How to reallocate without selling?

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Jesteroftheswamp
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How to reallocate without selling?

Post by Jesteroftheswamp »

I’m considering reallocating some of my stocks and rebalancing, however I’m not sure I want to sell anything. Are there other strategies for rebalancing that maybe I don’t know if?

What is your recommended Large/mid/small and international allocation? I have way more invested in small cap than mid, and the majority invested in large cap. International is about 20%

*UPDATE: Honestly, the only reason I am even remotely concerned about it is because when I look at my Asset Mix on Vanguard, there are a few headings saying "The proportion of large, mid, small cap stocks differ from those of the market... you are at risk for underperforming the market."

I have 56& large, 14% mid, and 30% small. Also says I am at risk of underperforming market b/c I have 27% value, 66% blend, and 6% growth.

I also have 88% domestic, 12% International.
Last edited by Jesteroftheswamp on Mon Apr 05, 2021 4:17 pm, edited 3 times in total.
livesoft
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Re: How to reallocate without selling?

Post by livesoft »

Do you consider giving away stock the same as selling? :)
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achillesheel
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Re: How to reallocate without selling?

Post by achillesheel »

Do you have earned income? Can you contribute new money to the new asset that you want bulked up?

Or are you trying to get out of small caps and into a total stock or international stock fund? What does your total portfolio look like?
123
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Re: How to reallocate without selling?

Post by 123 »

Stop automatic reinvestment on (all) investments and use those funds for rebalancing. Since you never know what way the markets will go in any particular period having a pool of funds available to rebalance with can be useful.

One way to reduce the need for rebalancing is to do less slice-and-dice. Use a Total Stock Index instrument instead of distinct small/medium/large capitalization instruments. Some people believe that tax loss harvesting is worth it, others can't be bothered.
Last edited by 123 on Mon Apr 05, 2021 3:57 pm, edited 1 time in total.
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alex_686
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Re: How to reallocate without selling?

Post by alex_686 »

There are no other ways.

May I ask why you don't want to sell?

There are other methods that are advertised. However they suffer from deep errors that are either caused by cognitive errors described in behavioral economics or attempts to a address behavioral errors.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
Topic Author
Jesteroftheswamp
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Re: How to reallocate without selling?

Post by Jesteroftheswamp »

achillesheel wrote: Mon Apr 05, 2021 3:10 pm Do you have earned income? Can you contribute new money to the new asset that you want bulked up?

Or are you trying to get out of small caps and into a total stock or international stock fund? What does your total portfolio look like?
Honestly, the only reason I am even remotely concerned about it is because when I look at my Asset Mix on Vanguard, there are a few headings saying "The proportion of large, mid, small cap stocks differ from those of the market... you are at risk for underperforming the market."

I have 56& large, 14% mid, and 30% small. Also says I am at risk of underperforming market b/c I have 27% value, 66% blend, and 6% growth.

I also have 88% domestic, 12% International.
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Jesteroftheswamp
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Re: How to reallocate without selling?

Post by Jesteroftheswamp »

123 wrote: Mon Apr 05, 2021 3:50 pm Stop automatic reinvestment on (all) investments and use those funds for rebalancing. Since you never know what way the markets will go in any particular period having a pool of funds available to rebalance with can be useful.

One way to reduce the need for rebalancing is to do less slice-and-dice. Use a Total Stock Index instrument instead of distinct small/medium/large capitalization instruments. Some people believe that tax loss harvesting is worth it, others can't be bothered.

Just to make sure I understand, you're suggesting just taking "new money" and using that to rebalance? For example if I wanted to rebalance Bonds from 10% to 20%, instead of selling, I just begin investing new money into bonds to bring the proportion up?
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Jesteroftheswamp
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Re: How to reallocate without selling?

Post by Jesteroftheswamp »

alex_686 wrote: Mon Apr 05, 2021 3:54 pm There are no other ways.

May I ask why you don't want to sell?

There are other methods that are advertised. However they suffer from deep errors that are either caused by cognitive errors described in behavioral economics or attempts to a address behavioral errors.

Honestly, the only reason I am even remotely concerned about it is because when I look at my Asset Mix on Vanguard, there are a few headings saying "The proportion of large, mid, small cap stocks differ from those of the market... you are at risk for underperforming the market."

I have 56& large, 14% mid, and 30% small. Also says I am at risk of underperforming market b/c I have 27% value, 66% blend, and 6% growth.

I also have 88% domestic, 12% International.

These "Vanguard Recommendations" are the only thing that led me even to consider any of this period.
alex_686
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Re: How to reallocate without selling?

Post by alex_686 »

Jesteroftheswamp wrote: Mon Apr 05, 2021 4:19 pm Honestly, the only reason I am even remotely concerned about it is because when I look at my Asset Mix on Vanguard, there are a few headings saying "The proportion of large, mid, small cap stocks differ from those of the market... you are at risk for underperforming the market."

