Moved to Vanguard this year. Set target allocation. Now significantly outside target range. Now what?
Moved to Vanguard this year. Set target allocation. Now significantly outside target range. Now what?
We reallocated our formerly complicated portfolio to a simplified index fund portfolio at Vanguard this year. .
Since then ,our equity funds have increased to the point where we have a significantly larger percentage of our portfolio value in stocks than our targeted allocation.
This concerns us.
Since we've had our Vanguard funds for less than a year, should we wait to rebalance and ride it out till the " longer than a year" period kicks in ?
We're concerned about taxes .This may be a very newbie question but we're still confused. Anticipated tax bracket is 15% but could end up higher.
Edited to add, per request:
What was the desired asset allocation?
60/40
What is the actual asset allocation now?
66/34 we have been working with a 5 percent range up or down. .
There are also some 5 year CDs outside Vanguard ( but the highest interest we could find) and our Retirement fund and some cash ( cash in emergency fund at a online bank ) , and older Treasuries ( with 7%'or more interest at maturity ) outside Vanguard.
If interest rates warrant we thought we would break the CDs and possibly take advantage of higher interest rates in our conservative allocation.
Since then ,our equity funds have increased to the point where we have a significantly larger percentage of our portfolio value in stocks than our targeted allocation.
This concerns us.
Since we've had our Vanguard funds for less than a year, should we wait to rebalance and ride it out till the " longer than a year" period kicks in ?
We're concerned about taxes .This may be a very newbie question but we're still confused. Anticipated tax bracket is 15% but could end up higher.
Edited to add, per request:
What was the desired asset allocation?
60/40
What is the actual asset allocation now?
66/34 we have been working with a 5 percent range up or down. .
There are also some 5 year CDs outside Vanguard ( but the highest interest we could find) and our Retirement fund and some cash ( cash in emergency fund at a online bank ) , and older Treasuries ( with 7%'or more interest at maturity ) outside Vanguard.
If interest rates warrant we thought we would break the CDs and possibly take advantage of higher interest rates in our conservative allocation.
Last edited by Jackson12 on Wed Oct 25, 2017 5:27 pm, edited 1 time in total.
- ruralavalon
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Re: Moved to Vanguard this year. Set target allocation. Now significantly outside target range. Now what?
That's certainly good news about growth in your stock investments. A bull market is a nice "problem" to experience.
What was the desired asset allocation?
What is the actual asset allocation now?
Please simply add this to your original post using the edit button.
To avoid triggering unnecessary income tax liability, do your rebalancing by exchanging between funds inside a tax-advantaged account, not in a taxable account.
Don't worry about small shifts in asset allocation, only larger shifts.Jackson12 wrote: ↑Wed Oct 25, 2017 9:44 am We reallocated our formerly complicated portfolio to a simplified index fund portfolio at Vanguard this year. .
Since then ,our equity funds have increased to the point where we have a significantly larger percentage of our portfolio value in stocks than our targeted allocation.
This concerns us.
Since we've had our Vanguard funds for less than a year, should we wait to rebalance and ride it out till the " longer than a year" period kicks in ?
We're concerned about taxes .This may be a very newbie question but we're still confused. Anticipated tax bracket is 15% but could end up higher.
What was the desired asset allocation?
What is the actual asset allocation now?
Please simply add this to your original post using the edit button.
To avoid triggering unnecessary income tax liability, do your rebalancing by exchanging between funds inside a tax-advantaged account, not in a taxable account.
Last edited by ruralavalon on Wed Oct 25, 2017 10:25 am, edited 1 time in total.
"Everything should be as simple as it is, but not simpler." - Albert Einstein |
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Re: Moved to Vanguard this year. Set target allocation. Now significantly outside target range. Now what?
Not knowing this information:
Taxable account? Do you have tax advantaged accounts where you can rebalance with no tax penalty? What's your IPS say?
Taxable account? Do you have tax advantaged accounts where you can rebalance with no tax penalty? What's your IPS say?
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Re: Moved to Vanguard this year. Set target allocation. Now significantly outside target range. Now what?
Did you check the market today?
Taxes will not be affected by bull market. You only get hit with the capital gains when you sell and realize the profit. Dividends are taxable but stay within a relatively narrow range regardless of how the market is doing.
