Author Topic: "How To" Rebalance  (Read 1407 times)


  • Bristles
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"How To" Rebalance
« on: August 14, 2017, 02:38:47 PM »
Is there a "how to" on rebalancing?
I'm realizing my asset allocation is out of whack, and I'm wanting to rebalance.
But really, I think it makes more sense in my situation to just start buying more of the thing I need (bonds, and potentially alternatives and potentially more international exposure), as opposed to instantly selling stuff I don't need (US Stocks). I'd like to be at 80/20 I guess (not sure I've really nailed that down yet).

First, can anyone advise on why it would make sense to do it one way or the other?
Method 1:Sell overweighted asset and buy underweighted asset vs.
Method 2: Buy Underweighted asset (and maybe 'turn off' automatic investments into Overweighted asset), until things straighten out.

Method 2 seems simpler to me, if you have patience I guess? Simplicity is KEY to me going forward.

Does anyone have a spreadsheet they use to go about figuring this out?

$98,500 Portfolio
80% US Stocks
10.5% Intl Stocks
2% US Bonds
4% Cash
3.4% Alternatives
1% Intl Stocks

Traditional 401k (2 of them, haven't rolled over prior employer one yet): $51,250 total
$29k of which is in Vanguard Target Retirement 2055
$22k of which is in an SP500 fund
72% in US Stocks
20% in Intl Stocks
3.6% in US Bonds
1.9% in Intl Bonds
2% in "Alternatives"

Roth IRA: $21,730 total, VTSAX
94% US Stocks
.8% Intl Stocks
5.4% "Alternatives"

Taxable Brokerage account: $21,625 total, VTSAX
90% US Stocks
.8% Intl Stocks
5.2% Alternatives
4% cash
(not sure why these percentages are not the same as the VTSAX I own in my Roth IRA...all numbers from PersonalCapital)

Traditional IRA: $2,500 total. Just getting this started this year when I bailed on the idea of a Roth IRA...I think traditional makes more sense for me. All cash, thinking of using this to buy some bonds. That would make sense right, since I wouldn't be taxed on the income from the bonds now right?

Payflex HSA: $1,500. Sitting on this in cash, as I'm not sure how my asset allocation in my HSA should play into my overrall Asset Allocation. I have access to a Vanguard 500 Index Fund Admiral. I guess I could use this to buy some bonds too.

Employee Stock Purchase Plan: Currently sending $250 a month to this for a max of $6k by mid next year. At which point we will get to buy our company's stock at 15% discount. Our stock is largely correlated to the performance of the overall market I would think, as it's a mid-size asset management company. So I consider this S&P500-ish, but really it would be a single-stock. I don't own any single stocks (until this happens next year).


  • Senior Mustachian
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Re: "How To" Rebalance
« Reply #1 on: August 14, 2017, 02:47:29 PM »
The approach you take doesn't really matter(other than the time it takes to rebalance) the cumulative effect is the same.  It will become impossible to buy enough to rebalance your portfolio as your invested assets get larger though.


  • Walrus Stache
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Re: "How To" Rebalance
« Reply #2 on: August 14, 2017, 03:15:18 PM »
The potential disadvantage to Method 1 is that you might owe capital gains taxes if you sell stuff in your taxable account. This is a non-factor in retirement accounts though, so if your rebalancing goals can be accomplished in those alone you can get things into the right balance a bit quicker that way than if you wait for enough new money to invest (Method 2).


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Re: "How To" Rebalance
« Reply #3 on: August 16, 2017, 02:47:03 PM »
you can use either method, but you should determine which you will use first, instead of using whichever 'seems convenient' for you at the time (post-hoc).  If you choose Method 1 make sure you define the time period you will re-balance in advance.

why?  human nature being what it is, your opinions on what you "should" do will shift based on how your investments are doing. People are loathe to sell assets that have recently tanked, and are also weary of buying assets that have been doing poorly for some time.  This bias could interfere with either method.

Its certainly easier to use Method 1 (selling assets to rebalance).  It doesn't require having a lot of excess cash to invest each month and you don't need to check every month to see which part of your AA you need to contribute to.  As seattlecyclone indicated, there may be tax implications for taxable accounts.

Method 2 can be more gradual, which in itself can be a handicap if you spend several months getting your AA back to where it 'should' be following a large change in the markets.  If you can invest $1000/mo and your AA is for a 60/40 stock/bond split and you have $200k invested and the market drops 30%, good luck getting your AA back into line with any amount of speed.  With such large changes you basically unable to rebalance using this method.  You also can't use Method 2 when your cash-flow is neutral or negative.