Rebalancing with maturing CDs/bonds

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Rebalancing with maturing CDs/bonds

Post by Tarkus » Fri Jan 11, 2019 1:16 pm

I'm in early retirement and I have about half of my fixed income in individual bonds and CDs.

Due to the recent market drop, my asset allocation is a bit out-of-whack (but not yet at a 5% rebalancing band).

When a CD or bond matures, one option would be to roll it into another CD or bond. But one could also re-invest it into equities, getting the asset allocation closer to the target. I didn't ever consider this second option when I wrote my Investment Policy Statement.

Does anybody else have an IPS that calls for maturing bonds/CDs to be re-invested in an "underweight" asset class? Are there any unintended consequences to such an investment policy?

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Re: Rebalancing with maturing CDs/bonds

Post by dbr » Fri Jan 11, 2019 1:28 pm

I think it is generally assumed that income/withdrawal, distributions, or investment changes such as you mention can be opportunities to partially rebalance whether or not one is outside bands. The idea is that in these cases one is incurring no additional tax or other costs since the transactions are happening anyway.

I don't think this kind of execution level activity rises to the level of policy addressed by an IPS.

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