Rebalancing and Allocation during Accumulation
Okay, I did a search and I'm a little confused. Apparently from what I've turned up, I'm probably doing part of this wrong. Sorry if this is long but I wanted to make sure I provided any information that might be relevant.
So, first off, is there any point in selling one of my funds to rebalance, or should I just try to make sure my new purchases do some of the rebalancing for me? That's what I've been trying to do so far. Although I will be honest and say that my investment horizon is at least 20 more years, so I don't stick all that firmly to percentages at this point. I just keep throwing money into the market figuring that once my current run of excess capital dries up (and it will within about a year), that I'll need to start trying to maintain the ratios a lot better.
Second, as to how to handle rebalancing if I don't have any contributions to make, I've read here that you guys use your dividends to help with that. Most of my retirement savings is in after tax accounts since I got started late on investing and my 401k reflects this. So, if I understand what you guys do, in your taxable accounts you put your dividends into something like Vanguard Prime and then use it to do rebalancing, thereby avoiding paying taxes on selling the funds that are overweighted. Is that correct?
Also, do you do the same thing with your non taxable accounts?
Here is a rough break down of where my money is at right now. I realize it might look a little chaotic, but keep in mind I've only had the after tax account since may of last year, and the 401k/IRAs since may of '05.
Allocation by account/fund
Taxable (64.18% of portfolio, but will stop all but token contributions soon)
VGTSX 5.04% (overlap with my IRA since I can't contribute more to it)
401k/IRA (29.61% of portfolio, but I will continue investing here for years to come):
Roth (6.01% of portfolio):
Allocation by fund type
Large Cap Blend 19.82%
Mid Cap Blend 19.49%
Small Cap Blend 19.84%
Total International 21.13%
Auto Adjusting 19.53%