I have 56& large, 14% mid, and 30% small. Also says I am at risk of underperforming market b/c I have 27% value, 66% blend, and 6% growth.

I also have 88% domestic, 12% International.

These "Vanguard Recommendations" are the only thing that led me even to consider any of this period.
What does your IPS say your asset allocations are?

To extend a bit, the default neutral allocation is the market allocation. You should have a solid reason why you are deviating from the neutral position. You are oversighted in small cap - why?

In any case, if you break your allocation bands you should sell from those asset classes which are overweighed and buy those which are underweighted. It is the only rational choice.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
jmch1990
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Re: How to reallocate without selling?

Post by jmch1990 »

Jesteroftheswamp wrote: Mon Apr 05, 2021 4:18 pm
123 wrote: Mon Apr 05, 2021 3:50 pm Stop automatic reinvestment on (all) investments and use those funds for rebalancing. Since you never know what way the markets will go in any particular period having a pool of funds available to rebalance with can be useful.

One way to reduce the need for rebalancing is to do less slice-and-dice. Use a Total Stock Index instrument instead of distinct small/medium/large capitalization instruments. Some people believe that tax loss harvesting is worth it, others can't be bothered.

Just to make sure I understand, you're suggesting just taking "new money" and using that to rebalance? For example if I wanted to rebalance Bonds from 10% to 20%, instead of selling, I just begin investing new money into bonds to bring the proportion up?
This is exactly what I would recommend if you do not want to sell your current holdings. However that can take a significant amount of time depending on what you have already invested vs. your available, investable income.
lazynovice
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Re: How to reallocate without selling?

Post by lazynovice »

Jesteroftheswamp wrote: Mon Apr 05, 2021 4:19 pm
alex_686 wrote: Mon Apr 05, 2021 3:54 pm There are no other ways.

May I ask why you don't want to sell?

There are other methods that are advertised. However they suffer from deep errors that are either caused by cognitive errors described in behavioral economics or attempts to a address behavioral errors.

Honestly, the only reason I am even remotely concerned about it is because when I look at my Asset Mix on Vanguard, there are a few headings saying "The proportion of large, mid, small cap stocks differ from those of the market... you are at risk for underperforming the market."

I have 56& large, 14% mid, and 30% small. Also says I am at risk of underperforming market b/c I have 27% value, 66% blend, and 6% growth.

I also have 88% domestic, 12% International.

These "Vanguard Recommendations" are the only thing that led me even to consider any of this period.
I’d say any allocation that deviates from the total market fund has a chance of underperforming the market. It also has a chance of out performing the market. Did you choose these allocations or have they drifted to this point? If you chose it, are your original reasons for doing so still true? If so, I would not let a website tool change your direction. If you don’t really know why you are different from a total market fund, it is time to rethink your IPS.
“I didn’t want my sailboat to be in the driveway when I died.” Nomadland
Topic Author
Jesteroftheswamp
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Re: How to reallocate without selling?

Post by Jesteroftheswamp »

lazynovice wrote: Mon Apr 05, 2021 9:30 pm
Jesteroftheswamp wrote: Mon Apr 05, 2021 4:19 pm
alex_686 wrote: Mon Apr 05, 2021 3:54 pm There are no other ways.

May I ask why you don't want to sell?

There are other methods that are advertised. However they suffer from deep errors that are either caused by cognitive errors described in behavioral economics or attempts to a address behavioral errors.

Honestly, the only reason I am even remotely concerned about it is because when I look at my Asset Mix on Vanguard, there are a few headings saying "The proportion of large, mid, small cap stocks differ from those of the market... you are at risk for underperforming the market."

I have 56& large, 14% mid, and 30% small. Also says I am at risk of underperforming market b/c I have 27% value, 66% blend, and 6% growth.

I also have 88% domestic, 12% International.

These "Vanguard Recommendations" are the only thing that led me even to consider any of this period.
I’d say any allocation that deviates from the total market fund has a chance of underperforming the market. It also has a chance of out performing the market. Did you choose these allocations or have they drifted to this point? If you chose it, are your original reasons for doing so still true? If so, I would not let a website tool change your direction. If you don’t really know why you are different from a total market fund, it is time to rethink your IPS.

WHen I started investing I didn't really consider asset allocation that carefully, in regards to small value fund I heard they were good so I allocated some funds that way.

What is IPS?
Topic Author
Jesteroftheswamp
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Re: How to reallocate without selling?

Post by Jesteroftheswamp »

alex_686 wrote: Mon Apr 05, 2021 4:26 pm
Jesteroftheswamp wrote: Mon Apr 05, 2021 4:19 pm Honestly, the only reason I am even remotely concerned about it is because when I look at my Asset Mix on Vanguard, there are a few headings saying "The proportion of large, mid, small cap stocks differ from those of the market... you are at risk for underperforming the market."

