Hi, I have a question regarding my taxable portfolio and need you all's expert opinions.
I have a taxable account invested in several index funds ranging from large caps to small caps to international... I use new inflows to rebalance the account so that I never have to sell anything (I try to minimize taxes). The question is this: I add money to the account every month and I have a spreadsheet to track asset allocation and to determine what I need to buy each month to bring the asset allocation back to where it should be (so if US stocks did well in the past month and Int'l stocks did not, I buy more Int'l stocks with the new contribution). It dawned on me that this is equivalent to a monthly rebalancing of my portfolio. Now I have heard that rebalancing my portfolio too often could negatively affect my returns.
So the question is: is it OK to continue doing that, or should I try to invest the money regardless of performance and rebalance only once or twice a year (I usually have larger sums of money to invest every 6 months that I could use to rebalance the portfolio).
I give you an example to illustrate what I'm talking about:
Let's say that my ideal asset allocation is as follows: 25% US large caps, 25% US small caps, 25% US mid caps, 25% International (it's just an example).
Right now this is what I do: Let's say Intl and small caps underperformed in the past month. So I might invest my new monthly contribution as follows:
20% US large caps, 30% US small caps, 20 % US mid caps, 30% International.
The question is should I keep doing this or instead invest the monthly contribution as follows: 25% US large caps, 25% US small caps, 25% US mid caps, 25% International (in line with my ideal asset allocation) and rebalance the portfolio only once or twice per year as needed?
I have a taxable account invested in several index funds ranging from large caps to small caps to international... I use new inflows to rebalance the account so that I never have to sell anything (I try to minimize taxes). The question is this: I add money to the account every month and I have a spreadsheet to track asset allocation and to determine what I need to buy each month to bring the asset allocation back to where it should be (so if US stocks did well in the past month and Int'l stocks did not, I buy more Int'l stocks with the new contribution). It dawned on me that this is equivalent to a monthly rebalancing of my portfolio. Now I have heard that rebalancing my portfolio too often could negatively affect my returns.
So the question is: is it OK to continue doing that, or should I try to invest the money regardless of performance and rebalance only once or twice a year (I usually have larger sums of money to invest every 6 months that I could use to rebalance the portfolio).
I give you an example to illustrate what I'm talking about:
Let's say that my ideal asset allocation is as follows: 25% US large caps, 25% US small caps, 25% US mid caps, 25% International (it's just an example).
Right now this is what I do: Let's say Intl and small caps underperformed in the past month. So I might invest my new monthly contribution as follows:
20% US large caps, 30% US small caps, 20 % US mid caps, 30% International.
The question is should I keep doing this or instead invest the monthly contribution as follows: 25% US large caps, 25% US small caps, 25% US mid caps, 25% International (in line with my ideal asset allocation) and rebalance the portfolio only once or twice per year as needed?