Can somebody who's better at math, please explain this to me?

[moda0306]

Clive,

Also, to avoid the large drain on your portfolio of long-term declining assets, as well as to increase tax efficiency, would one maybe want to try rebalancing with the same 35/15 bands, but only going back to 20/30?

For instance, if your portfolio hits 35/24/24/17, you would rebalance the 35 back to 30, and the 17 up to 22.  It's a bit sloppy (4x25 is easier to allocate), but it's more tax-efficient and would maybe fit into your theory on long-term economic trends and would have limited the effect of gold's drain on the portfolio during the 90's.

[moda0306]

Well one would say that your exposure is a lot greater going past 35% with an asset than going past 30% with an asset (kind of an exponential risk times every additional percentage exposure or something).  If doing a full rebalance, especially of gold, triggers gains, then one has to weight the "risk benefits" of rebalancing with the "tax penalty."

Expecially if one uses the individual identification method of security sales, and other capital gain-limiting strategies, the tax penalty of selling down to 25% would most likely far eclipse the penalty of going down to 30%.  Capital gains can be avoided and managed only to a point... then it becomes more difficult.

Therefore, with my PP, I'm thinking I'll keep to the 35/15 bands but do a limited rebalance to 30/20... at least if taxable accounts start to make up a decent portion of my PP.