Taxes will not be affected by bull market. You only get hit with the capital gains when you sell and realize the profit. Dividends are taxable but stay within a relatively narrow range regardless of how the market is doing.
Re: Moved to Vanguard this year. Set target allocation. Now significantly outside target range. Now what?
As others have noted, think of all accounts as one portfolio. That means you can adjust overall AA in tax-advantaged accounts. If you only have a taxable account and are still contributing, then you might just add tax-efficient bonds to the mix.
Paul
Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.
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Re: Moved to Vanguard this year. Set target allocation. Now significantly outside target range. Now what?
This format might give others a greater context and more information to view your portfolio
Asking Portfolio Questions
https://www.bogleheads.org/forum/viewt ... =1&t=6212
Asking Portfolio Questions
https://www.bogleheads.org/forum/viewt ... =1&t=6212
Re: Moved to Vanguard this year. Set target allocation. Now significantly outside target range. Now what?
Also note that you can direct new funds to under-weighted assets. And there is no reason you have to wait a year to rebalance, I take great joy in rebalancing a few bucks here and there just for fun. As others have noted, rebalance in your pre-tax accounts, or pay taxes on the after-tax gains (though at 15% I would not worry....).
Salvia Clevelandii "Winifred Gilman" my favorite. YMMV; not a professional advisor.
Re: Moved to Vanguard this year. Set target allocation. Now significantly outside target range. Now what?
I'd worry a bit. If he waits, his capital gains rate could be zero.CAsage wrote: ↑Wed Oct 25, 2017 11:21 am Also note that you can direct new funds to under-weighted assets. And there is no reason you have to wait a year to rebalance, I take great joy in rebalancing a few bucks here and there just for fun. As others have noted, rebalance in your pre-tax accounts, or pay taxes on the after-tax gains (though at 15% I would not worry....).
Re: Moved to Vanguard this year. Set target allocation. Now significantly outside target range. Now what?
What do you consider "significant"?
It is common here to have a "plus or minus 5%" band in which the asset allocation (stock to bond ratio) can wander around. So If your target is 75% stocks, no rebalancing would be needed unless the portfolio goes above 80% stocks or below 70% stocks. In either case, you would sell what you have too much of and buy some of what you have too little of. You can sell/buy enough to get back within the band or you can sell/buy enough to get all the way back to your target.
Some people do it once a year or two years. But since this is a "concern", you should probably do something now unless you are within something like 5% either way.Since we've had our Vanguard funds for less than a year, should we wait to rebalance and ride it out till the " longer than a year" period kicks in ?
Rebalancing can trigger taxes, but this can often be avoided.We're concerned about taxes .
- -You could do the selling and buying in a tax advantaged account like an IRA or a 401k. That does not trigger tax.
-You could stop sending money to what you have to much of and just send money to what you have too little of. This will fix the problem over time.
Link to Asking Portfolio Questions
Re: Moved to Vanguard this year. Set target allocation. Now significantly outside target range. Now what?
Unfortunately, we dont don't,have the option f rebalancing in tax advantaged accounts. I'm editing my original post to note the range we had for our targeted asset allocation as well as where it is now.Jack FFR1846 wrote: ↑Wed Oct 25, 2017 10:24 am Not knowing this information:
Taxable account? Do you have tax advantaged accounts where you can rebalance with no tax penalty? What's your IPS say?
Our vast majority of assets is currently at Vanguard and the asset allocation includes the entire asset allocation for our portfolio, not just Vanguard. However the assets outside Vanguard are not equities.
Re: Moved to Vanguard this year. Set target allocation. Now significantly outside target range. Now what?
Our portfolio at Vanguard does not receive "new funds" except for what we contribute to Roth accounts there- which is the maximum allowed annually for each of us . We are in our 60s.CAsage wrote: ↑Wed Oct 25, 2017 11:21 am Also note that you can direct new funds to under-weighted assets. And there is no reason you have to wait a year to rebalance, I take great joy in rebalancing a few bucks here and there just for fun. As others have noted, rebalance in your pre-tax accounts, or pay taxes on the after-tax gains (though at 15% I would not worry....).
