bit of help with rebalancing question

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feh
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Joined: Sat Dec 15, 2012 11:39 am

bit of help with rebalancing question

Post by feh »

My target AA is 60/40, and I'm currently at 66/34.

Without going into nitty-gritty details, if I sold some equities, it would need to be in a taxable account. I could do this without causing a tax event, as I did a bunch of TLHing this year, so I could sell a gainer and still have a net loss for the year.

This would be playing around the edges, though, as it might get me to 64/36, which isn't much of a change.

Thoughts?

PS - if it matters, 56 yo, retired, 12% tax bracket
homebuyer6426
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Re: bit of help with rebalancing question

Post by homebuyer6426 »

feh wrote: Thu Nov 24, 2022 7:57 am My target AA is 60/40, and I'm currently at 66/34.

Without going into nitty-gritty details, if I sold some equities, it would need to be in a taxable account. I could do this without causing a tax event, as I did a bunch of TLHing this year, so I could sell a gainer and still have a net loss for the year.

This would be playing around the edges, though, as it might get me to 64/36, which isn't much of a change.

Thoughts?

PS - if it matters, 56 yo, retired, 12% tax bracket
Since you can sell it without a tax event it makes sense to do it. No, it won't change your portfolio much but you can potentially do the same thing next year and the effects will add together.
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vineviz
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Re: bit of help with rebalancing question

Post by vineviz »

feh wrote: Thu Nov 24, 2022 7:57 am My target AA is 60/40, and I'm currently at 66/34.

Without going into nitty-gritty details, if I sold some equities, it would need to be in a taxable account. I could do this without causing a tax event, as I did a bunch of TLHing this year, so I could sell a gainer and still have a net loss for the year.

This would be playing around the edges, though, as it might get me to 64/36, which isn't much of a change.

Thoughts?

PS - if it matters, 56 yo, retired, 12% tax bracket
Normally I wouldn't worry too much about rebalancing at this level of allocation mismatch, especially in taxable. Generally I fund that a +/- 10% rebalancing band is adequate in most cases. You're right that the difference between 66/34 and 60/40 isn't likely to be super significant.

But if you can do it without realizing a net gain I don't see the harm in doing it and would probably just go ahead.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
dbr
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Re: bit of help with rebalancing question

Post by dbr »

If your stock allocation is high be sure you are not reinvesting dividends.

In general I agree that it is not necessary to be fussy about exact allocation. I would not pay taxes to get things just right.
Topic Author
feh
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Re: bit of help with rebalancing question

Post by feh »

Thanks for the replies.

I would have several lots to choose from when it comes to selling. I assume I'd want to sell the lot(s) with the largest percentage gain, correct?
sailaway
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Re: bit of help with rebalancing question

Post by sailaway »

feh wrote: Thu Nov 24, 2022 10:42 am Thanks for the replies.

I would have several lots to choose from when it comes to selling. I assume I'd want to sell the lot(s) with the largest percentage gain, correct?
Personally, I would choose the lots that got me closest to my goal without incurring taxes. Sounds like that is the ones with the least gain, in this case.
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feh
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Re: bit of help with rebalancing question

Post by feh »

sailaway wrote: Thu Nov 24, 2022 10:45 am
feh wrote: Thu Nov 24, 2022 10:42 am Thanks for the replies.

I would have several lots to choose from when it comes to selling. I assume I'd want to sell the lot(s) with the largest percentage gain, correct?
Personally, I would choose the lots that got me closest to my goal without incurring taxes. Sounds like that is the ones with the least gain, in this case.
Yes, I understand what you're saying. I need to decide what my priority is - selling as much as I can for a given gain, or selling a specific dollar amount.

If it's the latter, I think I'd want to choose the lot with the largest percentage gain.
sailaway
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Re: bit of help with rebalancing question

Post by sailaway »

Actually, I am saying that if you are targeting a specific dollar amount, it might be the middling lots that best meet your goals. It just depends on your actual lots and your actual dollar amount and your losses to date.
livesoft
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Re: bit of help with rebalancing question

Post by livesoft »

One might use this opportunity to simplify one's portfolio. For instance, if I had a lot of multiple purchase lots, then I might sell as many of the small lots as possible leaving only a few large (in terms of number of shares) lots. Or I might sell an investment that I don't want to hold anymore. Or an investment that has the highest expense ratio. Or there are other ways to simplify that one could come up with.
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retiredjg
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Re: bit of help with rebalancing question

Post by retiredjg »

66:34 is not greatly out of whack. You can choose to ignore it if you want. If you don't want, getting back into a 5% band at 64:36 is plenty fine in my book. Since you can do this without paying tax, there seems no reason not to. That is one of the benefits of doing the tax loss harvest.

If you are reinvesting dividends, you could direct dividends to money market and use that to rebalance as needed. If you are withdrawing, you could withdraw only from the side that has too much. You've probably already thought of all those things though. :happy
Florida Orange
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Re: bit of help with rebalancing question

Post by Florida Orange »

If you have a rebalancing schedule (like once a year) and you're not there yet, remember that the market could rebalance for you before you get there.
sailaway
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Re: bit of help with rebalancing question

Post by sailaway »

Florida Orange wrote: Thu Nov 24, 2022 6:05 pm If you have a rebalancing schedule (like once a year) and you're not there yet, remember that the market could rebalance for you before you get there.
Personally, I like combining time based with bands: in reality, we rarely end up rebalancing.
Florida Orange
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Re: bit of help with rebalancing question

Post by Florida Orange »

sailaway wrote: Thu Nov 24, 2022 6:10 pm
Florida Orange wrote: Thu Nov 24, 2022 6:05 pm If you have a rebalancing schedule (like once a year) and you're not there yet, remember that the market could rebalance for you before you get there.
Personally, I like combining time based with bands: in reality, we rarely end up rebalancing.
I have the same preference and have had the same experience. So far it's working well.
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