Adding new money and rebalancing?

[D]

Two questions:

Should I be adding the new money to cash and wait until cash reaches the upper rebalancing band prior to investing in other assets, or should I immediately add new money to the worst performing assets? Or maybe split the new money equally among all the assets? Or maybe there are some other ways?

When one of the assets hits the rebalancing band, should I automatically rebalance all the assets to 25% or should I use cash as a kind of a buffer to which I add money if the upper rebalancing band was hit and from which I take money to refill the worst performers in the case of the lower rebalancing band being hit? What's better and how it relates to the choice of the way of adding new money in the previous question?

Any other systems?

[moda0306]

To avoid having to take capital gains, I always put my money in the weakest players and therefore avoid hitting the 15/35 bands.

But!...

If you are making monthly contributions, it helps to put into cash until maybe a predetermined 3/4/6 month gap to where you make your contribution to the assets themselves.  This increases the size of your purchases and makes basis tracking a little easier.

The basis tracking isn't necessary if it's in a tax-deferred account or if you're not as anal about tax avoidance as I am.  Often your brokerage fund will do that for you.

[Pkg Man]

The standard answer, and what I do, is add to cash until one of your investments hits a rebalancing band (this could be cash or some other investment which rises or falls to a rebalance band).  At that point you want to use whatever cash exceeds 25% of the portfolio and buy the others to get each investment back to 25% of the total portfolio.  This may also require selling one or more of your winning assets to get everything back to equal shares of the total PP pie.

This approach has the advantage of minimizing transaction costs and allows the investments to "run" a bit.

[Storm]

I have my 401k in a BrokerageLink account, and every 2 weeks when money is deposited there, I calculate my allocation in a spreadsheet and buy the lowest asset.  That way I am dollar cost averaging.  Since I'm usually buying mutual funds, there are no transaction costs.  If I have to buy more gold, I may let it sit in cash for a while because the gold ETF has a $7.95 trading cost.  Bonds or stocks don't have that issue.

[MediumTex]

I contribute to my cash piece until it gets to about 27%, then I buy the lagging asset to bring the lagging asset up to about 27% or so (which brings the cash down to 23% or so--these percentages change based on what's actually happening in the market).  Then I begin contributing to the cash piece again until it gets back to the 27% mark.

It's not perfect, but it minimizes transactions without having to sit on cash until it gets to 30% or 35%.

Note that this method only affects cash and one of the volatile assets at a time.  While making new contributions it is much harder to hit a rebalancing band due to market movements.  When such a rebalancing band is hit, however, I would rebalance.

[Pkg Man]

Having a lower band on the cash might have more merit than what I suggested in the current climate of near-zero interest rates on cash. I originally considered doing something like that, but someone on this forum suggested to just pile it into cash until it hits the 30 or 35% trigger.  That might take quite a while though, so a lower threshold on cash, particularly in this environment, might be a better approach.