Rebalance: Jan or April?

[galeno]

We usually rebalance in January after the ex dividend date.

Should we do this in April instead?

[chang]

I don't see that it makes any difference when you rebalance, if it's your habit to do it once a year. January has the advantage that if you expect [taxable] capital gains, you can do it on January 1 or shortly thereafter; and if you expect capital losses, you can do it on December 31 or shortly before.

[ignatz]

Can't see why it would matter other than by random luck or tax consequences.

Might want to split taxable gains....some later this year AND some next year if doing so would allow you to avoid pushing yourself into a higher tax bracket if you took all gains in a single year.

[rhythmmethod]

I just rebalance when my PF is ~ 5% different than my target, regardless of time of year.

[win1177]

Oct 15, 2021 14:48:14 GMT rhythmmethod said:

I just rebalance when my PF is ~ 5% different than my target, regardless of time of year.

I follow this type of rebalance system. Only difference is I have let my cash drift WAY up, and am underrepresented in bonds. Have about 12% in cash, and only 6% in bonds. “Target” would be 85% equity, 12% bonds, 3% cash.

But I also periodically reinvest into areas that are below my “ideal asset allocation targets”, so in effect I am making small attempts at rebalancing every 2-3 months. Just reinvesting dividends/ income, but I steer them towards areas that are under-represented. Lately, that’s been in bonds, foreign stocks, etc., that have been underperforming US large caps. US large caps, especially large cap growth, have been on a tear for several years now. I have large positions in several large growth companies (AAPL, MSFT, PYPL, QCOM, GOOG/ GOOGL). I have come close to selling a little bit of each of them. Especially AAPL and MSFT, which are both at 5+% of portfolio. But paying LTCG tax would be PAINFUL. May have to bite that bullet!

Win

[Chahta]

Hopefully wait until Jan 2022 once you are retired to lock in CGs.

[rhythmmethod]

Oct 15, 2021 15:20:17 GMT win1177 said:

Oct 15, 2021 14:48:14 GMT rhythmmethod said:

I just rebalance when my PF is ~ 5% different than my target, regardless of time of year.

I follow this type of rebalance system. Only difference is I have let my cash drift WAY up, and am underrepresented in bonds. Have about 12% in cash, and only 6% in bonds. “Target” would be 85% equity, 12% bonds, 3% cash.

But I also periodically reinvest into areas that are below my “ideal asset allocation targets”, so in effect I am making small attempts at rebalancing every 2-3 months. Just reinvesting dividends/ income, but I steer them towards areas that are under-represented. Lately, that’s been in bonds, foreign stocks, etc., that have been underperforming US large caps. US large caps, especially large cap growth, have been on a tear for several years now. I have large positions in several large growth companies (AAPL, MSFT, PYPL, QCOM, GOOG/ GOOGL). I have come close to selling a little bit of each of them. Especially AAPL and MSFT, which are both at 5+% of portfolio. But paying LTCG tax would be PAINFUL. May have to bite that bullet!

Win

"But I also periodically reinvest into areas that are below my “ideal asset allocation targets”, so in effect I am making small attempts at rebalancing every 2-3 months. Just reinvesting dividends/ income, but I steer them towards areas that are under-represented."

Really that is mostly my method as well, win1177. I only do a major rebalance as noted above. I more frequently follow what poster from M* (Copie) used to refer to as 'watering the plants'. With distributions, or other income I might sprinkle a little love on underperforming (or dipped) holdings I'd like to bump up a bit. That's why it might seem like I trade more. I rarely sell, mostly add lightly as income and desire intersect.

[win1177]

Oct 15, 2021 16:10:26 GMT Chahta said:

Hopefully wait until Jan 2022 once you are retired to lock in CGs.

That’s the plan, although it is looking like we will stay in higher tax brackets, so I’m not sure it will help. Normally I will lighten a stock at 6%, really close to that with AAPL at 5.78%. MSFT is also at ~ 5%. Both have VERY low cost basis, $2.89 for AAPL and $5.34 for MSFT. So it will hurt. 

Win

[xray]

galeno,
Your: We usually rebalance in January after the ex dividend date.
Should we do this in April instead?

 You might want to shift your thinking to being "Proactive" instead of the normal "Reactive" mode. Many analysts are basically telling us where the action is or is shifting to [daily/weekly/monthly] and we can run our own current analysis to see the possible/probable opportunity or dismiss it. If we don't make the necessary changes as required [when the need and "opportunity" presents itself], then we will become a reactive investor [like mutual funds who change their portfolio's at the end of each Qtr (and cause volatile changes in our portfolio's where least expected)]....

 A good example of this is the "OIL Sector" and what we think about it vs the postings and opinions currently being said about it. I just posted a oil sector conversation piece for discussion [for those that might be interested]. We will either agree or disagree but if we agree, then a portfolio change might be in order. If not, it just makes interesting reading for investors....

Live Long and Prosper....

[Mustang]

This is an interesting article about re-balancing. money.com/best-retirement-withdrawal-strategies/

Depending on your goals you might want to pick a different method. To keep things simple I've got two funds in my taxable sleeve (50/50 Wellington and Wellesley). I think they compliment each other nicely. I do not intend to force a re-balancing but withdraw from the best performer (as defined as the fund with the highest end of year balance). Using historical data, my test have shown the funds will re-balance themselves over a period of two or three years.

The withdrawal method used was the 4% Rule.

[bf22]

Oct 16, 2021 11:51:17 GMT Mustang said:

This is an interesting article about re-balancing. money.com/best-retirement-withdrawal-strategies/

Depending on your goals you might want to pick a different method. To keep things simple I've got two funds in my taxable sleeve (50/50 Wellington and Wellesley). I think they compliment each other nicely. I do not intend to force a re-balancing but withdraw from the best performer (as defined as the fund with the highest end of year balance). Using historical data, my test have shown the funds will re-balance themselves over a period of two or three years.

The withdrawal method used was the 4% Rule.

Agree, especially for taxable accounts.

[shipwreckedandalone]

Stockchart sharpcharts has a seasonal view that can be analyzed by month by year. Plug your stuff in. 

[FD1000]

Galeno, as Mustang said, during the year use your best performing fund for expenses, if it's not enough then use the 5% rule. I would not use yearly timing.

In my case, I never rebalanced, I have always used market conditions to tell me what to do.

[steelpony10]

galeno ,

        I’m with Mustang and FD on this one. Take a look at this older article:

        www.kitces.com/blog/how-rebalancing-usually-reduces-long-term-returns-but-is-good-risk-management-anyway/
 
         I just treat cap gains as extra money. I suppose true rebalancing leads to cutting your winners off because they are over your artificially chosen allocation and placing them into your diversified under allocated emerging market fund that hasn’t moved in 10 years. 

          I think you stated your 50/50, equities to bonds. Bonds are currently doomed and the financial gypsies say equities are going to be doomed. You’re trapped if you believe a future unknown is a known. So cash your gain back to your “allocation” and do nothing but wait or ride it out and future markets will rebalance for you.

          Personally I did cash in most yearly gains, send in my tax vouchers and save my extra money in a muni fund or someplace safer as a source of funds when a factual buying opportunity happened. Now I spend most of them.

[Mustang]

Good article. It confirms a little of the research in the article I posted a link to. In the withdrawal phase I think it is best used for risk management because it pares back the more volatile assets reducing the chance of a forced sale during a down market to get the withdrawal.