Rebalancing Warning

[stuper1]

Is there a way to set up a hypothetical portfolio say of four ETFs on the internet starting with my 4x25 percentage of assets, and have it send me an email warning when any asset gets to 15% or 35% of the total.  Of course, it won't track my personal portfolio perfectly, which is a bit more complicated than just four ETFs, so maybe I should set the warning levels at something like 18% and 32%.

Anyway, do you get what I'm asking?  I don't want to miss the rebalancing bands, because I understand that that's when you lock in gains and buy lagging assets at bargain prices.  But I don't want to have to monitor my PP more often than I need to either.

[cowboyhat]

A less technological solution is to just not look at your portfolio except once a year at a predetermined time such as the week between Xmas and New Years. That's a good time because you can make any adjustments related to taxes that seem prudent, and if you don't look pretty soon you'll find that you don't care, which is where you want your mind.

If you are worried about missing a re-balancing opportunity, then add a rule that you will check your percentages anytime you see an article on the front page of your local newspaper about the stock market, the price of gold, or the US Treasury market.

You really don't need to check. There are better things to spend your attention on.

[notsheigetz]

I have a 4-ETF setup with Morningstar's Portfolio Manager that I use for tracking (it's free).  It does have an alert feature although I have never used it. There is a whole page full of alert options and although I don't see one specifically for the kind of over/under weight conditions you are looking for, if you get clever enough maybe you can come up with something pretty close.

Personally, I'm adopting the once-a-year strategy for re balancing. I only check the figures out of curiosity.

[rhymenocerous]

I take a more high level approach.  I just have a simple spreadsheet where I enter my total $ amount for stocks/LTTs/gold/cash.  It figures out the % split, how far off from the target 25% I am, and whether or not I should rebalance.  Rebalancing happens so infrequently that I just update this once a month or so with the new figures.

[MediumTex]

Keep in mind that historically rebalancing events happen about every 2 years for a portfolio that is not receiving any new money.

For most people, though, they are always either adding new money or taking money out of their portfolios.  Thus, the PP for most people will need attention more often than once every two years. 

This brings up the interesting question about how to best allocate new contributions.  If you allocate new money to the lagging asset, this will require you to know what the lagging asset is all of the time.  If you allocate new money across all four assets, in theory this should preserve your every two years or so rebalancing schedule, but it will probably still throw things off a bit.  If you just put new money into cash as HB suggested, it will still trigger rebalancing more often than every two years (depending on the size of new contributions in relation to the size of the overall portfolio).

For a beginner who is just wanting to get comfortable with the strategy in the simplest possible way and who is making new contributions to the portfolio, I might suggest that new money go into cash and look at the portfolio once or twice a year and see if it needs rebalancing. 

The main thing is to just get some kind of monitoring strategy in place that you are comfortable with and then just forget about it as much as you can.

[sophie]

This brings up the interesting question about how to best allocate new contributions.  If you allocate new money to the lagging asset, this will require you to know what the lagging asset is all of the time. 

Really good point!

Since this has been the topic of several threads, it might be useful for people to chime in with what they're currently doing with new contributions.  To supplement MT's excellent advice, I'd suggest setting up automatic recurring investments in equal proportions where possible.  For most people this covers either stocks and cash, or stocks, bonds and cash.

Gold and ad hoc contributions require special handling.  I suggest letting ad-hoc contributions pile up in the cash allocation, and buying gold with a "lagging asset" strategy at portfolio check time.

[notsheigetz]

Since this has been the topic of several threads, it might be useful for people to chime in with what they're currently doing with new contributions.

The bulk of my new contributions go into S&P 500 stock index funds in both my wife's and my 401k. This is by necessity because there isn't anything else available that works with the PP. Fortunately I am able to do in-service rollovers into my individual IRA so I shouldn't have a problem re-balancing when necessary. My wife has no such option unfortunately, so when the stock portion of her 401k + IRA hits the 35% band I will have to start looking for alternatives. Since she just started a new job we have a while to think about it (I manage a separate PP for her since she's 17 years younger than me).

[cowboyhat]

Accumulating in cash is underrated. In the bad old days, I used to try to keep my money "at work" and ran a tight household budget, which generated a lot of anxiety and a certain amount of conflict over Mrs Cowboyhat's little indulgences. An unanticipated bill meant pulling money back out of an investment account, which felt like more of a loss than a market reversal. At least when market's go against you it is something out of your control, but the budget is about self control. Car insurance was the thing that used to really choke me. A huge bill twice a year that I never seemed to account for adequately. With more ready cash, and less attention to investment, the mail has lost its terror. The PP can make you happy if you relax and let it do its thing.

[vnatale]

This brings up the interesting question about how to best allocate new contributions.  If you allocate new money to the lagging asset, this will require you to know what the lagging asset is all of the time. 

Really good point!

Since this has been the topic of several threads, it might be useful for people to chime in with what they're currently doing with new contributions.  To supplement MT's excellent advice, I'd suggest setting up automatic recurring investments in equal proportions where possible.  For most people this covers either stocks and cash, or stocks, bonds and cash.

Gold and ad hoc contributions require special handling.  I suggest letting ad-hoc contributions pile up in the cash allocation, and buying gold with a "lagging asset" strategy at portfolio check time.

After Sophie made her excellent suggestion only two people responded.

As it is now almost 7 years since she made that suggestion (and with now a somewhat different cast of characters in this forum) it'd be helpful to read what you are currently doing with new contributions.

Thanks

Vinny

[drumminj]

I use a spreadsheet to keep track of the % in each asset. New contributions go to the laggard.

Same here.

[jhogue]

Must be a trend.

I use a spreadsheet track % of each asset. I also track by % Roth/ % tax deferred / % taxable.

[Pkg Man]

Old member here. I throw new contributions to cash just because it easier and what HB recommended. However, in a low interest rate environment, like we’ve had for a decade, I think it would be better to periodically top off each lagging asset with contributions.

[vnatale]

Keep in mind that historically rebalancing events happen about every 2 years for a portfolio that is not receiving any new money.

For most people, though, they are always either adding new money or taking money out of their portfolios.  Thus, the PP for most people will need attention more often than once every two years. 

This brings up the interesting question about how to best allocate new contributions.  If you allocate new money to the lagging asset, this will require you to know what the lagging asset is all of the time.  If you allocate new money across all four assets, in theory this should preserve your every two years or so rebalancing schedule, but it will probably still throw things off a bit.  If you just put new money into cash as HB suggested, it will still trigger rebalancing more often than every two years (depending on the size of new contributions in relation to the size of the overall portfolio).

For a beginner who is just wanting to get comfortable with the strategy in the simplest possible way and who is making new contributions to the portfolio, I might suggest that new money go into cash and look at the portfolio once or twice a year and see if it needs rebalancing. 

The main thing is to just get some kind of monitoring strategy in place that you are comfortable with and then just forget about it as much as you can.

Another topic that constantly re-occurs here. And, yet another excellent response from Tex.

Vinny

[vnatale]

This brings up the interesting question about how to best allocate new contributions.  If you allocate new money to the lagging asset, this will require you to know what the lagging asset is all of the time. 

Really good point!

Since this has been the topic of several threads, it might be useful for people to chime in with what they're currently doing with new contributions.  To supplement MT's excellent advice, I'd suggest setting up automatic recurring investments in equal proportions where possible.  For most people this covers either stocks and cash, or stocks, bonds and cash.

Gold and ad hoc contributions require special handling.  I suggest letting ad-hoc contributions pile up in the cash allocation, and buying gold with a "lagging asset" strategy at portfolio check time.

With Sophie following up with a nice supplement.

Vinny