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Rebalancing across investment vehicles
Old 07-08-2006, 11:12 AM   #1
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Rebalancing across investment vehicles

Okay, this is the first year I've ever had this problem (My check-to-check friends tell me it's a nice problem to have), but I'm to the point where I have enough money spread in enough places that I'm not sure how to maintain the asset allocations.

To be more specific, my investments are broken down like this:
-11% - Cash (Emigrant Direct and a checking account)
-7% - Individual stocks (My play account to learn more about the market)
-8% - Automatic (Vanguard Target Retirement 2045 Fund, in a Roth IRA to which I'm no longer eligible to contribute)
-22% - International (Vanguard Total International Stock Index Fund, in a traditional IRA)
-19% - Small Cap (Vanguard Small-Cap Index Fund, in a Brokerage account)
-19% - Mid Cap (Vanguard Mid-Cap Index Fund, in a Brokerage account)
-14% - Large Cap (Vanguard 500 Index Fund, in a Brokerage account)

So now that you know how my money is invested, let me clarify my question.

Looking at my allocation, let's say that I think the 22% International is too high, and I'd like to rebalance my portfolio to have 20% International and split that 2% across Small and Mid caps. Well, I can't pull my money out of the IRA to put into my brokerage. And I can't just add exposure in the IRA to the same funds I'm using in the Brokerage because it's not enough to overcome fund minimums.

So far, I've been dealing with a very serious cash problem I had, where I was 90% cash and only 10% invested. Now that's solved, but I can't think of any way to rebalance my portfolio short of using any new money I remove from the cash pile to pump up any "lagging" areas.

This problem is going to be compounded next month once I start my 401k contributions at my new job. Should I have my 401k try to mirror the asset allocation I've chosen across the other vehicles? Or do you guys typically keep different asset classes in each account type and only rebalance within each account?
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Re: Rebalancing across investment vehicles
Old 07-08-2006, 11:34 AM   #2
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Re: Rebalancing across investment vehicles

We build an asset allocation for our total assets. If you look at each account, it is wildly out of whack, but put them all together and you get nirvana. This allows us to pick the best funds in my 401(k) and my spouse's 401(k).

Rebalancing hasn't been that big a deal for us because we wait for being out of whack by 5% and have assets split pretty evenly between tax-deferred and our brokerage accounts.

Also if 2% is less than $5K, I am not sure it's such a big deal to rebalance anyways.
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Re: Rebalancing across investment vehicles
Old 07-08-2006, 01:13 PM   #3
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Re: Rebalancing across investment vehicles

Since you are Vanguard customer, do you use the Portfolio analyzer available on the website?

You can enter the ticker symbols of your non-Vanguard accounts, plus any other sums that don't have ticker sysmbols and designate them as Bonds, Stocks or Cash.* The portforlio analyser then gives a very good picture of your allocations.

I rebalance July and January and this month I needed to add some large cap growth stocks to get the mix right. So, in my Vanguard IRA I simply transferred the appropriate sum from an existing fund in the IRA, to a new fund (Vanguard Morgan Growth) and it is all done on-line in a matter of miuntes with no costs or tax implications.* Since it is a new fund for me I did have to go through a couple of extra on-line questions to confirm that I had read the fund prospectus
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Re: Rebalancing across investment vehicles
Old 07-09-2006, 04:07 PM   #4
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Re: Rebalancing across investment vehicles

Quote:
Originally Posted by NinjaPigeon
...This problem is going to be compounded next month once I start my 401k contributions at my new job. Should I have my 401k try to mirror the asset allocation I've chosen across the other vehicles? Or do you guys typically keep different asset classes in each account type and only rebalance within each account?
I would just aim new investments towards balancing off your current imbalances. No need to be a slave to your allocation, especially after sitting 90% in cash. Most people with more flexibility only asset balance once a year.
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Re: Rebalancing across investment vehicles
Old 07-09-2006, 04:19 PM   #5
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Re: Rebalancing across investment vehicles

I have the same problem with multiple IRA (Roth and traditional) at different institutions (some at VG, others must remain at Fidelity due to securities industry compliance requirements DW and I are subject to). Then there's me+DW's 401ks, taxable accounts at VG and Fidelity.

I view all the accounts as one overall portfolio and just get as close as I can to my target allocations. It's hard since my 401k (for example) gets $15k/yr contributions, which is a big part of our total investments for the year. However, the only two half way decent funds are Total US market index and Extended mkt index. I end up being heavy in these two allocations. I take a little away from other domestic allocations elsewhere in the portfolio to make up for it. It'll be hard to hit my target allocations exactly, but who knows when I'll change employers, or when my employer's 401k will add or remove fund choices.
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