Target is 70/30. Good run has pushed it to about 78/22 over roughly fourteen months. I know I'm supposed to rebalance and every month I decide to wait because things are going well, which I recognise is exactly the wrong reason. Most of the balance is in a taxable account so selling has a cost. Is there a rule people actually follow for when this becomes a must-do?
The 'things are going well so I'll wait' feeling is the entire reason bands exist. Rebalancing always feels wrong — you're selling the thing that's working. Setting a mechanical rule and following it removes the monthly decision, which is the actual product here.
Also check whether you have losses anywhere in taxable you could realise at the same time to offset gains. Depends heavily on your country's rules, so worth ten minutes reading the actual rules rather than trusting a forum on that part.
Honest question worth asking yourself: is 70/30 still your real target, or did you pick it three years ago and never revisit it? If you're genuinely comfortable at 78, changing the target on purpose is legitimate. Drifting there by inaction isn't. The difference is whether you'd hold it through a 30% drop.
Annual on a fixed date plus bands is what I do. Birthday, every year, plus an override if anything hits 5 points off in between. Two decisions a year maximum.
@sinking_funds_su · 4mo ago · 3 replies
The common rule is bands: rebalance when any allocation drifts more than 5 percentage points absolute from target, or 25% relative, whichever you prefer. At 78 vs 70 you're at 8 points, so by the band rule you're overdue.
But given it's taxable, do it without selling first. Direct all new contributions and any dividends into bonds until you're back at 70/30. If you're adding meaningful amounts monthly this closes an 8 point gap surprisingly fast and costs you nothing in tax.
If you have any tax-sheltered accounts, do the selling side in there instead. Same portfolio, no tax event.
Reply
Report
@sinking_funds_su · 4mo ago
Then that's your answer. Sell bonds-to-stocks or stocks-to-bonds inside the sheltered account and let the taxable account drift within reason. Look at the two together as one portfolio, which is how it actually behaves.
Reply
Report
@exdiv_eli · 4mo ago
Contributions-only rebalancing hadn't clicked as an actual strategy. I do have a sheltered account with about a third of the total in it, so between the two I can probably fix it without selling in taxable at all.
Reply
Report