I have 56& large, 14% mid, and 30% small. Also says I am at risk of underperforming market b/c I have 27% value, 66% blend, and 6% growth.

I also have 88% domestic, 12% International.

These "Vanguard Recommendations" are the only thing that led me even to consider any of this period.
What does your IPS say your asset allocations are?

To extend a bit, the default neutral allocation is the market allocation. You should have a solid reason why you are deviating from the neutral position. You are oversighted in small cap - why?

In any case, if you break your allocation bands you should sell from those asset classes which are overweighed and buy those which are underweighted. It is the only rational choice.
What does IPS mean?

I deviated from neutral position because when I started investing in index funds five+ years ago, I heard things about small cap value that made me think they may outperform the market over time (10+ years), so invested there without really considering total asset allocation.
lazynovice
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Re: How to reallocate without selling?

Post by lazynovice »

Jesteroftheswamp wrote: Tue Apr 06, 2021 11:52 pm
lazynovice wrote: Mon Apr 05, 2021 9:30 pm
Jesteroftheswamp wrote: Mon Apr 05, 2021 4:19 pm
alex_686 wrote: Mon Apr 05, 2021 3:54 pm There are no other ways.

May I ask why you don't want to sell?

There are other methods that are advertised. However they suffer from deep errors that are either caused by cognitive errors described in behavioral economics or attempts to a address behavioral errors.

Honestly, the only reason I am even remotely concerned about it is because when I look at my Asset Mix on Vanguard, there are a few headings saying "The proportion of large, mid, small cap stocks differ from those of the market... you are at risk for underperforming the market."

I have 56& large, 14% mid, and 30% small. Also says I am at risk of underperforming market b/c I have 27% value, 66% blend, and 6% growth.

I also have 88% domestic, 12% International.

These "Vanguard Recommendations" are the only thing that led me even to consider any of this period.
I’d say any allocation that deviates from the total market fund has a chance of underperforming the market. It also has a chance of out performing the market. Did you choose these allocations or have they drifted to this point? If you chose it, are your original reasons for doing so still true? If so, I would not let a website tool change your direction. If you don’t really know why you are different from a total market fund, it is time to rethink your IPS.

WHen I started investing I didn't really consider asset allocation that carefully, in regards to small value fund I heard they were good so I allocated some funds that way.

What is IPS?
One of the best things about the sire is the wiki. A lot of questions are answered there. Of course, after you read it, you can always come back to the forum for a check in on whether you understand what you read or how your circumstances are unique. Here is the link to IPS.

https://www.bogleheads.org/wiki/Investm ... _statement
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mmcmonster
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Re: How to reallocate without selling?

Post by mmcmonster »

Jesteroftheswamp wrote: Mon Apr 05, 2021 4:18 pm
123 wrote: Mon Apr 05, 2021 3:50 pm Stop automatic reinvestment on (all) investments and use those funds for rebalancing. Since you never know what way the markets will go in any particular period having a pool of funds available to rebalance with can be useful.

One way to reduce the need for rebalancing is to do less slice-and-dice. Use a Total Stock Index instrument instead of distinct small/medium/large capitalization instruments. Some people believe that tax loss harvesting is worth it, others can't be bothered.

Just to make sure I understand, you're suggesting just taking "new money" and using that to rebalance? For example if I wanted to rebalance Bonds from 10% to 20%, instead of selling, I just begin investing new money into bonds to bring the proportion up?
That's pretty much what I do. Every month I see what asset I'm below my allocation percentage and buy that for the month. Most of the time it's bonds, but sometimes it's stocks.

From my personal experience, If the amount you're adding on a monthly basis is less than 0.5 percent of your total net worth, you may want to also turn off dividend reinvesting and redirect the dividends to whatever is running low.
Katietsu
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Re: How to reallocate without selling?

Post by Katietsu »

-You picked a tilt towards small cap value. There are still many who think a small cap value tilt is a good choice. Before changing it, I would research the topic. You do not want to move out of a category, have it be the best performer for a year, then decide to move back into it.
-As others have said, direct new savings to the underrepresented category(s). Turn off dividend and capital gain reinvesting. Redirect that to the underrepresented category(s). I would always have it set up this way in a taxable account.
-Determine how long it will take to get to where you want to be using this approach. If it is a long time, consider selling a portion the over represented asset.
-I would also consider how different the risk and performance of the assets that I want to swap are from each other. In other words, if I would be trading small cap value for mid cap blend, I would just redirect not sell. If I would be trading emerging markets for a stable value fund, I would sell.
dbr
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Re: How to reallocate without selling?