Any "new funds" go to a separate TIA Cref Traditional account , a 403b, offered by my spouse's employer ( now known as Retirement Choice since Traditional automatically changed to Retirement Choice )
We can't move funds from there to Vanguard , only change our future contributions to other options offered through the employer retirement plan. None of these are Vanguard choices.
We don't like the fee structures, risks and returns for the other options,
We are reluctant to change from Traditional since it is part of our" conservative retirement fund, with pre-tax contributions, and not only has a good employer match but has a guaranteed return which has been between 3.25 and 4.25 a year ( there is a 3% guaranteed return plus an extra optional crediting rate determined by the Board of Trustees)
Ever since we've had Traditional, the Trustees have always added to the guarantee with extra crediting rates, ranging from .25 to 1.25. This raises our guaranteed rate from between 3.25% to 4.25% , depending on the year.
Contributions have also not raised our current taxes.
Retirement Choice has a guarantee of as low as 1% but in reality , with the crediting rate factored in, has had at least a 4% annual return thus far. .
Unfortunately, when we learned the guaranteed rate for Retirement Choice could go as low as 1% , we reduced our contributions to that fund.
Any other savings go to an ABLE account and similar accounts for a disabled son. Contributions and withdrawals are tax free .
Re: Moved to Vanguard this year. Set target allocation. Now significantly outside target range. Now what?
I am editing to my original post to answer your questions.ruralavalon wrote: ↑Wed Oct 25, 2017 10:21 am That's certainly good news about growth in your stock investments. A bull market is a nice "problem" to experience.
Don't worry about small shifts in asset allocation, only larger shifts.Jackson12 wrote: ↑Wed Oct 25, 2017 9:44 am We reallocated our formerly complicated portfolio to a simplified index fund portfolio at Vanguard this year. .
Since then ,our equity funds have increased to the point where we have a significantly larger percentage of our portfolio value in stocks than our targeted allocation.
This concerns us.
Since we've had our Vanguard funds for less than a year, should we wait to rebalance and ride it out till the " longer than a year" period kicks in ?
We're concerned about taxes .This may be a very newbie question but we're still confused. Anticipated tax bracket is 15% but could end up higher.
What was the desired asset allocation?
What is the actual asset allocation now?
Please simply add this to your original post using the edit button.
To avoid triggering unnecessary income tax liability, do your rebalancing by exchanging between funds inside a tax-advantaged account, not in a taxable account.
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Re: Moved to Vanguard this year. Set target allocation. Now significantly outside target range. Now what?
I'd work to setup your tax-deferred account so that it has a mixture of assets allowing most rebalancing to be accomplished, plus if still accumulating add that to bonds of course.
Re: Moved to Vanguard this year. Set target allocation. Now significantly outside target range. Now what?
I'm also confused about what to do if stocks drop as low as in 2008. Back then I did nothing.
The next time around, my inclination would be to rebalance ( more stocks ) but I don't know if that is the right move. Also, I don't know where to get tbe money. Ready cash would not be an option.
The next time around, my inclination would be to rebalance ( more stocks ) but I don't know if that is the right move. Also, I don't know where to get tbe money. Ready cash would not be an option.
Re: Moved to Vanguard this year. Set target allocation. Now significantly outside target range. Now what?
So moving between funds is fine?aristotelian wrote: ↑Wed Oct 25, 2017 10:25 am Did you check the market today?
Taxes will not be affected by bull market. You only get hit with the capital gains when you sell and realize the profit. Dividends are taxable but stay within a relatively narrow range regardless of how the market is doing.
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Re: Moved to Vanguard this year. Set target allocation. Now significantly outside target range. Now what?
[/quote]
I am editing to my original post to answer your questions.
[/quote]
I do not see these edits.
I am editing to my original post to answer your questions.
[/quote]
I do not see these edits.
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Re: Moved to Vanguard this year. Set target allocation. Now significantly outside target range. Now what?
Sorry, I thought you were worried that the stock market going up would increase your taxes. I meant that stock gains would not be taxed until you make a transaction. If this is a taxable brokerage account (not your Roth), moving between funds would mean selling the current fund and buying the new one. Selling the current fund would be a taxable event.Jackson12 wrote: ↑Wed Oct 25, 2017 1:57 pmSo moving between funds is fine?aristotelian wrote: ↑Wed Oct 25, 2017 10:25 am Did you check the market today?
