For those of you who do period rebalancing, do you rebalance back to your target allocation each time, or do you set a (relatively small) range around your target allocations and then only rebalance when, at a period review, you are outside the range -- and then rebalance to the target?
-- Rich Carreiro snipped-for-privacy@rlcarr.com
Only when outside the range.
I do a rebalance pre-emptively when I expect to go out of balance. I don't wait for the big new year distributions, but beforehand I usually do some trades for tax issues and adjust the balance in those trades I am doing anyway. No extra commissions.
Kind of exciting to put yourself out of balance, then often ride sort of a santa claus or january reinvestment rally. You don't have to put yourself at the mercy of buying at higher prices with the reinvestment crowd, but magically fall into balance with the distributions.
I don't believe in the conventional wisdom of auto reinvestment in same securities because it tends to push you further out of balance, among other drawbacks.
A smilar thing can be done with most any trades you make at any time - just tweak the number of shares bought or sold to aim yourself more toward an ideal balance.
OK, I realize this can sound a bit illogical because how can a cyclical rally help a rebalance which is by nature counter cyclical. The answer is sometimes it can, if you juggle these concepts with particular opportunities and keep it all consistent.
It's hopefully clear my proposals here aren't meant as exact recipes but as issues that can be cobbled together on the battlefield of life to good effect. As a non financial planner, I can lazily afford to only rise up to exacting logicality at the moments before a significant personal decision.
my investments tend to move slow like big ships. getting out of balance takes some time. when i see things getting out of balance i simply change my monthly buy to adjust. there is no selling. i have an index of US bonds (34%) international stocks (22%) and US stocks (%44). i check in a few times a year and only make adjustments if the balance is off by maybe 5%.
This is one of the BEST methods I've seen outlined by anyone other than pro. Generally speaking, when your portfolio is properly diversified to start with, you shouldn't really need to sell too much too often, especially if you're still buying in. You simply adjust the portfolio with new money going in.
GREAT Observation! Gene E. Utterback, EA, RFC, ABA
Oh, I had assumed this wasn't a buy in phase because then the solution seems so natural the question would hardly come up. But I guess there is a theory that rebalance shouldn't be done as often as monthly - something I don't understand.
Even after buy in phase is finished, this buy-only-rebalancing can still be partly or fully accomplished by means I mentioned earlier. You can manually reinvest distributions elsewhere rather than automatically into the same pot. This is very counter to the party line, but I stand by it for a number of reasons I won't repeat.
And for early phases of buy-in, I question whether you should fine tune a balance. You would care less about how a balanced portfolio evens out volatility because your draw down phase is so far away. And something about the high ratio of your input vs the total of your investments means you can afford risk early on - I guess you can recover quickly.
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