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Is this really "rebalancing" ?
Old 10-14-2006, 05:48 AM   #1
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Is this really "rebalancing" ?

Maybe this is a dumb or strange (or both) question.

My target is 60 stocks / 40 bonds & other. Last pile of years, the stock portion has outgrown the non-stock portion.

We're both still working (sorry for the "bad word"....) and we LBYM, so we have decent sized yearly savings contributions.

So to maintain the 60/40 balance, I've been putting the additional savings contributions in the non-stock category each year.

Turns out the savings contributions to the non-stock side coincidentally maintain the 60/40 balance.

Is this an OK way of keeping balance ? I'm not selling stocks - rather adding to other side (but I am doing "true" rebalancing within stock side - selling emerging markets, buying in down sectors, etc).

Mathemetically everything works, I'm just wondering if I'm "missing something"....

Thanks for your help !
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Re: Is this really "rebalancing" ?
Old 10-14-2006, 06:35 AM   #2
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Re: Is this really "rebalancing" ?

your fine,,,dosent matter how you add as long as your mix is 60/40 if thats what your comfortable with.
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Re: Is this really "rebalancing" ?
Old 10-14-2006, 07:50 AM   #3
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Re: Is this really "rebalancing" ?

The 60/40 split is more a "retirees" balance than that of an active saver for retirement. If that's your "comfort zone," I don't want to have you change it. If you just "picked it" out of an investment guide, I will suggest that you evaluate whether it's worth being more aggressive now while you are still in the active saving mode.
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Re: Is this really "rebalancing" ?
Old 10-14-2006, 09:09 AM   #4
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Re: Is this really "rebalancing" ?

Yes, that is EXACTLY how you rebalance during the accumulation phase - new cash to invest gets put into the underperforming asset(s) to maintain the allocation balance.

It's not uncommon at all that when stocks are outperforming at a good clip, new money gets added to bonds. But some day the tide turns, and you get to add to stocks on sale for a change.

It can be tough psychologically for some. Some folks like to add to their "winners" (figuring they'll always be winners) and don't like putting new money into the "losers" (figuring they'll always be losers). But maintaining a balanced portfolio requires that you do just that.

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Re: Is this really "rebalancing" ?
Old 10-14-2006, 09:42 AM   #5
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Re: Is this really "rebalancing" ?

Nothing wrong with what you are doing, but since you don't need to sell any equities to keep your desired allocations, do remember to look over your equity positions from time to time to be sure the things you own are still what you want to own. Perhaps one segment of your equities has been a high flyer while others have lagged and you'll want to make some adjustments.
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Re: Is this really "rebalancing" ?
Old 10-14-2006, 11:48 AM   #6
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Re: Is this really "rebalancing" ?

Quote:
Is this an OK way of keeping balance ?
As mentioned, this is indeed a great way to rebalance. I had a simular epiphany earlier this year. I am semi-retired and DW and I fund our Roths to the max, but do it on a monthly basis. My contribution to the Roth has always gone to my favorite equity fund. I suddenly realized that I am spinning my wheels if I contribute to my Roth (equity) each month and also rebalance each year by taking a chunk out of my equity and exchanging it for FI.

This program works fine as long as we are in a bullish market. When the bear arrives, I may have to make a change back to equities for my contributions to the Roth.
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Re: Is this really "rebalancing" ?
Old 10-14-2006, 12:09 PM   #7
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Re: Is this really "rebalancing" ?

While betting on the winners is attractive, you might want to also assess the mix within the 60 stocks. There may be some emerging opportunities that deserve attention within your stocks. Tech on the Dow is currently benefitting from the declining sentiment for O&G and real estate, for example. You can afford to do some of this while you are working.
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Re: Is this really "rebalancing" ?
Old 10-14-2006, 01:35 PM   #8
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Re: Is this really "rebalancing" ?

Quote:
Mathemetically everything works, I'm just wondering if I'm "missing something"....
No, 60/40 approximates the composition of the finanacial market. If you want to be more aggressive, you could increase the equity portion. If you want more diversification, you may include commodity, energy, precious metals, or lumber.
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Re: Is this really "rebalancing" ?
Old 10-15-2006, 05:52 AM   #9
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Re: Is this really "rebalancing" ?

Thanks for all the comments ! Looks like I'm on track on where I put new contributions.

Regarding the mix, it's really closer to 65/35 and the 35 side has some other asset classes besides bonds. So from an "aggressiveness standpoint" I'm comfortable where I am.

Have a great day !
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