Rebalancing -- preferential to use new income or sell bonds?

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financial.freedom
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Joined: Fri Oct 03, 2014 1:18 am

Rebalancing -- preferential to use new income or sell bonds?

Post by financial.freedom »

I've passed the 5% band threshold for rebalancing (off by 6-7% probably after today's close). I wanted to pull the trigger on selling bonds, but BND was up by 2%. So instead, I transferred some savings to 100% stocks ( 30/70 international/US total stock market).

My feeling was, our munis in taxable have taken a hit recently and selling them to buy bonds today would have locked in that loss. And, at the same time would lose today's 2% plus/minus gain.

If I can eventually get back to my desired AA, is it preferential to do this using new monthly income contributions (which might take 6+ months) or do a one-time rebalance using bonds and then new monthly contributions are invested at my usual AA?

What are other BH doing in this scenario?

Thanks in advance!
dbr
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Re: Rebalancing -- preferential to use new income or sell bonds?

Post by dbr »

Locking in a loss inside a portfolio is not a thing. Stated otherwise, it is entirely possible that to rebalance a portfolio you sell something that has gone down.

Also, it is perfectly legitimate when making contributions to a portfolio that those contributions be directed toward bringing asset allocations closer to target.

I am a little puzzled about your mention of savings. Is that not also part of your asset allocation?
Topic Author
financial.freedom
Posts: 577
Joined: Fri Oct 03, 2014 1:18 am

Re: Rebalancing -- preferential to use new income or sell bonds?

Post by financial.freedom »

dbr wrote: Mon Mar 23, 2020 5:32 pm Locking in a loss inside a portfolio is not a thing. Stated otherwise, it is entirely possible that to rebalance a portfolio you sell something that has gone down.

Also, it is perfectly legitimate when making contributions to a portfolio that those contributions be directed toward bringing asset allocations closer to target.

I am a little puzzled about your mention of savings. Is that not also part of your asset allocation?
Good question. That part of my savings was for taxes. I anticipated a tax bill of 70k+ --- but now that taxes don't need to be filed until July 15 the money I set aside for taxes can be utilized (to some extent).
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Sandtrap
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Re: Rebalancing -- preferential to use new income or sell bonds?

Post by Sandtrap »

financial.freedom wrote: Mon Mar 23, 2020 6:17 pm
dbr wrote: Mon Mar 23, 2020 5:32 pm Locking in a loss inside a portfolio is not a thing. Stated otherwise, it is entirely possible that to rebalance a portfolio you sell something that has gone down.

Also, it is perfectly legitimate when making contributions to a portfolio that those contributions be directed toward bringing asset allocations closer to target.

I am a little puzzled about your mention of savings. Is that not also part of your asset allocation?
Good question. That part of my savings was for taxes. I anticipated a tax bill of 70k+ --- but now that taxes don't need to be filed until July 15 the money I set aside for taxes can be utilized (to some extent).
Where will the tax due 70k come from if you use some of it?

j🌺
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Topic Author
financial.freedom
Posts: 577
Joined: Fri Oct 03, 2014 1:18 am

Re: Rebalancing -- preferential to use new income or sell bonds?

Post by financial.freedom »

Sandtrap wrote: Mon Mar 23, 2020 7:51 pm
financial.freedom wrote: Mon Mar 23, 2020 6:17 pm
dbr wrote: Mon Mar 23, 2020 5:32 pm Locking in a loss inside a portfolio is not a thing. Stated otherwise, it is entirely possible that to rebalance a portfolio you sell something that has gone down.

Also, it is perfectly legitimate when making contributions to a portfolio that those contributions be directed toward bringing asset allocations closer to target.

I am a little puzzled about your mention of savings. Is that not also part of your asset allocation?
Good question. That part of my savings was for taxes. I anticipated a tax bill of 70k+ --- but now that taxes don't need to be filed until July 15 the money I set aside for taxes can be utilized (to some extent).
Where will the tax due 70k come from if you use some of it?

j🌺
Will have to save in May/June. Think what I'll do is DCA 5k per week till it's closer to the new tax season.
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