Re-balancing tutorial

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Julyguy754
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Joined: Wed Mar 11, 2015 8:17 pm

Re-balancing tutorial

Post by Julyguy754 »

Greetings-
Is there a easy to understand reading or tutorial on re-balancing? I was set to shift my investments to the 3 fund approach: VTSAX; VTIAX; & VBTLX or VSIGX. I googled read a few articles on re-balancing but it sounds more complicated than I thought, although I read in here that it is easy to do once per year. Now I am thinking of moving to VSCGX , but hate the thought of paying higher ER and want to learn more about re-balancing before I decide. If anyone knows of some good resources I would appreciate it greatly.
Julyguy
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bertilak
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Re: Re-balancing tutorial

Post by bertilak »

Julyguy754 wrote: Tue Apr 06, 2021 10:07 am Greetings-
Is there a easy to understand reading or tutorial on re-balancing? I was set to shift my investments to the 3 fund approach: VTSAX; VTIAX; & VBTLX or VSIGX. I googled read a few articles on re-balancing but it sounds more complicated than I thought, although I read in here that it is easy to do once per year. Now I am thinking of moving to VSCGX , but hate the thought of paying higher ER and want to learn more about re-balancing before I decide. If anyone knows of some good resources I would appreciate it greatly.
Julyguy
Changing the makeup of your portfolio is not the same thing as rebalancing. Rebalancing is done when your actual AA drifts away from your target AA by more than you find acceptable. For example if you want 60/40 but see you are at 65/35 you might want to do something to correct that.

Rebalancing is a correction, not a change in plan.

Still, you need to be aware of potential tax consequences whether you are rebalancing or changing course. If everything is in a tax deferred plan, e.g. an IRA or 401(k), you are free to buy and sell with no tax consequences. If things are in a taxable account you need to tread carefully and probably slowly. The important thing is the amount of unrealized gains and losses in each asset you hold.

Also important is your general tax situation. The only time things get complicated enough to deserve a tutorial is when taxes are involved.

Of course deciding on what assets and what AA are appropriate for you is another topic and there are many whole books about that,
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retired@50
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Re: Re-balancing tutorial

Post by retired@50 »

Julyguy754 wrote: Tue Apr 06, 2021 10:07 am Greetings-
Is there a easy to understand reading or tutorial on re-balancing? I was set to shift my investments to the 3 fund approach: VTSAX; VTIAX; & VBTLX or VSIGX. I googled read a few articles on re-balancing but it sounds more complicated than I thought, although I read in here that it is easy to do once per year. Now I am thinking of moving to VSCGX , but hate the thought of paying higher ER and want to learn more about re-balancing before I decide. If anyone knows of some good resources I would appreciate it greatly.
Julyguy
Have you seen the wiki page on rebalancing?

https://www.bogleheads.org/wiki/Rebalancing

The general idea is to sell what you have too much of, and use the proceeds to buy what you have too little of.

Best to do this in a tax advantaged retirement account to avoid tax consequences.

Regards,
This is one person's opinion. Nothing more.
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Julyguy754
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Re: Re-balancing tutorial

Post by Julyguy754 »

Sorry I did not make it more clear. I understand the difference between changing my portfolio and re-balancing. I guess I should have said that I will have to rebalance once I go to the 3 funds portfolio so need to learn how to do it or just shift into VSCGX. All my current Vanguard funds are in an IRA non -taxable accounts. I am 66, retired, have Total Stock, Total Bond, Wellington as well as Wellington in a beneficiary account. I have not rebalanced them so need to learn when shifting them to the 3 index funds. Also have a pension.
I will read the Bogleheads article on rebalancing. Thanks for your help.
Julyguy
sycamore
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Re: Re-balancing tutorial

Post by sycamore »

Julyguy,

If your goal is to keep your portfolio roughly in balance, you don't have to go "all in" on the 3 fund approach or use only the Life Strategy fund. You could, for example, use a mix of those approaches. By using VSCGX fund for, say, 50% of your portfolio, that'll keep half of your portfolio rebalanced; the other half may drift but it'll take twice as long to get to where you need to rebalance. And with your other half in the 3 fund, you get the advantage of the lower ERs.

