The Rebalancing Method That Lets You Profit From Volatility Without Timing Markets

Markets climbed modestly as Big Tech earnings anticipation offset lingering trade and policy uncertainty

The quick scan: US stocks posted solid gains Monday to start a critical week packed with megacap tech earnings and Federal Reserve policy decisions. All three major indices advanced as investors positioned ahead of results from Apple, Meta, Microsoft, and Tesla, though trade tensions and government shutdown risks kept sentiment cautious. Gold continued its record-breaking rally above $5,100 as safe-haven demand persisted.

S&P 500: +0.50% to 6,950.23 – technology and communication services sectors led gains, though consumer discretionary lagged
Dow Jones: +0.64%to 49,412.40 – industrial stocks climbed 314 points with Cisco Systems (+2.5%), Apple (+2.1%), and Travelers (+1.9%) pacing advances while UnitedHealth (-1.9%) weighed
NASDAQ: +0.43% to 23,601.36 – tech stocks showed relative strength with Apple up 3% ahead of quarterly results, Meta gaining 2.1%, and Microsoft rising 0.9%, though Tesla dropped 3.1%

What's driving it: Earnings anticipation dominated as JPMorgan raised Apple's price target, sending the stock higher into results. Nvidia announced an additional $2 billion investment in CoreWeave, adding 0.4%. Uncertainty swirled around multiple fronts: speculation that Trump could name a new Fed Chair as early as this week, Democrats threatening to block a $1.2 trillion funding bill over Homeland Security spending, and Trump reiterating threats of 100% tariffs on Canadian imports tied to a China deal. USA Rare Earth surged over 21% after the Department of Commerce took an equity stake. Gold's record climb above $5,100 reflected elevated geopolitical and fiscal anxiety despite broadly supportive earnings.

Bottom line: Monday's advance set the stage for a week that could reshape market narratives – Fed policy clarity, megacap earnings reveals, potential Fed Chair drama, and shutdown threats all converge. For L-Plate Retirees, this cocktail of catalysts reminds us why systematic approaches like rebalancing matter more than trying to predict which headline will dominate by week's end.

How to Take Profits and Re-Enter Markets Without Killing Compounding

The scoop: There's a concept in investing called Shannon's Demon – a mathematical principle showing how returns can be "created out of thin air" through volatility. It sounds impossible, even supernatural. But it's pure mathematics, and it works through a process called rebalancing.

In the latest lessons from Singapore's 1M65 movement crash buying series, founder Mr Loo tackled what he calls "the money-making art of rebalancing" – a scientifically proven method of profit-taking and market re-entry that preserves the power of compounding.

Most investors understand the concept vaguely: rebalance your portfolio periodically to maintain target allocations. But few actually do it systematically. Fewer still understand the trigger points that maximize returns or the mechanical frameworks that remove emotion from execution.

The lessons from Mr Loo's series (which he typically deletes after several days due to regulatory sensitivity) lay out exactly when and how to rebalance – not as opinion, but as scientific strategy that's been tested across multiple market cycles.

Your age is your bond ratio

The foundation starts with a simple rule: your age equals your bond allocation percentage in investable wealth.

At 53, Mr Loo maintains roughly a 50/50 split between bonds and equities. Someone at 30 should hold 30% bonds and 70% equities. At 70, the ratio flips to 70% bonds and 30% equities.

This isn't arbitrary. It's a widely accepted financial principle reflecting how risk tolerance and time horizon shift with age. Younger investors can weather volatility because decades remain for recovery. Older investors need stability because drawdowns have steeper consequences with less runway to rebuild.

But the definitions matter. "Bonds" doesn't mean just government bonds or corporate debt. It means anything with stable value – CPF accounts, fixed deposits, money market funds, Treasury bills. The key characteristic is low volatility and predictable returns.

"Equities" means anything with growth potential but higher volatility – stocks, broad index funds, even investment property (not owner-occupied homes). These assets fluctuate significantly but offer compounding potential over time.

Once this ratio is established based on age, the actual work of rebalancing begins.

How rebalancing harvests volatility for profit

Consider an investor with $1 million in investable capital allocated 50/50: $500,000 in stocks, $500,000 in bonds.

A bull run pushes stocks to $600,000 while bonds remain at $500,000 (or potentially decline to $400,000 as capital flows shift). The portfolio now sits at 60/40 or even higher – overweighted in equities.

Without rebalancing, most investors do nothing. They hold, watching the ratio drift further from target with each market move. When the eventual correction comes, losses are concentrated in the overweighted equity position.

With rebalancing, the investor sells $100,000 of stocks and buys $100,000 of bonds (or $50,000 depending on bond performance), restoring the 50/50 allocation. This locks in profit from the bull run, shifting gains into stable assets.

