Out of balance

[buddtholomew]

No alternative options available like offsetting gains/losses on select purchases or contributing to lagging assets to restore the balance.

Maybe we can put some figures together on a 100K gain taxed at 20% or not rebalancing and equities falling 10%.

200000 initial investment
100000 gain x .2 = 20000 taxes, 80000 net
Remaining investment 100000 loses .1 = 90000
80K + 90K = net 170K

200000 loses 10% = 20000, net 180K

Hardly seems worth the trouble to sell for 10K savings if I didn’t mess up something in the calc.

Anyone have a different perspective? Calc wrong?

[I Shrugged]

I don't have any new money going in. I have high unrealized gains. My non-US stock fund is about 50% gains, my SP500 is 70% gains. (I tax-loss-harvested big time in 2009.)

On one hand, Budd, I'm inclined to let it ride because as you say, the tax hit is just about as bad as what would likely happen in a bear market. But on the other, it's already grown its way out of the PP , and into GB territory. And my plan is to be PP, not GB.


I think I'll sell enough to get back down to 35%. After I do some research on tax rates and phaseouts and all that crap.

[buddtholomew]

No alternative options available like offsetting gains/losses on select purchases or contributing to lagging assets to restore the balance.

Maybe we can put some figures together on a 100K gain taxed at 20% or not rebalancing and equities falling 10%.

200000 initial investment
100000 gain x .2 = 20000 taxes, 80000 net
Remaining investment 100000 loses .1 = 90000
80K + 90K = net 170K

200000 loses 10% = 20000, net 180K

Hardly seems worth the trouble to sell for 10K savings if I didn’t mess up something in the calc.

Anyone have a different perspective? Calc wrong?

The math looks good, but I'm not sure about the logic. You only actually come out ahead in the above scenario if you NEVER actually pay taxes on the shares you decided not to sell.

Weren't you also giving someone a hard time in another thread for quoting themselves?

The point is to defer taxes in taxable and not sell to rebalance. My goal is to only sell if I can offset gains with losses. I realize this is not always possible but a 20%+ Tax hit seems like something to avoid.

Yes, I did mention quoting yourself and I was wrong so I deleted the post. Let me know if you still see it.

[Kbg]

Budd,

Calculating the tax impact is perfectly fine. Ok, now that is done where is your tax adjusted rebalance line?

If you adjust based on tax impact great, if it’s an excuse not to have a disciplined approach/no actual rules in execution not great.

[buddtholomew]

Kbg, my views will most likely change as I get closer to retirement. Selling stocks now in taxable and paying the taxes isn’t as appealing when you expect stocks to be much higher in 10-15 years.

Personally I stay within rebalance bands and contribute to cash then add to lagging asset to maintain AA. I haven’t had to sell in taxable to rebalance yet.

[sophie]

My lagging asset is bonds, and I'm having real difficulty doing the hold your nose and buy thing. Especially with the flat yield curve and promised 3 interest rate boosts this year by the Fed.

I'm doing the annual Roth & HSA contributions/conversions/etc, and that means I have a slug of new cash but not quite up to 35%. I'm thinking of just leaving well enough alone, and not buy anything until I hit a band and need to rebalance. If something drops like a rock, that cash will be put to very good use.