Post by dbr »

You made two mistakes, one explained by the post above.

That first mistake is that you chose an asset allocation you don't understand based on vague information about a "good" fund. As mistakes go this is not a big deal. We live and learn, and, properly understood, it may not even be a mistake.

The second mistake is reading messages of that nature from Vanguard and actually paying attention. Taking investment advice from an investment company is a big deal. They should not be making unsolicited comments that amount to improper investment advice from a source with dubious standing to so advise you. The comment about underperforming the market is an inappropriate pseudo threat that actually is vacuous. It is nearly inevitable that a portfolio different from the market will perform differently from the market, sometime more and sometimes in fact underperforming the market. Shame on them.
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Re: How to reallocate without selling?

Post by grabiner »

dbr wrote: Wed Apr 07, 2021 8:02 pm You made two mistakes, one explained by the post above.

That first mistake is that you chose an asset allocation you don't understand based on vague information about a "good" fund. As mistakes go this is not a big deal. We live and learn, and, properly understood, it may not even be a mistake.

The second mistake is reading messages of that nature from Vanguard and actually paying attention. Taking investment advice from an investment company is a big deal. They should not be making unsolicited comments that amount to improper investment advice from a source with dubious standing to so advise you. The comment about underperforming the market is an inappropriate pseudo threat that actually is vacuous. It is nearly inevitable that a portfolio different from the market will perform differently from the market, sometime more and sometimes in fact underperforming the market. Shame on them.
The correct interpretation of the Vanguard alerts is not, "This is a problem with your portfolio," but "This is a deviation from the standard portfolio; make sure it is your intention to do so." If you try to diversify your stock holdings by holding four different funds, you are not diversified if all four are large-cap growth funds, while you may be well diversified if you have one fund each for small-cap growth, small-cap value, large-cap growth, and large-cap value. But if you are deliberately overweighting value stocks, you may well have value funds and no growth funds. (I do this.)
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Jesteroftheswamp
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Re: How to reallocate without selling?

Post by Jesteroftheswamp »

Katietsu wrote: Wed Apr 07, 2021 8:06 am -You picked a tilt towards small cap value. There are still many who think a small cap value tilt is a good choice. Before changing it, I would research the topic. You do not want to move out of a category, have it be the best performer for a year, then decide to move back into it.
-As others have said, direct new savings to the underrepresented category(s). Turn off dividend and capital gain reinvesting. Redirect that to the underrepresented category(s). I would always have it set up this way in a taxable account.
-Determine how long it will take to get to where you want to be using this approach. If it is a long time, consider selling a portion the over represented asset.
-I would also consider how different the risk and performance of the assets that I want to swap are from each other. In other words, if I would be trading small cap value for mid cap blend, I would just redirect not sell. If I would be trading emerging markets for a stable value fund, I would sell.
Thanks for the feedback! I am looking at my returns, and almost every month my "Investment Returns" are more than "Market Returns." This has me considering just staying right where I am. Is the purpose of rebalancing just to be in line with one's own goals? I'm confusing myself on what I'm even doing, or supposed to be doing at this point.
lazynovice
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Re: How to reallocate without selling?

Post by lazynovice »

Jesteroftheswamp wrote: Sat Apr 10, 2021 7:47 pm
Katietsu wrote: Wed Apr 07, 2021 8:06 am -You picked a tilt towards small cap value. There are still many who think a small cap value tilt is a good choice. Before changing it, I would research the topic. You do not want to move out of a category, have it be the best performer for a year, then decide to move back into it.
-As others have said, direct new savings to the underrepresented category(s). Turn off dividend and capital gain reinvesting. Redirect that to the underrepresented category(s). I would always have it set up this way in a taxable account.
-Determine how long it will take to get to where you want to be using this approach. If it is a long time, consider selling a portion the over represented asset.
-I would also consider how different the risk and performance of the assets that I want to swap are from each other. In other words, if I would be trading small cap value for mid cap blend, I would just redirect not sell. If I would be trading emerging markets for a stable value fund, I would sell.
Thanks for the feedback! I am looking at my returns, and almost every month my "Investment Returns" are more than "Market Returns." This has me considering just staying right where I am. Is the purpose of rebalancing just to be in line with one's own goals? I'm confusing myself on what I'm even doing, or supposed to be doing at this point.
You should have an IPS- as mentioned above. That IPS should include something like- I tilt to small cap because....You should have an Asset Allocation. You should have an idea of rebalancing frequency or bands. It seems like you are confused because you haven’t done this work. Once you have done this work, things like that statement on the website might be interesting to think about, but they should not send you reeling and questioning all of your choices.

You rebalance in order to get back to an AA you are comfortable with. Sometimes, it allows you to buy when prices are low for one asset class.
“I didn’t want my sailboat to be in the driveway when I died.” Nomadland
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