Author Topic: Rebalancing/allocation... anyone do it by share # instead of share $?  (Read 2308 times)

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I've been thinking about this and wanted other people's take on this. But instead of rebalancing by the share price, does anyone rebalance to keep the number of shares at the right percent?

I'm talking about like 60% VTI, 20% VXUS, 20% BLV (what I use).  I'll make up share prices for easy math and to get the idea across. So on a portfolio of 10,000 "total" shares, I would have 6,000 VTI, 2000 VXUS and 2000 BLV. The current portfolio value could go up and down but because I look at shares and not price points, does it make sense that I rebalance by the price? IE: the value of the VTI portion is $6000 and goes up to $8000 so I need to sell of $1000 and give $500 to both VXUS and BLV? Even if the number of shares didn't change in the mean time because I haven't bought/sold anything. But if after a year of investing more money and reinvestments, my bond shares outgrew my stock shares, I could sell like 1000 shares then put 600 shares into VTI and 400 shares into VXUS (or as close to what the price limit would allow).

I'm thinking to look at my allocation based on % shares because I know that for X dividends, I would need Y shares... do I need to look at the $ value of Y shares? Or is the dividend proportional to the share price? I thought it was kind of like bonds too, in that the company would pay say 50 cents per share no matter if the share was $5 or $10. I mean I know that a increased dividend is reflected in the share price, but if I was looking only for the monthly payments, does it really matter what the price is if I know what the dividend for each share is and calculated how many shares I would need?

I'm not trying to get into a dividend vs growth discussion, just wondering if I could just look at share numbers for figuring the portfolio allocations.

I haven't been investing long enough to need to "rebalance" :( I need more money to invest lol, give me 15-20 years :( so I'm just thinking of future strategies for when I do. So far my rebalancing is just putting in more money into the part that isn't aligned right.
« Last Edit: May 17, 2015, 09:29:12 PM by eyem »

MDM

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does anyone rebalance to keep the number of shares at the right percent?
In short, "no".

For example, how would you treat 1 share of Berkshire Hathaway A vs. 1 share of some random penny stock?

It would be a little better with index funds as in your example, but...no.

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does anyone rebalance to keep the number of shares at the right percent?
In short, "no".

For example, how would you treat 1 share of Berkshire Hathaway A vs. 1 share of some random penny stock?

It would be a little better with index funds as in your example, but...no.

the same way... I forget which index, but doesn't one of them try to buy the same number of shares of companies? I mean without regard to share price. Like have 500 shares of each company in the index.
« Last Edit: May 17, 2015, 10:02:03 PM by eyem »

MDM

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does anyone rebalance to keep the number of shares at the right percent?
In short, "no".

For example, how would you treat 1 share of Berkshire Hathaway A vs. 1 share of some random penny stock?

It would be a little better with index funds as in your example, but...no.

the same way... I forget which index, but doesn't one of them try to buy the same number of shares of companies? I mean without regard to share price. Like have 500 shares of each company in the index.
Although the short answer is no, a longer answer to "Does anyone...?" is "yes, but not many."  E.g., see http://en.wikipedia.org/wiki/Stock_market_index#Weighting and http://www.spindices.com/documents/education/practice-essentials-equal-weight.pdf.

See also http://www.vanguard.com/bogle_site/lib/sp19970401.html, including this quote:
Quote
The basic ideas go back a few years earlier. In 19691971, Wells Fargo Bank had worked from academic models to develop the principles and techniques leading to index investing. John A. McQuown and William L. Fouse pioneered the effort, which led to the construction of a $6 million index account for the pension fund of Samsonite Corporation. With a strategy based on an equal-weighted index of New York Stock Exchange equities, its execution was described as "a nightmare." The strategy was abandoned in 1976, replaced with a market-weighted strategy using the Standard & Poor's 500 Composite Stock Price Index.

forummm

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does anyone rebalance to keep the number of shares at the right percent?
In short, "no".

For example, how would you treat 1 share of Berkshire Hathaway A vs. 1 share of some random penny stock?

It would be a little better with index funds as in your example, but...no.

the same way... I forget which index, but doesn't one of them try to buy the same number of shares of companies? I mean without regard to share price. Like have 500 shares of each company in the index.

I don't know if any index that does this, and I would not buy this index. It makes no financial sense. There is no meaningful relationship between the number of shares you own and the value of those shares. There is no meaningful relationship between the share price of company A and company B. Why would there be? Does Coke as a whole company get 50% less valuable when they have a share split? Did Apple as a whole company get 7 times less valuable to own when they had their recent 7:1 split? The key indicator is the number of dollars the collection shares are worth, since this is what the market is saying about the value of that portion of the company.