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

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Post Reply
Topic Author
financial.freedom
Posts: 528
Joined: Fri Oct 03, 2014 1:18 am

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

Post by financial.freedom » Mon Mar 23, 2020 4:38 pm

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
Posts: 32082
Joined: Sun Mar 04, 2007 9:50 am

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

Post by dbr » 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?

Topic Author
financial.freedom
Posts: 528
Joined: Fri Oct 03, 2014 1:18 am

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

Post by financial.freedom » 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).

User avatar
Sandtrap
Posts: 9673
Joined: Sat Nov 26, 2016 6:32 pm
Location: Hawaii No Ka Oi , N. Arizona

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

Post by Sandtrap » 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🌺
Wiki Bogleheads Wiki: Everything You Need to Know

Topic Author
financial.freedom
Posts: 528
Joined: Fri Oct 03, 2014 1:18 am

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

Post by financial.freedom » Wed Mar 25, 2020 9:40 am

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.

Post Reply