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Blueprint: Rebalancing

The CanIRetireYet blueprints are easy one-page diagrams that capture the essence of important personal finance decisions. They intentionally simplify complex details to provide you with an overview, guideline, or refresher for the most common cases. Keep in mind that your situation could be different. For more detail and explanation, see the related articles below.…

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Portfolio Rebalancing Blueprint

 

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Comments

  1. Barry Gray says:

    Excellent post, Darrow!

  2. Early Retired Engineer says:

    Suggestion: somewhere in the taxable decision path you might throw in rebalancing in conjunction with tax loss harvesting.

  3. Darrow Kirkpatrick says:

    Thanks Barry. I expect to do many more of these diagrams. They're a good tool for summarizing the issues that we get into more deeply with the regular blog posts. Thanks again!

  4. Darrow Kirkpatrick says:

    ERE, thanks for pointing out the potential to rebalance as part of tax loss harvesting. I'll see if I can fit that into the next version of the diagram. Meanwhile I'm glad you brought it up, so others are reminded about that option. I appreciate the comment!

  5. Unsure Investor says:

    Hello, great diagram, thanks! One question about the 10% rule for triggering rebalancing. Suppose I want to be 70/30 stocks/bonds. Does this mean I should re-balance when:

    a. my portfolio goes to 80/20 or 60/40 ?

    or

    b. my portfolio goes to 77/23 or down to 63/27? (This illustrates that 10% of 70 is 7%).

    Thanks.

  6. Darrow Kirkpatrick says:

    Thanks Unsure. I appreciate somebody asking that question, since I probably haven't answered it directly yet. I think most of the experts speak about this in round numbers/absolute percents, meaning use an 80/20 – 60/40 band in your case, and that makes the math a bit simpler. But be advised that some mean "5% either direction" when they say "10%."

    But the bottom line is that it probably doesn't matter much, as long as you're consistent. Mike Piper in this article at Oblivious Investor says "Rather than spending a great deal of time and effort thinking about it, my suggestion is simply to pick one method and resolve to stick with it."