Advice for Rebalancing with Vanguard

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
OldSport
Posts: 368
Joined: Tue Jul 25, 2017 7:01 pm

Advice for Rebalancing with Vanguard

Post by OldSport » Sat Jan 12, 2019 6:26 pm

What is the best way to rebalance in Vanguard, both for a Roth IRA and Taxable Account?

I've heard things like rebalancing with contributions to prevent taxable events, but how often to rebalance, and by how large? For example, if you have an IPS to have 10% in Intl EM, what would be your strategy to rebalance in Roth IRA and taxable?

Lets assume the Roth IRA is funded in full with new contributions once per year and the taxable has monthly recurring contributions, but the relative contribution is small compare to account value (i.e. monthly contribution approx 1% of taxable account value and shrinking as the balance grows).

mhalley
Posts: 6509
Joined: Tue Nov 20, 2007 6:02 am

Re: Advice for Rebalancing with Vanguard

Post by mhalley » Sat Jan 12, 2019 7:12 pm

The wiki has some suggestions, such as 5% rebalancing bands. How often is more controversial, usually something like yearly is recommended. You generally don’t want to pay taxes to rebalance.

https://www.bogleheads.org/wiki/Rebalancing
Vanguard also has a white paper, and concludes:
. the risk-adjusted returns are not meaningfully different whether a portfolio is rebalanced monthly, quarterly, or annually; however, the number of rebalancing events and resulting costs increase significantly. As a result, we conclude that a rebalancing strategy based on reasonable monitoring frequencies (such as annual or semiannual) and reasonable allocation thresholds (variations of 5% or so) is likely to provide sufficient risk control relative to the target asset allocation for most portfolios with broadly diversified stock and bond holdings.
https://www.vanguard.com/pdf/icrpr.pdf

Post Reply