When the market crashes 20%, stocks drop to $400,000 while bonds hold at $500,000. The portfolio now sits at 40/60 – underweighted in equities. The rebalancer sells $50,000 of bonds and buys $50,000 of stocks, restoring 50/50 again.

This is the mechanical beauty of rebalancing: it forces profit-taking during euphoria and buying during panic, all without requiring market predictions or emotional fortitude. The trigger is mathematical, not psychological.

The two trigger methods

Mr Loo outlined two distinct approaches for determining when to rebalance, each with trade-offs.

The ratio method monitors allocation continuously and triggers rebalancing when deviation exceeds a set threshold – typically 10% from target. A 50/50 portfolio rebalances at 60/40 or 40/60. Some investors use 5% thresholds for tighter control; others allow 15-20% for fewer transactions.

This method maximizes returns because it responds immediately to volatility. Sharp market movements – the exact conditions where rebalancing profits most – trigger action at optimal moments. Mr Loo calls this "the best method for making money" based on years of practice.

The challenge is monitoring. Without automation, ratio-based rebalancing requires regular calculation of portfolio values and allocations. Mr Loo's son Ben built automated Google Sheets using Yahoo Finance data feeds to track ratios and send email alerts when thresholds are hit.

For most investors, this level of monitoring feels burdensome. Which brings the second method.

The time-based approach ignores current ratios entirely. At predetermined intervals – monthly, quarterly, semi-annually, or annually – the investor rebalances back to target regardless of current allocation. End of month arrives, rebalance. End of quarter, rebalance. No monitoring, no calculations between intervals.

This method sacrifices some profit potential – sharp corrections between rebalancing dates might reverse before action gets taken. But it's dramatically easier to execute. Set a calendar reminder. When it triggers, run the numbers and rebalance. Done.

Magic Formula investing uses time-based rebalancing – annual portfolio turnover regardless of individual stock performance. It works. It's just not optimal compared to ratio-triggered responses.

Why rebalancing works when emotions fail

The psychological brilliance of rebalancing is how it removes decision-making at exactly the moments when emotions run hottest.

During bull runs, greed whispers to hold winners indefinitely. Why sell when everything's rising? Rebalancing forces profit-taking at predetermined thresholds, locking in gains before inevitable corrections.

During crashes, fear screams to sell everything and hide in cash. Rebalancing forces buying at predetermined thresholds, deploying capital when assets are discounted.

Neither action requires courage or conviction about market direction. Just mathematics. The ratio hit the threshold. Execute the rebalance. Emotions become irrelevant.

Mr Loo emphasizes this repeatedly: "The minute you disrespect volatility is where you lose money." Most investors think they can handle market swings until they're in the middle of one, watching portfolios bleed while headlines scream catastrophe.

Rebalancing acknowledges that volatility is inevitable and dangerous – but harvestable. Rather than trying to predict or avoid it, the strategy systematically captures profit from price swings in both directions.

Practical implementation for CPF-heavy investors

Many Singaporean retirees face a specific challenge: significant wealth tied up in CPF accounts with restrictions on accessibility. How does rebalancing work when a large portion of "bonds" can't be easily traded?

Mr Loo's approach focuses on the margins. Core CPF holdings – particularly Special Account balances earning 4% – remain largely untouched. These anchor the bond allocation.

Rebalancing happens at the fringes using more liquid assets. Cash holdings in brokerage accounts. Ordinary Account balances accessible through voluntary housing refunds. Money market funds. These flexible positions adjust to maintain overall portfolio balance.

The calculation includes all investable assets – CPF, cash, brokerage holdings – but execution concentrates on liquid portions. This prevents the delays and complications of moving CPF funds while still maintaining target allocations mathematically.

For bonds, Mr Loo considers CPF (both OA and SA), fixed deposits, money market funds, and stable-value instruments. For equities, primarily broad index funds like S&P 500, NASDAQ, and MSCI World Index – what he calls "living portfolios" that actively refresh holdings versus "dead portfolios" like STI that rarely rebalance constituents.

The connection to crash buying

Rebalancing isn't separate from crash buying strategy – it's the critical next step.

Crash buying deploys dry powder during market collapses using either spread-out methods (buying more as crashes deepen) or signal-based methods (waiting for clear bottom indicators). Both approaches work. Both require preparation and emotional discipline.

But what happens after the crash ends and markets recover? Without rebalancing, those bargain purchases simply ride back up with no profit crystallization. Gains exist on paper but remain at risk of the next downturn.

Rebalancing systematically harvests those recovery gains. As crashed positions recover to overweight portfolio allocations, rebalancing forces profit-taking back into bonds. Those profits sit protected in stable assets, ready for deployment in the next crash.

This creates a virtuous cycle: crash, buy aggressively, recover, rebalance profits into bonds, next crash, buy again with both original dry powder and crystallized profits from previous cycle.