Taxes will not be affected by bull market. You only get hit with the capital gains when you sell and realize the profit. Dividends are taxable but stay within a relatively narrow range regardless of how the market is doing.
Re: Moved to Vanguard this year. Set target allocation. Now significantly outside target range. Now what?
Ruralavitron wrote: Don't worry about small shifts in asset allocation, only larger shifts.Jackson12 wrote: ↑Wed Oct 25, 2017 9:44 am We reallocated our formerly complicated portfolio to a simplified index fund portfolio at Vanguard this year. .
Since then ,our equity funds have increased to the point where we have a significantly larger percentage of our portfolio value in stocks than our targeted allocation.
This concerns us.
Since we've had our Vanguard funds for less than a year, should we wait to rebalance and ride it out till the " longer than a year" period kicks in ?
We're concerned about taxes .This may be a very newbie question but we're still confused. Anticipated tax bracket is 15% but could end up higher.
What was the desired asset allocation?
60/40
What is the actual asset allocation now?
66/34 we have been working with a 5 percent range up or down. .
Th,above percentage includes the entire portfolio , not just assets held at Vanguard, although the majority of equities and bonds is at Vanguard .
There are also some 5 year CDs outside Vanguard ( but the highest interest we could find) and our Retirement fund and some cash ( cash in emergency fund at a online bank ) , and older Treasuries ( with 7%'or more interest at maturity ) outside Vanguard.
If interest rates warrant we thought we would break the CDs and possibly take advantage of higher interest rates in our conservative allocation.
Please simply add this to your original post using the edit button.
I thought I did but instead added the info in a later response
To avoid triggering unnecessary income tax liability, do your rebalancing by exchanging between funds inside a tax-advantaged account, not in a taxable account.
Last edited by Jackson12 on Wed Oct 25, 2017 2:32 pm, edited 3 times in total.
Re: Moved to Vanguard this year. Set target allocation. Now significantly outside target range. Now what?
I am editing to my original post to answer your questions.
[/quote]
I do not see these edits.
[/quote]
Sorry, it is showing lower down in this thread. I thought I edited my original post but somehow I did not.
Re: Moved to Vanguard this year. Set target allocation. Now significantly outside target range. Now what?
So it appears your portfolio has just moved outside your band. Are you adding money to the portfolio? If yes, buy only bonds or other fixed income assets for awhile. That should fix it.
If that does not fix it, you will need to sell some stocks and buy bonds - apparently this would have to happen in your taxable account. In this case, sell only enough to move back into your band. Selling 2% of the portfolio should do it.
If that does not fix it, you will need to sell some stocks and buy bonds - apparently this would have to happen in your taxable account. In this case, sell only enough to move back into your band. Selling 2% of the portfolio should do it.
Link to Asking Portfolio Questions
Re: Moved to Vanguard this year. Set target allocation. Now significantly outside target range. Now what?
I’m in a similar situation. My stock funds are about five percentage points above my target, I don’t have stocks to sell in my tax-advantaged accounts, and rebalancing by selling stocks in my taxable accounts would trigger a substantial amount of capital gains taxes. That’s one reason why I’m disinclined to sell my stocks. Here’s a second reason: my stock funds are yielding about as much as my bond funds, and my income from stocks is taxed at a lower rate (in my case, at 15% rather than 28%).
So I’ve decided not to sell stocks. Instead, I’ve decided to think of my stocks more as a source of income than as a source of capital. If I have a sudden need for capital, I can raise it by selling bonds.
So I’ve decided not to sell stocks. Instead, I’ve decided to think of my stocks more as a source of income than as a source of capital. If I have a sudden need for capital, I can raise it by selling bonds.
Last edited by John151 on Wed Oct 25, 2017 5:16 pm, edited 1 time in total.
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Re: Moved to Vanguard this year. Set target allocation. Now significantly outside target range. Now what?
I do not see these edits.
[/quote]
Sorry, it is showing lower down in this thread. I thought I edited my original post but somehow I did not.
[/quote]
Pleas edit the original post even if you did it elsewhere. You are making it difficult for others to help.
Re: Moved to Vanguard this year. Set target allocation. Now significantly outside target range. Now what?
