Need to rebalance, but how?
Posted: Sat Feb 09, 2013 10:28 am
I'd like to re-balance our portfolio, but what is the optimal way to do it? In reviewing our portfolio, after the recent stock market run-up, I realized that we've surpassed our equity/bond allocation by ~3%. My (soon-to-be-written!) IPS says I should re-balance when our AA is out of whack by 2.5% or more.
Two questions:
1. What criteria do Bogleheads use to trigger a re-balance? Calendar? Percentage bands?
2. Should I just exchange equities into one of our bond fund (which one?) or should I branch out to diversify in some other way? [I'm still learning about how asset classes correlate (or don't) so any help here is appreciated.]
Any suggestions on this, as well as any other comments on our situation below, would be greatly appreciated.
Thank you! - Shaoya
Investments Portfolio as of 2-7-13
(VG = Vanguard; value ~$400K)
Current AA Desired AA
Equities 68% Equities 65%
Bonds 32% Bonds 35%
Taxable
25.1% VG Total Stock Market Index Adm (VTSAX) (0.09%)
18.1% VG Total Int'l Stock Index Adm (VGTSX) (0.34%)
Tax-advantaged
Roth IRA
8.7% VG Inflation-Protect Sec (VIPSX) (0.22%)
8.3% VG Total Bond Market – Admiral (VBTLX) (0.22%)
3.7% VG Short-Term Bond Market (VFSTX) (0.24%)
4.5% VG Windsor II Inv. (VWNFX) (0.39%)
1.4% VG Total Stock Mkt Idx - Admiral (VTSAX) (0.09%)
3.6% VG FTSE All-World Except US (VFWIX) (0.40%)
3.4% VG REIT Index (VGSIX) (0.24%)
Her 457b - Deferred Compensation - ING (No employer match)
8.3% VG Total Bond Market Index Fund – Institutional Shares (VBTIX) (0.07%)
1.6 VG Institutional Index Fund – Institutional (VIIIX) (0.04%)
His 457 - Oregon Growth Savings Plan (No employer match)
2.9% Intermediate Bond Option (0.09%)
4.4% Large Company Value Stock Option (0.395%)
529 Funds - Oregon College Savings Plan for two kids, (Classes of 2030 & 2032)
2.1% VG International Stock Index (VGTSX) (0.38%)
2.8% TIAA-CREF Equity Index Fund (TINRX) (0.32%)
~100.0%
Debt
Mortgage –30 year fixed at 3.87% (refi’d Nov 2010)
Credit card debt – none
Student – 1.6% fixed @ $130 a month ($13K remaining)
Car – no debt
Emergency Fund – 6-9 months living expenses in Ally Savings (0.90%) & CD (1.48%) (not included in portfolio)
Tax Filing Status
Married, filing jointly – 15% Fed in 2011; 9% Oregon (2011)
Age
Hers – 37
His – 40
Son (b. 2008), Daughter (b. 2010)
Stable jobs in local/state government with an annual gross income of ~$111K. Expect this to increase incrementally (not dramatically) relative to inflation later in our careers. Intend to stay in our current house/city indefinitely.
Monthly Investment
We allocate $2316 (~25% of gross monthly income) from salaries across five accounts in these proportions:
Pre-tax
457b Plans:
[*]$500 to Vanguard Institutional Index Fund – Institutional (VIIIX) (0.04%)
[*]$500 to Large Company Value Stock Option (0.39%) [blend of Black Rock Russell 1000 Value Index; Dodge & Cox Stock Fund (DODGX); MFS Value (MEIIX); LSV Value Equity (LSVEX). = (0.39%)]
Post-tax
[*]$400 to college funds [$100 to each child's 529's, each with two funds: TIAA-CREF Equity Index Fund (TINRX) (0.32%) &
VG International Stock Index (VGTSX) (0.38%)
& $200 to taxable VG Total Stock Market Index (VTSAX) (0.09%)
[*]$458 to Her Roth IRA - VG REIT Index (VGSIX) (0.24%)
[*]$458 to His Roth IRA - Total Stock Mkt Idx Inv (VTSMX) (0.18%)
Two questions:
1. What criteria do Bogleheads use to trigger a re-balance? Calendar? Percentage bands?
2. Should I just exchange equities into one of our bond fund (which one?) or should I branch out to diversify in some other way? [I'm still learning about how asset classes correlate (or don't) so any help here is appreciated.]
