Why Korea's Pension Fund Didn't Sell During the Bull Run — And What Rebalancing Really Means
Everyone knows you should trim stocks during a bull market. But even Korea's massive national pension fund missed the window. Here's what rebalancing actually is — and why it's so hard to do in practice.
What Is Rebalancing?
Rebalancing means returning your portfolio to its target allocation. Say you started with 60% stocks and 40% bonds. After a strong bull market, your stock portion might have grown to 80%. Rebalancing means selling some stocks and buying bonds to get back to 60:40.
The underlying logic is simple: sell what has become expensive, buy what has become cheap. That means selling stocks during a rally and buying more when they fall. Simple in theory, extremely hard in practice.
Why Did Korea's National Pension Fund Miss the Window?
The National Pension Service manages over 1,000 trillion Korean won — making it one of the world's three largest pension funds, and the retirement savings of millions of Koreans. When its stock allocation drifts above target, it's supposed to sell. But selling during a bull market invites public backlash: 'Why are you selling winning stocks and reducing our returns?'
There's also a market impact problem. When a fund this size starts selling, it can move prices against itself. The fear of depressing the very stocks it needs to sell creates hesitation. Combined with political pressure, the rebalancing gets delayed — and eventually the peak passes.
Why Does This Matter for Individual Investors?
If a trillion-dollar institution with professional managers and explicit mandates can't rebalance on time, what does that say for individual investors? The answer is honest: it's even harder for us. The psychological force of FOMO — fear of missing out on further gains — is powerful and irrational.
That's why many experts recommend rule-based investing over discretionary decisions. For example: 'If my stock allocation exceeds my target by more than 5 percentage points, I rebalance — automatically, no exceptions.' Pre-set rules remove emotion from the equation.
How Often Should You Rebalance?
There's no single right answer, but two common approaches work well. The first is calendar-based: rebalance every six months or once a year on a fixed date. The second is threshold-based: rebalance whenever your allocation drifts more than 5–10 percentage points from your target.
The Core Lesson from the Experts
A Seoul National University economics professor quoted in the report said: 'The pension fund should operate as an independent institution. Letting public opinion drive portfolio decisions is a mistake.' That principle applies equally to individual investors.
Selling when stocks are rising feels wrong. Buying when they're falling feels terrifying. Rebalancing forces you to do both. Even the world's third-largest pension fund couldn't pull it off perfectly — so don't be too hard on yourself. The lesson is what matters: have a rule, stick to it, and don't let the crowd decide when you act.