Sorry, it is showing lower down in this thread. I thought I edited my original post but somehow I did not.Silk McCue wrote: ↑Wed Oct 25, 2017 4:36 pmI do not see these edits.
[/quote]
Pleas edit the original post even if you did it elsewhere. You are making it difficult for others to help.
[/quote]
Done. And with my apologies.
Last edited by Jackson12 on Wed Oct 25, 2017 5:39 pm, edited 1 time in total.
Re: Moved to Vanguard this year. Set target allocation. Now significantly outside target range. Now what?
We are not adding new money, except for annual Roth funds, usually after looking at our tax bracket at tax time. However, if any Treasuries matured soon we could shift those funds from a settlement fund to bonds. Two will mature within a year but who knows where the market will be then?retiredjg wrote: ↑Wed Oct 25, 2017 3:27 pm So it appears your portfolio has just moved outside your band. Are you adding money to the portfolio? If yes, buy only bonds or other fixed income assets for awhile. That should fix it.
If that does not fix it, you will need to sell some stocks and buy bonds - apparently this would have to happen in your taxable account. In this case, sell only enough to move back into your band. Selling 2% of the portfolio should do it.
Re: Moved to Vanguard this year. Set target allocation. Now significantly outside target range. Now what?
Is this your portfolio as a whole, or just your Vanguard account? The reason for the 5% tolerance is that raising or lowering the stock allocation by 5% doesn't make much difference to your risk level, and the risk is a property of your whole portfolio, not just the Vanguard portion. Thus, if your whole portfolio hasn't moved by 5%, there is no reason to rebalance.
And have you been reinvesting dividends in the same fund? If you have, this gives you some money available for rebalancing for a small capital gain, as the September dividends don't have much growth.
This would not help; Treasuries are bonds, so cashing in the Treasuries to buy bonds doesn't change your allocation.
Re: Moved to Vanguard this year. Set target allocation. Now significantly outside target range. Now what?
grabiner wrote: ↑Wed Oct 25, 2017 5:55 pmIs this your portfolio as a whole, or just your Vanguard account? The reason for the 5% tolerance is that raising or lowering the stock allocation by 5% doesn't make much difference to your risk level, and the risk is a property of your whole portfolio, not just the Vanguard portion. Thus, if your whole portfolio hasn't moved by 5%, there is no reason to rebalance.
This is the portfolio as a whole.
And have you been reinvesting dividends in the same fund? If you have, this gives you some money available for rebalancing for a small capital gain, as the September dividends don't have much growth.
We have been reinvesting dividends in the same fundsThis would not help; Treasuries are bonds, so cashing in the Treasuries to buy bonds doesn't change your allocation.
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Re: Moved to Vanguard this year. Set target allocation. Now significantly outside target range. Now what?
Many are in a similar situation as the general boglehead way is to keep stocks in taxable and bonds in tax-deferred. When the stock market is as strong as it's been, you are bound to run short of stocks to sell in tax-deferred space. So the question becomes, do you suck it up and pay the Long Term capital gains taxes that you will eventually pay anyway and forego any future gains on those tax dollars, or accept a riskier asset allocation. I'm leading the witness a bit for sure, but please be aware that the latter decision is an inconsistent one, and the result could be that you lose the additional stock allocation in a downswing, or will potentially face a more dislocated asset allocation next year and have to stress over the same decision.
"I've worked in the private sector. They expect results." - Dr. Raymond Stantz
Re: Moved to Vanguard this year. Set target allocation. Now significantly outside target range. Now what?
If the Roth contributions going entirely to bonds does not bring your overall AA back within the band, you only have two choices. Either sell stocks and buy bonds or live with the allocation you have.Jackson12 wrote: ↑Wed Oct 25, 2017 5:37 pmWe are not adding new money, except for annual Roth funds, usually after looking at our tax bracket at tax time. However, if any Treasuries matured soon we could shift those funds from a settlement fund to bonds. Two will mature within a year but who knows where the market will be then?retiredjg wrote: ↑Wed Oct 25, 2017 3:27 pm So it appears your portfolio has just moved outside your band. Are you adding money to the portfolio? If yes, buy only bonds or other fixed income assets for awhile. That should fix it.
