Reallocation to target % - Lump Sum or over time?

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Topic Author
m@ver1ck
Posts: 128
Joined: Fri Sep 14, 2018 2:18 pm

Reallocation to target % - Lump Sum or over time?

Post by m@ver1ck » Tue May 21, 2019 2:09 pm

I've been following this forum for about 6 months now, and realize I might be too stock heavy and need to transfer some $$ into bonds from stocks.

My target allocation is 75/25, I'm at 84/16. Total is about 700K over all accounts.
Do I just
- do the change in one shot?
- change new 401K allocation so I just buy Bonds.
- A hybrid ? Since 75/25 is a suggestion. I'd be fine between 70/30 and 80/20.

Thanks!

megabad
Posts: 2501
Joined: Fri Jun 01, 2018 4:00 pm

Re: Reallocation to target % - Lump Sum or over time?

Post by megabad » Tue May 21, 2019 2:23 pm

m@ver1ck wrote:
Tue May 21, 2019 2:09 pm
I've been following this forum for about 6 months now, and realize I might be too stock heavy and need to transfer some $$ into bonds from stocks.

My target allocation is 75/25, I'm at 84/16. Total is about 700K over all accounts.
Do I just
- do the change in one shot?
- change new 401K allocation so I just buy Bonds.
- A hybrid ? Since 75/25 is a suggestion. I'd be fine between 70/30 and 80/20.

Thanks!
Is this 700k all in tax advantaged accounts? If so, then yes, I would just do it in one shot. If you have some taxable holdings outside retirement accounts, then I would consider the tax costs before implementing and maybe find a way to avoid incurring additional taxes.

carmonkie
Posts: 151
Joined: Fri Jun 29, 2018 4:31 pm

Re: Reallocation to target % - Lump Sum or over time?

Post by carmonkie » Tue May 21, 2019 2:35 pm

I would do it all in one shot in the 401(k) to make this a non-taxable event. That is what I did back in December moving about 5-6% from Stocks to Bonds to get me to my current 80/20. Your account balance will be the same (give or take a few while the funds settle) as it did before rebalancing.

Your 401(k) should allow you to transfer funds from equity funds to a bond fund. So you will only be out of the market while funds settle (2-3 days??). No big deal.

Then change 401(k) contribution to match to your new AA.

If you change your 401(k) allocation to just buying bonds it will take a while to rebalance. You need to go from about $112,000 in bonds to $140,000 (@20% bonds). That is a difference of $28K, assuming your are maxing out 401(k) that is about a year and a half of just doing bond contributions. IMO that is too long to be in the wrong AA.

Topic Author
m@ver1ck
Posts: 128
Joined: Fri Sep 14, 2018 2:18 pm

Re: Reallocation to target % - Lump Sum or over time?

Post by m@ver1ck » Tue May 21, 2019 2:43 pm

I'm hoping VTI will hit 155 soon - that's my mental point for doing the rebalance. But it could tank too. :annoyed :oops: :confused

I'll wait until the Trump crisis passes or next week and start moving 5K over from stocks to bonds every week.
The rest will be taken care of via 401K in the next few months.

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