Over multiple market cycles, this compounds dramatically faster than buy-and-hold approaches that never crystallize gains or dollar-cost averaging that deploys capital steadily regardless of valuation.

Why most investors still won't do it

Mr Loo's assessment is blunt: rebalancing is scientifically proven to work, widely recommended by financial experts, and almost universally ignored in practice.

Why? Several reasons.

First, it requires selling winners – psychologically painful even when mathematically correct. That stock that doubled feels like it might triple. Selling seems like giving up on future gains.

Second, it demands buying losers – equally painful when those positions might drop further. That crashed index fund could crash more. Buying feels like catching falling knives.

Third, successful rebalancing over decades requires consistency through multiple emotional cycles. Missing even a few rebalancing opportunities during critical volatility periods significantly degrades returns.

Fourth, it conflicts with popular narratives. "Hold forever." "Time in the market beats timing the market." "Never sell great companies." These mantras feel simpler than systematic rebalancing discipline.

But the math doesn't lie. Tested across market cycles, rebalancing outperforms pure buy-and-hold, dollar-cost averaging, and certainly panic-driven emotional trading. Not by predicting markets. By harvesting volatility systematically.

The formula for wealth

Mr Loo's final point cuts through complexity: "Whatever you do, you must have a strategy."

Buying because something's rising quickly without a plan for when to sell creates paralysis during inevitable reversals. Selling during crashes without rules for re-entry means missing recoveries.

Rebalancing provides that strategy. It's mechanical. It's testable. It works across market conditions because it doesn't depend on conditions – only on mathematics.

For L-Plate Retirees in their 50s and 60s, this matters enormously. Time remaining to recover from mistakes is shrinking. Emotional volatility around retirement security runs high. Systematic approaches that remove emotion while capturing market gains become not just helpful but essential.

The crash buying series teaches preparation, execution during crises, and systematic profit harvesting through rebalancing. Together, these create what Mr Loo calls "the most profitable investment strategy of all mainstream approaches."

Not because it's complex. Because it's systematic, emotionless, and harvests what markets inevitably provide: volatility.

Actionable takeaways for L-Plate Retirees:

• Calculate current portfolio allocation immediately using age-based targets: List all investable assets – CPF (OA and SA), brokerage accounts, fixed deposits, money market funds. Categorize each as "bond" (stable value) or "equity" (volatile growth). Calculate percentages. Compare to age-based target. The gap reveals whether rebalancing is needed now.

• Choose either ratio-based or time-based rebalancing and commit to it: Ratio-based (rebalance when allocation drifts 10% from target) maximizes returns but requires monitoring. Time-based (rebalance quarterly or annually regardless of allocation) sacrifices some profit but guarantees execution. Pick one. Calendar the next rebalancing date or set up monitoring.

• Use liquid assets for rebalancing execution while including illiquid assets in calculations: CPF SA and RA provide bond allocation stability but can't easily rebalance. Use OA (via voluntary housing refunds), cash positions, and money market funds for actual buying and selling. This maintains mathematical balance without fighting CPF restrictions.

• Focus rebalancing at portfolio margins, not core holdings: The mathematical adjustment typically involves 10% of total portfolio – not wholesale shifts. Core S&P 500 holdings and core CPF balances largely stay put. Only marginal positions adjust, making execution simpler than it initially appears.

• Combine rebalancing with crash buying for compounding effect: Crash buying deploys dry powder during market collapses. Rebalancing harvests recovery gains back into dry powder for next crash. Over multiple cycles, this creates exponential compounding that pure buy-and-hold cannot match. Each cycle builds on previous crystallized profits.

• Automate monitoring if choosing ratio-based rebalancing: Google Sheets can pull live portfolio values using finance functions connected to Yahoo Finance or Google Finance. Set conditional formatting to highlight when allocations exceed thresholds. This removes manual calculation burden while maintaining ratio-method advantages.

Your Turn:
Looking at current portfolio allocation honestly, what percentage sits in bonds (fixed deposits, stable value) versus equities (index funds, stocks) – and how does that compare to age-based targets?
If markets rallied another 20% tomorrow, would the instinct be to hold everything or systematically take profits into bonds – and what does that reveal about whether a rebalancing framework exists?
Thinking through the past decade of investing, how much profit got crystallized versus remaining purely on paper through full market cycles – and what difference would systematic rebalancing have made to actual wealth?

👉 Hit reply and share your thoughts – your answers could inspire fellow readers in future issues.

If Mr Loo's rebalancing framework from the 1M65 crash buying series clarified how to systematically harvest market volatility for profit, consider supporting L-PLate Retiree on Ko-fi. Contributions help keep these evidence-based investing deep-dives coming – translating complex strategies from experts like Mr Loo into actionable frameworks for everyday investors. Every coffee matters.

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