Rebalancing with Account Restrictions

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Post Reply
Carbonate24
Posts: 51
Joined: Sun Mar 12, 2017 8:19 pm

Rebalancing with Account Restrictions

Post by Carbonate24 » Wed Aug 09, 2017 9:05 pm

Almost all of my non-401(k) assets are equities. Almost all of the bonds I own are in my 401k. When it comes time to rebalance equities/bonds per my chosen AA percentage, that will almost always require a 401k transaction. The problem is my 401k only allows 2 transactions per month - no exceptions.

Only having recently adopted an IPS, AA, etc, I don't have a good feel for how often rebalancing is done. I suspect there won't often be periods where I need more than 2 rebalances per month. But if my AA did require more than two 401k rebalances in a given month, I don't have a sophisticated approach considering the account restrictions. Thoughts?

My plan so for is to rebalance my 401k when my AA tells me to, and just wait until the beginning of the next month, potentially considering opening a taxable or muni bond fund outside of my 401k if I can meet the minimum.

acanthurus
Posts: 244
Joined: Sun Aug 04, 2013 8:02 am

Re: Rebalancing with Account Restrictions

Post by acanthurus » Wed Aug 09, 2017 9:08 pm

I think most people do it annually or quarterly, depending on how closely they watch their portfolio. Usually the market is not so volatile as to require more than quarterly rebalancing.

If you're interested in seeing the effects of monthly vs. quarterly vs. annual rebalancing on your own portfolio you can backtest the differences over at https://www.portfoliovisualizer.com/backtest-portfolio .

venkman
Posts: 230
Joined: Tue Mar 14, 2017 10:33 pm

Re: Rebalancing with Account Restrictions

Post by venkman » Wed Aug 09, 2017 9:14 pm

The wiki has everything you need to know about rebalancing. :happy

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

livesoft
Posts: 56365
Joined: Thu Mar 01, 2007 8:00 pm

Re: Rebalancing with Account Restrictions

Post by livesoft » Wed Aug 09, 2017 9:25 pm

Better start some IRAs so you can rebalance in them in the future.
This signature message sponsored by sscritic: Learn to fish.

User avatar
grabiner
Advisory Board
Posts: 20678
Joined: Tue Feb 20, 2007 11:58 pm
Location: Columbia, MD

Re: Rebalancing with Account Restrictions

Post by grabiner » Thu Aug 10, 2017 10:24 pm

If you use a 5% rebalancing threshold, you still won't have to rebalance that often. A 5% threshold means that you rebalance when your portfolio is 5% off from its target. For example, if you have a 60% stock allocation, you might initially have $60K in stock and $40K in bonds. To drop that to 55%, you would need the stock to fall from $60K to $49K, which is an 18% market decline. Even if you check your portfolio frequently, you won't have too many 18% declines in a short time.
David Grabiner

Carbonate24
Posts: 51
Joined: Sun Mar 12, 2017 8:19 pm

Re: Rebalancing with Account Restrictions

Post by Carbonate24 » Fri Aug 11, 2017 9:16 pm

Thanks all....helpful. Seems as though transaction frequency restrictions I've got + IRA balancing will keep me in check most of time.

Post Reply