Logistical Issue: Rebalancing Vanguard Equity Mutual Funds on the Upswing

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Noobvestor
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Logistical Issue: Rebalancing Vanguard Equity Mutual Funds on the Upswing

Post by Noobvestor » Wed Mar 25, 2020 1:47 pm

So as things went down, I rebalanced per my plan. They may go down again yet, too, I realize, but for now: I'm about to trip a rebalancing band on this upswing, which per my IPS would lead me to sell stocks and buy bonds/cash.

Context: I use mutual funds in a Vanguard account subject to the short-term trading policy. So once I started to sell things on the downturn, for instance, I started the timer on a series of bond funds I can't buy back into for 30 days. That's fine - I can buy similar funds or keep cash.

Problem: If I sell stocks on the upturn, I have multiple issues. For one thing, some of my holdings are only in taxable and some of those are up. I could sell down lots, but some of those sales would potentially trigger wash sales. Also, I start the timer on that aforementioned lockout period. So then if things go back down, I'm locked out of the ability to rebuy what I want and don't want to end up with a mess of 'similar' substitutes.

I'm wondering how other people do or would handle this situation.

If it helps, my target allocation in a nutshell looks roughly like this simplified list below (rounded numbers for simplicity). All of these are in Vanguard index funds, and this is just the target - in reality, the stock percentages are up a bit right now.

Taxable:
15% Developed Markets
15% Total (US)
10% Small Cap Value
10% Cash and Intermediate-Term Treasuries

Tax-Advantaged:
15% Emerging Markets
5% Small Cap Value

The rest: fixed income Series I and EE Bonds, cash not at Vanguard, etc... totaling up to 60/40 stocks/bonds target (actually ~65/35 now).
"In the absence of clarity, diversification is the only logical strategy" -= Larry Swedroe

livesoft
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Re: Logistical Issue: Rebalancing Vanguard Equity Mutual Funds on the Upswing

Post by livesoft » Wed Mar 25, 2020 1:51 pm

I suggest you set your rebalancing band triggers to be wider.

Also I suggest you learn how to use the Automated Investing feature of your Vanguard funds to schedule purchases in funds that you think you are locked out of buying for 30 days. That way, you will never be locked out of buying for 30 days.
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Re: Logistical Issue: Rebalancing Vanguard Equity Mutual Funds on the Upswing

Post by Noobvestor » Wed Mar 25, 2020 1:53 pm

livesoft wrote:
Wed Mar 25, 2020 1:51 pm
I suggest you set your rebalancing band triggers to be wider.
Thanks - this is honestly what I've been leaning toward. I think I'm in part reluctant to change my IPS in the middle of a volatile market, so it's helpful to hear from someone else that this may be a minor infraction in the grand scheme if I do it.
"In the absence of clarity, diversification is the only logical strategy" -= Larry Swedroe

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Re: Logistical Issue: Rebalancing Vanguard Equity Mutual Funds on the Upswing

Post by Noobvestor » Wed Mar 25, 2020 2:00 pm

livesoft wrote:
Wed Mar 25, 2020 1:51 pm
Also I suggest you learn how to use the Automated Investing feature of your Vanguard funds to schedule purchases in funds that you think you are locked out of buying for 30 days. That way, you will never be locked out of buying for 30 days.
Ah OK, so if I schedule an automatic purchase monthly starting tomorrow, I can buy back into those locked-out funds, looks like. Thanks!
"In the absence of clarity, diversification is the only logical strategy" -= Larry Swedroe

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Re: Logistical Issue: Rebalancing Vanguard Equity Mutual Funds on the Upswing

Post by mhc » Wed Mar 25, 2020 2:03 pm

Your automatic purchase can be a 1 time event.

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Re: Logistical Issue: Rebalancing Vanguard Equity Mutual Funds on the Upswing

Post by grabiner » Wed Mar 25, 2020 10:30 pm

My IPS says that I will only sell to rebalance in my taxable account if I am over a rebalancing limit and do not expect that normal inflows will fix the problem. I use dividends and new money to reinvest in whatever is underweighted, and can also freely reallocate my employer plan contributions as needed. As a result, I have never needed to sell in my taxable account to rebalance, although I came close in 2007; one more year of rising emerging markets would have forced me to sell.
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