Of those that commented, a few clients worried that the buys would be harmful if the market declined further. Those fears were addressed by pointing out that rebalancing is not performed as a speculative market-timing maneuver. It is a prudent action for a long-term investor who believes a recovery will come at some point in the future.

The more common comments during March and April were from clients who were wondering when the rebalancing would happen and included a sense of urgency to buy while stocks were down. The prevalence of this anxiety was a new phenomenon to us that we did not experience in prior nasty markets.

In addition to the messaging from us, we believe the nature of the Coronacrash supported the desire of these clients to buy. Most people can understand that an abrupt shutdown of businesses would be a catalyst for a sell off. Moreover, people can envision a point where we are past the problem. If one does not think things will ever improve, it is hard to be an equity buyer. It is not hard for most people to imagine a world in which we have better treatments, a vaccine, or simply are better able to adjust to the presence of the disease. By contrast, in 2008, most people had little understanding of what was happening or how conditions could improve.

A small number of clients did not panic but balked at rebalancing. This was largely a compromise to not lowering their equity allocations. They feared this time would be different and dreaded additional losses should equities drop further.

Despite the messaging, coaching and evidence that selling out of equities in the depths of a bear market is unwise, a few clients reduced their equities.

We also had one client, so excited to be a buyer while prices were down, he opted to adopt an aggressive rebalancing approach similar to what my business partner Mike Salmon and I outlined in our Journal of Financial Planning paper, “Analyzing the Effects of Aggressive Rebalancing During Bear Markets” (January 2020).   

In our paper, we illustrated a shift from a 50/50 stocks-to-bonds target allocation to a 60/40 allocation during prior bear markets. The larger the decline in equity prices, the more the shift enhanced returns and accelerated portfolio recovery. We did not endorse the concept of aggressive rebalancing as a standing policy because further research and analysis beyond our simple construct is warranted.

Our client was even more aggressive, shifting from a standing allocation of 55/45 to 100% equities. He did very well.

As I write this in June, looking at year-to-date returns for client portfolios that had 50%-60% in equities as a target allocation, the real-world effects of rebalancing are evident. One client that bailed out of stocks completely before the bottom and has remained in cash is down almost 20%. Clients that did not panic but vetoed our rebalancing are down a little less than 10%.

By contrast, those that followed our rebalancing policies were buying in March or April and are typically showing losses in low single digits. Our aggressive rebalancer is up about 7% for the year.