How to properly dollar cost average?

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playboy_number9
Posts: 46
Joined: Tue Mar 12, 2024 7:22 am

How to properly dollar cost average?

Post by playboy_number9 »

My portfolio is currently fluctuating between the $200k and $300k range. The amount of money i invest every month from my paycheck is no longer enough to keep my portfolio properly aligned within my desired asset allocation because the market swings are larger and more volatile now.

How do i properly rebalance & dollar cost average from here?

Do I disburse my cash every month by percentages to my desired assets regardless of the total cost and fair market value of the assets?

My portfolio:

45% - Vanguard Total Stock Market Index Fund - (VTI)
30% - Vanguard Total International Stock Market Index Fund - (VXUS)
15% - Vanguard Inflation Protected Securities Fund - (VIPSX)
10% - Vanguard Real Estate Index Fund - (VNQ)
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ruralavalon
Posts: 26490
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Location: Illinois

Re: How to properly dollar cost average?

Post by ruralavalon »

playboy_number9 wrote: Tue Apr 02, 2024 2:54 pm My portfolio is currently fluctuating between the $200k and $300k range. The amount of money i invest every month from my paycheck is no longer enough to keep my portfolio properly aligned within my desired asset allocation because the market swings are larger and more volatile now.

How do i properly rebalance & dollar cost average from here?

Do I disburse my cash every month by percentages to my desired assets regardless of the total cost and fair market value of the assets?

My portfolio:

45% - Vanguard Total Stock Market Index Fund - (VTI)
30% - Vanguard Total International Stock Market Index Fund - (VXUS)
15% - Vanguard Inflation Protected Securities Fund - (VIPSX)
10% - Vanguard Real Estate Index Fund - (VNQ)
More information is necessary.

Is this all in a taxable brokerage account? Do you have any tax-advantaged accounts like IRAs, 401k, 403b, 457b, TSP? Which investments are in which accounts? What is your tax bracket, both federal and state?

Please use this format: Asking Portfolio Questions.

You can simply add to your original post using the edit button (the pencil icon near the upper right corner of your post), it helps a lot if all of your information is in one place.

If you have tax-advantaged accounts do your rebalancing in those accounts to avoid any unnecessary income tax consequences.

Concentrate on maintaining the stock/bond asset allocation. Many people rebalance only once per year, or when the asset allocation gets more than 5% off of target. It's not necessary to have your asset allocation exact at all times.

Wiki article, Rebalancing
Last edited by ruralavalon on Tue Apr 02, 2024 3:43 pm, edited 2 times in total.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
the_wiki
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Re: How to properly dollar cost average?

Post by the_wiki »

Don’t worry about it too much. There’s no evidence frequent or strict rebalancing improves outcome.
Hyperchicken
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Joined: Mon Mar 02, 2020 4:33 pm

Re: How to properly dollar cost average?

Post by Hyperchicken »

If you have the money, buy.
If you think your portfolio is too far from your intended AA, rebalance.

You will find plenty of strong opinions on these subjects. You'll hear how rebalancing too frequently or too infrequently would ruin your returns, etc. It's just that strong opinions are louder than mild ones.
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tetractys
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Location: Along the Salish Sea

Re: How to properly dollar cost average?

Post by tetractys »

playboy_number9 wrote: Tue Apr 02, 2024 2:54 pmThe amount of money i invest every month from my paycheck is no longer enough to keep my portfolio properly aligned within my desired asset allocation because the market swings are larger and more volatile now.

How do i properly rebalance & dollar cost average from here?
In my opinion the 5/25 rule is a very good method to follow. But those percentages will only be reached when market swings are relatively violent. So in the meantime add funds to the assets that are negatively out of balance the most. This could mean designating the fund where 100% of your deferred compensation is invested each paycheck, or every few paychecks.
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grabiner
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Re: How to properly dollar cost average?

Post by grabiner »

A good, simple strategy is probably to invest automatically in your desired proportions, and give your portfolio an annual checkup. At that annual checkup, you can rebalance, and also decide whether you need to change anything.

I do check occasionally if my allocation gets outside the 5/25 limits, and have needed to rebalance three times in mid-year: October 2008 from bonds to stock when the market crashed, October 2009 out of REITs when they recovered very fast, and March 2020 from bonds to stock when the market crashed.

This is what I have in my Investment Policy Statement:

This statement will be reviewed whenever there is a substantial change in my financial situation, and annually when I rebalance. If there is no substantial change in my financial situation, I will wait at least three months between changing the asset allocation in my statement and changing the asset allocation of my investments, and review the change in the statement at that time.

Thus, in January 2015, I changed my glidepath as retirement became closer (increasing bond allocation by 2% per year), but I didn't actually rebalance to the new allocation until April 2015. With the glidepath already set, I changed my allocation every year from 2016-2024 according to the IPS, and rebalanced in January to that new allocation.
Wiki David Grabiner
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