Author Topic: Rebalancing 401k Advice  (Read 2262 times)

RangerOne

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Rebalancing 401k Advice
« on: February 08, 2016, 12:36:47 PM »
Hi all, I am looking to first see if anyone knows of some decent reading resources to explain some simple methods for re-balance on an annual basis for retirement accounts. I have a mix of Domestic, international stock and US bonds at about a 55 35 10 split now.

Last year for re-balancing I targeted the ratios of the Vanguard 2050 fund, making sure that my equities were weighted similarly to the US total stock index.

Also is there a good tool for fidelity accounts to check which allocations of each fund will lead to the closest match to the US total stock index?

Uturn

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Re: Rebalancing 401k Advice
« Reply #1 on: February 08, 2016, 01:17:42 PM »
posting to follow, since I have no idea what I'm doing.  I'm wondering about my betterment account.  I just put it 70/30 stocks/bonds.  Not sure if this is wise or not, but probably wiser than under my mattress

PhysicianOnFIRE

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Re: Rebalancing 401k Advice
« Reply #2 on: February 08, 2016, 01:22:14 PM »
posting to follow, since I have no idea what I'm doing.  I'm wondering about my betterment account.  I just put it 70/30 stocks/bonds.  Not sure if this is wise or not, but probably wiser than under my mattress

I haven't used Betterment, but I'm pretty sure they rebalance for you.

PhysicianOnFIRE

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Re: Rebalancing 401k Advice
« Reply #3 on: February 08, 2016, 01:25:30 PM »
Hi all, I am looking to first see if anyone knows of some decent reading resources to explain some simple methods for re-balance on an annual basis for retirement accounts. I have a mix of Domestic, international stock and US bonds at about a 55 35 10 split now.

Last year for re-balancing I targeted the ratios of the Vanguard 2050 fund, making sure that my equities were weighted similarly to the US total stock index.

Also is there a good tool for fidelity accounts to check which allocations of each fund will lead to the closest match to the US total stock index?

Use an excel file (or free spreadsheet program of your choice) to track your holdings.  Update as often as you want to rebalance. 

Here are a couple good reads on the subject:

Bogleheads https://www.bogleheads.org/wiki/Rebalancing
WCI http://whitecoatinvestor.com/rebalancing-the-525-rule/

MustacheAndaHalf

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Re: Rebalancing 401k Advice
« Reply #4 on: February 09, 2016, 11:53:47 AM »
Larry Swedroe bases his writing on academic papers and long time frames of stock data, so I'd suggest:
"The Only Guide You'll Ever Need for the Right Financial Plan"
http://www.amazon.com/Only-Guide-Youll-Right-Financial/dp/1576603660
(Note you can buy a used copy for $7 with s&h, or many libraries have a copy)

I like other books of his better, but that one is more complete for what you're asking.  It ultimately becomes your decision on two points:
1. appropriate bond percentage:  You need to know when you'll retire.  You can pick a retirement percentage as a target (25-50%?), and then move towards that percentage the closer you get to retirement.  You're probably looking at 1-3% more bonds each year, depending on your retirement date.
2. US vs international:  Anywhere in 20-40% is conventional.  You would pick 20% if you're not that comfortable with international, but want the diversification benefit.  There's always a chance diversification won't help you, so the more comfortable you are with that the closer you might go to 40%.

Uturn

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Re: Rebalancing 401k Advice
« Reply #5 on: February 09, 2016, 12:36:01 PM »
I understand now.  rebalance holdings to line up with your stock/bond ratio, not necessarily reevaluate the stock/bond ratio. 

RangerOne

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Re: Rebalancing 401k Advice
« Reply #6 on: February 09, 2016, 02:04:23 PM »
Thanks I'll definitely check that book out.