price swings.

Prices are low now so I'm buying. Bear market == Buying Opportunity.

The only caveat is that if I'm already in retirement and have no choice but to withdraw from my retirement fund, then a market downturn is not pleasant. I can vary the amount I withdraw or vary which asset classes I withdraw from, but I probably still have to to withdraw some amount after a sustained bear market, unless I decide to go back into the workforce to get additional income. That would suck.

Do you have a time limit for your overbalancing dispensation? What if the bear market takes 5 years going up and down to eventually wind down to -60% from the peak before it starts to go back up and then takes another 5 years to get back above water? Do you really want to "overbalance" for 10 years?

Given the possibility of a protracted down turn, doesn't overbalancing defeat the purpose of implementing an asset allocation plan in the first place?

Have there been any studies to show this is potentially better than just sticking with your 60/40?

I can't help but think of the growth fund I owned in 2000 that still has never recovered. Perish the though of ever overbalancing that nightmare. Good money after bad money down the drain for 8 years!