Originally Posted by Hydroman
There are basically two methodologies on rebalancing. Either a predetermined time such as annually or when the allocation of one or more assets gets a set percentage off of its target. My question is about the latter. For example let’s say my target for an asset allocation was 10% and my rebalance point was when it was plus or minus 5% of the target. If the asset allocation grew to 12% would that be considered 2% out of balance thus not needing to be rebalanced or would that be considered 20% off of the target. The former seems more logical to me but I just want to be sure.
Here is my current allocation for each equity vs. target. Does it appear to need rebalancing? I am thinking maybe some Emerging Markets needs to be redeployed to Small Value.
I would comment that 5% is too far to sway for something you target 10% for, as the swing in percentage points is a high percentage of the target.
In my case I use 1% as what triggers the "rebalance", and I rebalance twice a year.
The first rebalance each June just adjusts contributions. So if my target was 10%, and it was really 12%, I might contribute 5% to bring the 12 back to 10 (based on higher contributions to other assets). At same time if this asset is flying, it flies without me touching it).
The second rebalance in December involves buying and selling back to targets, and readjusting contributions to be in line with the targets as well.