If that does not fix it, you will need to sell some stocks and buy bonds - apparently this would have to happen in your taxable account. In this case, sell only enough to move back into your band. Selling 2% of the portfolio should do it.
I suggest selling stocks and buying bonds. Sell only shares that have long term capital gains, not short term gains. Sell enough to get back into your band.
To help prevent this in the future, all the dividends in your taxable account should go to a money market account (or go directly to a bond fund). You should not be reinvesting dividends in stock funds as you already have to much in stock funds.
Link to Asking Portfolio Questions
- ruralavalon
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Re: Moved to Vanguard this year. Set target allocation. Now significantly outside target range. Now what?
In my opinion that's enough off target to warrant rebalancing.Jackson12 wrote: ↑Wed Oct 25, 2017 9:44 am We reallocated our formerly complicated portfolio to a simplified index fund portfolio at Vanguard this year. .
Since then ,our equity funds have increased to the point where we have a significantly larger percentage of our portfolio value in stocks than our targeted allocation.
This concerns us.
Since we've had our Vanguard funds for less than a year, should we wait to rebalance and ride it out till the " longer than a year" period kicks in ?
We're concerned about taxes .This may be a very newbie question but we're still confused. Anticipated tax bracket is 15% but could end up higher.
Edited to add, per request:
What was the desired asset allocation?
60/40
What is the actual asset allocation now?
66/34 we have been working with a 5 percent range up or down. .
There are also some 5 year CDs outside Vanguard ( but the highest interest we could find) and our Retirement fund and some cash ( cash in emergency fund at a online bank ) , and older Treasuries ( with 7%'or more interest at maturity ) outside Vanguard.
If interest rates warrant we thought we would break the CDs and possibly take advantage of higher interest rates in our conservative allocation.
What is your age? What is your tax bracket, both federal and state?
Please outline all long-term investment/retirement accounts, indicating what funds are in each and in what amounts. Include everything invested for the long-term including both the CDs and the Treasury bonds. Don't include checking accounts, emergency funds or anything not invested for the long-term. Also please tell us how much you are adding annually in new contributions to any account or investment. Please see the post "asking portfolio questions" for a good format.
With that information it may be possible to suggest rebalancing ideas that may avoid triggering unnecessary tax liability.
You can simply add this to your original post using the edit button, it helps a lot if all of your information is in one place.
"Everything should be as simple as it is, but not simpler." - Albert Einstein |
Wiki article link: Bogleheads® investment philosophy
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Re: Moved to Vanguard this year. Set target allocation. Now significantly outside target range. Now what?
Jackson12,
Can you clarify that your desired asset allocation is now 60% stocks and 40 % bonds?
Back in a July 9 thread you said:
"Desired asset allocation:....is this way off base? : 57 to 60% bonds, 37 to 40 % equities"
I'm wondering if you might have the stocks/bonds AA convention reversed?
JW
Retired at Last
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Re: Moved to Vanguard this year. Set target allocation. Now significantly outside target range. Now what?
Based on your edit, your target is 60/40 with a 5% band.
You're at 66/34 so indeed, you can rebalance. This is rather simple. Sell equity and buy bond such that you end up at 60/40.
But it's also not simple. Do you have the ability to sell only equity with long term cap gains? If so, fine. You'll pay the rate based on your income plus gains in the LTCG tables (less than ordinary income).
If you want to rebalance and not pay taxes, you can't. This seems to always be the goal and like being able to jump in the air and fly, it's just a dream.*
*.....unless you can put more money into your investments and buy bonds. That moves the allocation and does not trigger taxes from sales of appreciated assets. But I think you said that you can't do that.
You're at 66/34 so indeed, you can rebalance. This is rather simple. Sell equity and buy bond such that you end up at 60/40.
But it's also not simple. Do you have the ability to sell only equity with long term cap gains? If so, fine. You'll pay the rate based on your income plus gains in the LTCG tables (less than ordinary income).
If you want to rebalance and not pay taxes, you can't. This seems to always be the goal and like being able to jump in the air and fly, it's just a dream.*
*.....unless you can put more money into your investments and buy bonds. That moves the allocation and does not trigger taxes from sales of appreciated assets. But I think you said that you can't do that.
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