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Old 10-22-2012, 03:48 PM   #41
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Join Date: Jan 2008
Location: Chicagoland
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Originally Posted by RonBoyd View Post
That's probably good advice, as long as folks keep in mind the article is about rebalancing a 401k, which is tax sheltered/deferred. Rebalancing twice a year in a taxable account is not good advice IMO, it may result in unnecessary taxes. That's why I'd recommend using % bands and NOT time periods. I review quarterly and rebalance only when I exceed the 5/25 rule (see below, I posted this in the Rebalancing thread few days ago) - anything along those lines would be better IMO. FWIW...

The 5/25 rule. This rule has you rebalance using bands. The “5″ portion of the rule means that if an asset allocation deviates by an absolute percentage of 5% of the portfolio then you rebalance it. This refers to the big blocks in your portfolio. For example, if your portfolio calls for 30% international stocks you’ll rebalance when that percentage hits either 35% (selling some) or 25% (buying some more.) It may also refer to the overall stock:bond ratio. For example, a 50% stock portfolio may need to be rebalanced if it becomes a 45% stock portfolio, even if none of the individual stock asset classes have fallen enough to justify a rebalancing event. For example, a portfolio that is 25% US stocks and 25% international stocks where both components have fallen to 22.5% of the portfolio.

The “25″ portion of the rule refers to the smaller asset classes in the portfolio, for example, those chunks that may make up only 5-10% of the portfolio. This refers to a change in the asset class that is a relative 25% of that asset class. If your asset allocation calls for a 10% allocation to gold, for instance, then you would rebalance when it hit 12.5% (sell) or 7.5% (buy). Likewise, a 5% position to emerging market stocks would be rebalanced at 3.75% and 6.25%.

No one agrees with other people's opinions; they merely agree with their own opinions -- expressed by somebody else. Sydney Tremayne
Retired Jun 2011 at age 57

Target AA: 60% equity funds / 35% bond funds / 5% cash
Target WR: Approx 2.5% Approx 20% SI (secure income, SS only)
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