Hello and Rebalance

[fireby40]

First, I must confess to quite a bit of lurking around the board before finally signing up today!

I'm 30, and I've been plowing as much money as I can into my 401k for the last 6+ years since I started my job in 2001. During 2007 I finally got serious on asset allocation (I had been 100% in equities) and moved to the following:

30% EAFE
20% S&P
10% Small Cap
15% Employer Stock (Oil Major)
25% Total Bond Market

My question is on when to rebalance. I know a lot of people just randomly pick a time each year to rebalance, but this doesn't appeal to me. I'm thinking of rebalancing when my allocations reach a certain point of misalignment. For instance, once one category reaches 5% above / below the target I rebalance the whole thing. Obviously my bond allocation is rising sharply right now, so I'm considering executing my first rebalance. I would like to have a grounded methodology though, and not just pull the trigger whenever the talking heads reach a frenzy. Thoughts?

 

[REWahoo]

For instance, once one category reaches 5% above / below the target I rebalance the whole thing.

Sounds good to me.

 

[CCdaCE]

Yeah, you can use either the 5/25 rule or quarterly/yearly/your birthday.

I don't know if there's any right/wrong way, I don't think there's any magic. See this thread. But personally, I'd do the 5/25 if I had more than Total Stock Market Fund or Target Retirement funds.

I'm assuming you know the 5/25 rule is either 5% or 25% of the asset class (i.e. Small Cap would be whenever it gets 25% out of whack -- outside of 7.5%-12.5% range).

-CC

 

[jIMOh]

2X per year. Rebalance in month X by adjusting contributions, rebalance in month X+6 by buying/selling.