Author Topic: question about rebalancing portfolio  (Read 2131 times)

strider3700

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question about rebalancing portfolio
« on: February 16, 2013, 01:51:01 AM »
When I first put decided what I wanted my portfolio to look like I did it with simple percentages,
In my case  70% equities, 30% bonds

next I decided to diversify those as much as was possible within my list of commission free ETF's.  so that became

equities 20% cdn, 20% US, 20% international, 10% specific sectors (agriculture and cdn financials)
bonds 15% government, 15% corporate

to meet this balance I ended up with with 2 etf's to cover the TSX for the canadian 75% and 25%, and 1 for each of the other areas.

Now since I'm actively purchasing small amounts every week I've been going off of the value at that time  and doing my best to keep them all balanced to their expected percentages by purchasing those that are lagging and ignoring those that ahead.     

Most things I've read about rebalancing the portfolio involves sell the highs to buy the lows  but at this point I'm not seeing why this would be necessary. I will have to pay a commission on sales but purchases are free. So If I can stay balanced this way  it's all good correct?

  Perhaps it's because at this point my weekly purchases are a large percentage of the total investment (just under 6% this week) and this method will stop working as I get more invested?     

Karl

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Re: question about rebalancing portfolio
« Reply #1 on: February 16, 2013, 05:01:33 AM »
Strider 3700,

The traditional guidance, assuming as you surmised larger balances, is to rebalance every 12 - 18 months and/or when your asset allocation goes too far off your "glide path" (usually 5 - 10% removed from your current allocation).  For most people, this means selling "winning" funds and purchasing "losing" funds.  However, if you can rebalance using your new contributions, that certainly helps as well.  Several sources (e.g., Merriman on an older podcast) have argued in favor of using new money contributions for rebalancing since many people find it, psychologically, less painful than selling funds that currently have substantial gains in value.

It sounds like you have an excellent start to your investing career; keep it up!

Karl

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Re: question about rebalancing portfolio
« Reply #2 on: February 16, 2013, 06:14:42 AM »
What you're doing now is just what the experts advise as long as you can.  Once your portfolio gets to a significant size then actual sell/buy rebalancing will become necessary sometimes, but for now buying to get back to your allocation is the best way.