Any suggestions on this, as well as any other comments on our situation below, would be greatly appreciated.
Thank you! - Shaoya
Investments Portfolio as of 2-7-13
(VG = Vanguard; value ~$400K)
Current AA Desired AA
Equities 68% Equities 65%
Bonds 32% Bonds 35%
Taxable
25.1% VG Total Stock Market Index Adm (VTSAX) (0.09%)
18.1% VG Total Int'l Stock Index Adm (VGTSX) (0.34%)
Tax-advantaged
Roth IRA
8.7% VG Inflation-Protect Sec (VIPSX) (0.22%)
8.3% VG Total Bond Market – Admiral (VBTLX) (0.22%)
3.7% VG Short-Term Bond Market (VFSTX) (0.24%)
4.5% VG Windsor II Inv. (VWNFX) (0.39%)
1.4% VG Total Stock Mkt Idx - Admiral (VTSAX) (0.09%)
3.6% VG FTSE All-World Except US (VFWIX) (0.40%)
3.4% VG REIT Index (VGSIX) (0.24%)
Her 457b - Deferred Compensation - ING (No employer match)
8.3% VG Total Bond Market Index Fund – Institutional Shares (VBTIX) (0.07%)
1.6 VG Institutional Index Fund – Institutional (VIIIX) (0.04%)
His 457 - Oregon Growth Savings Plan (No employer match)
2.9% Intermediate Bond Option (0.09%)
4.4% Large Company Value Stock Option (0.395%)
529 Funds - Oregon College Savings Plan for two kids, (Classes of 2030 & 2032)
2.1% VG International Stock Index (VGTSX) (0.38%)
2.8% TIAA-CREF Equity Index Fund (TINRX) (0.32%)
~100.0%
Debt
Mortgage –30 year fixed at 3.87% (refi’d Nov 2010)
Credit card debt – none
Student – 1.6% fixed @ $130 a month ($13K remaining)
Car – no debt
Emergency Fund – 6-9 months living expenses in Ally Savings (0.90%) & CD (1.48%) (not included in portfolio)
Tax Filing Status
Married, filing jointly – 15% Fed in 2011; 9% Oregon (2011)
Age
Hers – 37
His – 40
Son (b. 2008), Daughter (b. 2010)
Stable jobs in local/state government with an annual gross income of ~$111K. Expect this to increase incrementally (not dramatically) relative to inflation later in our careers. Intend to stay in our current house/city indefinitely.
Monthly Investment
We allocate $2316 (~25% of gross monthly income) from salaries across five accounts in these proportions:
Pre-tax
457b Plans:
[*]$500 to Vanguard Institutional Index Fund – Institutional (VIIIX) (0.04%)
[*]$500 to Large Company Value Stock Option (0.39%) [blend of Black Rock Russell 1000 Value Index; Dodge & Cox Stock Fund (DODGX); MFS Value (MEIIX); LSV Value Equity (LSVEX). = (0.39%)]
Post-tax
[*]$400 to college funds [$100 to each child's 529's, each with two funds: TIAA-CREF Equity Index Fund (TINRX) (0.32%) &
VG International Stock Index (VGTSX) (0.38%)
& $200 to taxable VG Total Stock Market Index (VTSAX) (0.09%)
[*]$458 to Her Roth IRA - VG REIT Index (VGSIX) (0.24%)
[*]$458 to His Roth IRA - Total Stock Mkt Idx Inv (VTSMX) (0.18%)