Rebalance?

[brokrken]

So, I've got an investment portfolio that includes index funds, some managed funds (in 401k), an international account handled by a money manager, but also a portfolio of about 30 stocks and 2 bonds that I manage myself.

I started putting together this stock portfolio about 12 years ago and I have taken a buy and hold approach, adding to positions during downturns, but have rarely (I think twice in that timeframe) sold anything. This approach has served me well and as I have mentioned on this site before, I have consistently beaten the indexes. However, recently, due to the performance of a few stocks (mainly NVDA and FB where my gains are 1300% and 350% respectively) my portfolio has gotten quite a bit unbalanced. For instance, technology has grown to a whopping 39% of this stock portfolio. And these 2 stock alone make up nearly 9% of my total investable NW (107K out of about 1.2mln).

What I am struggling with is that if I take some of those profits off the table I don't have any good ideas for reinvestment. Also, none of my other positions are really at a point where I'd like to add to them. I could go to cash, but I already have a 6 figure balance there that I've been looking to do something with. You might have seen another thread from me where I was asking what to do with this cash (pay down mortgage, etc.). Or, I could just let them ride and be ok with the new normal allocation in my portfolio.

Anyway, with the market over the last few years, I'm sure others on hear have found themselves getting out of balance in one area or another, so I thought I'd solicit a little advice. Any is welcomed and appreciated.

[Fedup]

I say it's a small amount, not worth stressing over.

[Scuba]

Look into private mortgages aka "hard money" loans. They pay well, don't correlate much with the stock market, and are secured by deeds of trust. We have allocated about 25% of our portfolio to these and have been happy with results.

[SecondCor521]

Consider establishing a long term plan that takes into consideration your goals, values, priorities, and personal situation. Making a plan and following it (and reviewing/updating it periodically) will likely reduce ongoing decision angst.

A more ad hoc approach will tend to have more frequent question mark moments like this which will continue as long as that approach is followed.

Good luck!

[audreyh1]

Quote:

Originally Posted by brokrken So, I've got an investment portfolio that includes index funds, some managed funds (in 401k), an international account handled by a money manager, but also a portfolio of about 30 stocks and 2 bonds that I manage myself. I started putting together this stock portfolio about 12 years ago and I have taken a buy and hold approach, adding to positions during downturns, but have rarely (I think twice in that timeframe) sold anything. This approach has served me well and as I have mentioned on this site before, I have consistently beaten the indexes. However, recently, due to the performance of a few stocks (mainly NVDA and FB where my gains are 1300% and 350% respectively) my portfolio has gotten quite a bit unbalanced. For instance, technology has grown to a whopping 39% of this stock portfolio. And these 2 stock alone make up nearly 9% of my total investable NW (107K out of about 1.2mln). What I am struggling with is that if I take some of those profits off the table I don't have any good ideas for reinvestment. Also, none of my other positions are really at a point where I'd like to add to them. I could go to cash, but I already have a 6 figure balance there that I've been looking to do something with. You might have seen another thread from me where I was asking what to do with this cash (pay down mortgage, etc.). Or, I could just let them ride and be ok with the new normal allocation in my portfolio. Anyway, with the market over the last few years, I'm sure others on hear have found themselves getting out of balance in one area or another, so I thought I'd solicit a little advice. Any is welcomed and appreciated.

Rebalancing means you immediately buy your underperforming assets to maintain a target asset allocation. What you are doing is taking profits, not rebalancing.

[brokrken]

audreyh1, good point. So, I guess the question really is "Do I rebalance to assets that I don't feel are necessarily good buys right now, do I take profits and invest elsewhere although I don't know where that'd be, do I take profits and sit on cash until I see a good entry point into the stocks I already own, or do I stand pat?"

[audreyh1]

It sounds to me like you haven't picked an asset allocation. Sounds more like you are managing a stock portfolio, so I don't think the terminology applies.

When you rebalance you don't worry about whether any of your asset classes are good buys. You simply trim from the winners to add to the losers. This is how you routinely sell high and buy low.
Yes, an asset class that is lagging, could lag some more, but then you will have an opportunity to buy more if other asset classes outperform. Assets classes can trail for a while, and then zoom ahead. You never know when it's going to happen. Just look at the Callum Periodic Table of asset classes and you'll see winners replacing losers and vice versa routinely over many years.

You have to pick an AA that you think makes sense for you in the long run. Once you are invested, you don't second guess it, just rebalance when things get enough out of whack.

[brokrken]

audreyh1, you are right, this is more of a stock portfolio question rather than rebalancing between say equities/bonds/cash/real estate. So, you got me on semantics. Simply put, I have some big winners that have caused me to be a bit uncomfortable with how much of the stock portfolio is now concentrated in 1 sector and a few stocks. I'm struggling a bit with what to do with it. Was asking for advice on that point.

[audreyh1]

That's why I don't have a stock portfolio - too much research and decisions. But hopefully someone else will have some ideas about where to invest your profits.

The forum stock pickers may not be pulled in by your title. Maybe you can request one of the mods to re-title your thread more along the lines of where to invest stock profits.

[rpguy4]

IMHO - I think I would pay down / payoff the mortgage, which you'll want to do anyways before you retire. Maybe sell 1/2 of your stock positions that you have had significant gains in, and put those dollars toward your mortgage? The other concern would be taxes on those potential gains. But, if the market takes a significant hit at some point, how would you feel losing some of those gains ?

[brokrken]

rpguy4. Sorry, I should have mentioned that some of these stocks are in IRAs, particularly the ones with big gains. So, selling to pay down mortgage isn't really an option.

[Fedup]

I would let it ride. Even if it drops 50%, that's only a small amount of your portfolio.