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Rebalance Stock Allocation?
Old 12-28-2014, 12:44 PM   #1
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Rebalance Stock Allocation?

I currently have my 401k 100% invested in stocks. This is a conscious decision due to my age, pension, and defined contribution plan. My 401k stock allocation has drifted from my initial allocation of:
50% Russell 1000
20% Small Cap
20% International MSCI EAFE
10% Emerging market
I understand the need to rebalance to keep stock and bond allocations at the appropriate AA percentage. However since I am at 100 % stock is there a need to rebalance the individual stock percentages or should I leave them alone? Domestic stocks have done well this year while international stocks have struggled. I anticipate that this will change and I am not trying to time the markets. My desire is to have well diversified portfolio using index funds with low fees....

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Old 12-28-2014, 01:11 PM   #2
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If you are interested in a diversified stock portfolio then, yes, you should rebalance to your target AA.

Retired since summer 1999.
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Old 12-28-2014, 01:55 PM   #3
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I'm also 100% equities, and yes I have a target AA and rebalance to it. Rebalancing with all stocks actually works "better" than rebalancing between stocks and bonds. An all stock portfolio has a bunch of different types of stocks that hopefully will behave differently but still have the same expected long-term returns. By rebalancing, you sell high and buy low and can add a percent or so a year (so I have read) to your returns. Again, that's long-term average. Bonds have a lower expected return, so rebalancing between stocks and bonds is more about risk management than maximizing performance.
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Old 12-28-2014, 02:30 PM   #4
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Presumably you picked that initial asset allocation for a reason, so unless the reason has changed, why wouldn't you rebalance back to it if your portfolio has strayed far enough away from it? If your portfolio hasn't strayed far enough away, then no need to rebalance.

An Investment Policy Statement that you wrote down back when you first started with this asset allocation should help you decide what "stray far enough away" means.
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