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Hello and Rebalance
Old 01-17-2008, 09:52 PM   #1
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Hello and Rebalance

First, I must confess to quite a bit of lurking around the board before finally signing up today!

I'm 30, and I've been plowing as much money as I can into my 401k for the last 6+ years since I started my job in 2001. During 2007 I finally got serious on asset allocation (I had been 100% in equities) and moved to the following:

30% EAFE
20% S&P
10% Small Cap
15% Employer Stock (Oil Major)
25% Total Bond Market

My question is on when to rebalance. I know a lot of people just randomly pick a time each year to rebalance, but this doesn't appeal to me. I'm thinking of rebalancing when my allocations reach a certain point of misalignment. For instance, once one category reaches 5% above / below the target I rebalance the whole thing. Obviously my bond allocation is rising sharply right now, so I'm considering executing my first rebalance. I would like to have a grounded methodology though, and not just pull the trigger whenever the talking heads reach a frenzy. Thoughts?
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Old 01-17-2008, 09:55 PM   #2
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Originally Posted by fireby40 View Post
For instance, once one category reaches 5% above / below the target I rebalance the whole thing.
Sounds good to me.
Numbers is hard
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Old 01-17-2008, 09:58 PM   #3
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Yeah, you can use either the 5/25 rule or quarterly/yearly/your birthday.

I don't know if there's any right/wrong way, I don't think there's any magic. See this thread. But personally, I'd do the 5/25 if I had more than Total Stock Market Fund or Target Retirement funds.

I'm assuming you know the 5/25 rule is either 5% or 25% of the asset class (i.e. Small Cap would be whenever it gets 25% out of whack -- outside of 7.5%-12.5% range).

"There's those thinkin' more or less, less is more, but if less is more, how you keepin' score?
It means for every point you make, your level drops. Kinda like you're startin' from the top..." "Society" - Eddie Vedder
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Old 01-17-2008, 11:01 PM   #4
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2X per year. Rebalance in month X by adjusting contributions, rebalance in month X+6 by buying/selling.
Light travels faster than sound. That is why some people appear bright until you hear them speak. One person's stupidity is another person's job security.
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