It's not a perfect solution as it works mainly if you have multiple accounts with sufficient dollars in each. It is good enough, though. I follow it myself because 1) I wanted to simplify my portfolio (with a LifeStrategy & Target Date funds) for my family in case I die and 2) I wanted at least some automatic rebalancing.
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grabiner
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Re: Re-balancing tutorial

Post by grabiner »

Rebalancing a 3-fund portfolio is quite simple.

Multiply the total portfolio balance by the desired allocation in each fund.
Compare this to the amount you actually hold in each fund.
The difference is the amount you need to buy or sell.

Say that you have a $100K portfolio, with a target allocation of 50% US stock, 30% foreign stock, 20% bonds.

Your target is $50K/$30K/$20K.
Say that you actually hold $55K/$35K/$10K.
The difference is $-5K/$-5K/$10K.

Thus, you need to sell $5K of US stock to buy bonds, and $5K of foreign stock to buy bonds.
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livesoft
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Re: Re-balancing tutorial

Post by livesoft »

I think the OP is thinking that they need to get the numbers exactly and precisely (to 8 decimal digits) right.

Once they learn (and accept) that just being in the ballpark is OK, then rebalancing becomes trivial and practically thoughtless. And that also means effortless. In fact, just reading my thoughts here took more effort than rebalancing.
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Julyguy754
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Re: Re-balancing tutorial

Post by Julyguy754 »

Thanks again for your great ideas, much appreciated and more to learn. Someday I hope to hit my ball onto the green.
Julyguy
livesoft
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Re: Re-balancing tutorial

Post by livesoft »

Julyguy754 wrote: Wed Apr 07, 2021 12:41 pm Thanks again for your great ideas, much appreciated and more to learn. Someday I hope to hit my ball onto the green.
Julyguy
Ha! You only need to get on the golf course.
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Topic Author
Julyguy754
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Re: Re-balancing tutorial

Post by Julyguy754 »

Oh I am, but seem to be living in the financial rough, but working on diversifying my shot selections, with the help of boglehead caddies.
livesoft
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Re: Re-balancing tutorial

Post by livesoft »

I really love the metaphor. I'm gonna have to use it in the future. Thanks! :)
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KlangFool
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Re: Re-balancing tutorial

Post by KlangFool »

Julyguy754 wrote: Tue Apr 06, 2021 11:04 am Sorry I did not make it more clear. I understand the difference between changing my portfolio and re-balancing. I guess I should have said that I will have to rebalance once I go to the 3 funds portfolio so need to learn how to do it or just shift into VSCGX. All my current Vanguard funds are in an IRA non -taxable accounts. I am 66, retired, have Total Stock, Total Bond, Wellington as well as Wellington in a beneficiary account. I have not rebalanced them so need to learn when shifting them to the 3 index funds. Also have a pension.
I will read the Bogleheads article on rebalancing. Thanks for your help.
Julyguy
Julyguy754,

Then, why should you create more works for yourself?

A) Put all the money into the Wellington fund.

B) Put some of the money into the Vanguard Life Strategy Fund.

https://investor.vanguard.com/mutual-fu ... trategy/#/

Then, you are done.

No rebalancing is required.

KlangFool
40% VWENX | 12.5% VFWAX/VTIAX | 11.5% VTSAX | 16% VBTLX | 10% VSIAX/VTMSX/VSMAX | 10% VSIGX| 40% Wellington 40% 3-funds 20% Mini-Larry
MotoTrojan
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Re: Re-balancing tutorial

Post by MotoTrojan »

Frankly I would just put it into a single fund-of-funds that mirrors your appropriate/desired allocation and be done with it, especially if you are only going to rebalance annually.
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2pedals
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Re: Re-balancing tutorial

Post by 2pedals »

The wiki has some spreadsheet links that can be used to help with the task. If you need help you can ask your specific questions in a bogleheads forum.

https://www.bogleheads.org/wiki/Rebalancing

Also, it might help if you could explain what you think could be too complicated.
Topic Author
Julyguy754
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Re: Re-balancing tutorial

Post by Julyguy754 »

Again, thank you all so much! With all your information. Gives me lots of different options to consider.
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