Rebalancing in a Bear Market
Filed under: Investing | Keywords: rebalancing
The stock market crash in 2008 provides a good case study for rebalancing. If you are not familiar, rebalancing means selling some assets to buy other assets and putting your asset allocation back to what you originally wanted. Rebalancing is good for maintaining a portfolio because you are buying low and selling high.
For 2008, rebalancing means buying stocks and selling bonds. At the onset of the bear market in July 2008, I put together a plan for overbalancing, which buys more stocks than what regular rebalancing would do. "If rebalancing is good, overbalancing must be better." I reasoned.
My plan laid out in the previous post Embrace the Bear Market with Overbalancing was:
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