Well, they say AA is important but they also say it doesn't matter.
I've never cared, only looking at this balance once or twice a year and not doing much more than saying "hmm, that's interesting." I suppose I'm pretty tolerant of risk, at least until I have an ER plan worked out.
So I guess I'm going to leave it where it is and just do the cash transactions.
Hey, all I'm saying is that nobody has ever convinced me that AA* really matters, other than in a fuzzy "am I comfortable with the risk" sort of way.
I don't really worry about fuzzy stuff like that, so unless I see some numbers or am captivated by some good reasoning, I'm just not gonna give a hoot. I strongly suspect that in the long haul it really doesn't matter much.
* except for the cash, that's deflating in my .5% interest checking account so it will be reallocated
Let's put a couple things into perspective.
AA matters when you're talking about the difference between a portfolio of 100% stocks and another portfolio of 100% cash. The first would beat inflation if its volatility didn't scare the bejeezus out of its owner, and the second is actually even nastier because the owner sleeps soundly at night without realizing they're being ravaged by inflation.
However AA does not matter when you're going from 51% stocks/49% cash to 50% stocks/50% cash. At that small a change, rebalancing doesn't matter either-- mathematically anyway.
What matters in that last situation is that the owner has made a plan ("I want a 50/50 portfolio...") and they're sticking to it ("... and I'm going to rebalance when it gets to 51/49"). Having a plan avoids lost sleep, obsession over the financial media, and "winging it".
An AA devoted to one stock is way too risky ("single stock risk") while an AA devoted to 30 stocks is probably a prudent risk (although at least one of those stocks is still likely to go to zero). Going from 30 stocks to 600 (or 1500) doesn't substantially change the volatility.
An AA heavy in company stock is way too risky if that company is also your employer. Exhibit "A" for this syndrome is Enron, where the employees lost both their income and their 401(k)s at the same time.
The significance of AA is that you should learn enough about it (from Bogleheads or from Otar) to choose an AA with which you're comfortable. Whether that AA is 25/75 or 75/25 probably doesn't matter-- the difference) won't make you obscenely rich or penniless. What will matter is having the confidence in your learning (and, much later, your experience) to stick to that AA no matter how gloomy CNBC or the stock markets seem to be. What will keep you poor is bailing at the bottom and jumping back in at the top. With the strength of your convictions, hopefully based on your knowledge instead of on the hand-holding of an advisor, you will not sell out at the bottom of the market and rush back in just before the next top. Instead you'll pick your AA and rebalance whenever it meets your criteria. If the market drops a thousand points, you won't think "OMG I have to cash out!!" Instead you'll think "Hunh-- wonder if I should rebalance." You'll check your AA and end up buying some of the assets at low prices while selling some of the other assets at high prices.
I can think of a couple situations where AA mattered to a few posters:
1. Dex, perpetually gloomy & doomy, jumped out of the markets last August (or was it Aug 2010?). The stock market quickly shot up. In retrospect, Dex nailed it-- he got out exactly at the bottom and missed the subsequent runup. If he'd just rebalanced to his AA he would have saved himself a lot of hyperbolic hypothecating. I believe Dex no longer posts here.
2. Dixonge, who admitted up front that his ER strategy was "insane". His AA was very heavily skewed to options, and IIRC the volatility eventually nailed him with margin calls. BTW you need to PM Dixonge about ERing to Mexico.
3. VaCollector, who kept buying BofA stock a few years ago because it just kept getting cheaper and cheaper. When they cut their dividend to a token penny/share, it also came close to ruining him. If he'd had an AA limited to a max percentage for a single stock then he probably would've still sunk a lot of money into BofA, but he would have avoided risking the rest of his portfolio for it.
As for paying taxes enroute your new AA, it's up to you. You can do it overnight (and pay some taxes) or you can do it gradually from income (and pay less taxes).
The point is that you have a plan, that you be confident in it, and that you stick to it.
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Low-yielding cash accounts: You are falling prey to the phenomenon known as "chasing yield". Asset allocation means using cash to dampen your portfolio volatility and to have an emergency fund. You should not give a crap what yield that cash is earning-- that's not its purpose. Instead you should be looking forward to being able to use some of that cash when stocks are on sale, or to having it available when you need it for an emergency. The one-time gains you get from those situations (stocks on sale or a discount for cash) will more than make up for years of minimal yield. Would you rather earn 2%/year with a near certainty of one sharp 20% loss somewhere during that 10 years, or would you rather earn 0.5%/year with the possibility of one 10% gain?
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I suspect that once you get through the Bogleheads or Otar reading, you'll feel more comfortable about the dispute over whether or not AA matters.
