So am I doing it wrong?

[pplooker]

While I'm well aware of more advanced strategies, my approach to investing has just been to "pay myself first", IE I set aside so much money for the purpose, and I buy in to whatever's lowest that day and "rebalance" in this way.

For example if I have $20 to invest, and my $1000 portfolio looks like this:

Gold $340
Stocks $220
Cash $260
Bonds $180

What I would do next is test if anything is below 15% or above 35% with a spreadsheet.

Gold 34%
Stocks 22%
Cash 26%
Bonds 18%

Nothing's outside the bands, so I don't sell anything down. 

I then total up the current value of the portfolio + my current contribution, in this case it’s $1020, and divide that by four, which is $255 in this case.  I then calculate the current balance less this amount.

Gold $85
Stocks ($35)
Cash $10
Bonds ($70)

As a check these amounts plus the current contribution, should add up to zero.  I then try to move all these numbers as close to zero as possible.  In the case the one most out of whack are Bonds, so I’d invest all $20 there.

I’m serious, this is all I do.  I don’t worry about anything else.  Granted it mostly doesn’t matter as nearly everything is tax deferred or otherwise tax advantaged, but should I do something more, well, advanced?

[MediumTex]

That sounds fine to me.

A strict HB approach would be to add to the cash until it hits 35% and then rebalance the entire portfolio, but I think what you are doing probably works just as well.

I don't think a quest for precision with the PP is productive.  In most cases, if you stay more or less within the lines of the PP prescription you will do fine.  PRPFX is a good example of this--it's very different from the HB PP, and yet the returns have been similar over the years. 

[6 Iron]

I do this as well. There is beauty in simplicity.

[Storm]

I do this as well.  The technical term is "dollar cost averaging" http://en.wikipedia.org/wiki/Dollar_cost_averaging

Basically, I always buy whatever asset is lowest percentage wise in my portfolio.  So, if bonds are 27%, gold is 26%, and cash is 26%, and stocks are 21%, I buy stocks.  I do this every 2 weeks when my paycheck arrives and my 401k is deposited into my directed brokerage account.

This is a great way to always be buying low and selling high.

Of course, if I hit a 35/15 rebalancing band I will rebalance, but by using this approach you don't need to rebalance very often.

Another thing to keep in mind is that some stocks or funds require transaction fees.  In this case, I try to minimize them and only buy quarterly.  For example, if GLD or some other ETF that requires a transaction fee indicates a buy, I might hold off a couple months.

[Lone Wolf]

I definitely agree that any rebalancing strategy that keeps you inside the bands (especially one that has you always hugging a pure 4x25) is likely to be an effective one.

So for you guys that contribute to your "lowest" category every 2 weeks, how do you keep your costs down?  That would wind up being a lot more trades than I generally do.

Oh, also, I was wondering whether this makes tracking your cost basis for tax preparation purposes any more aggravating?  Or is it just not that big of a deal in practice?

[Storm]

So for you guys that contribute to your "lowest" category every 2 weeks, how do you keep your costs down?  That would wind up being a lot more trades than I generally do.

Oh, also, I was wondering whether this makes tracking your cost basis for tax preparation purposes any more aggravating?  Or is it just not that big of a deal in practice?

To keep costs down, I can buy mutual funds with no fee.  So, if it is only cash or FSTMX (Fidelity total stock market), I just buy more shares.  If I have a buy indication for bonds or gold, I will keep it in cash and just buy quarterly.  This way the most transaction costs I have to pay are $7.95 per trade x 4 trades per year.  $31.80 per year is reasonable for trading costs.  When I get enough money I might consider moving to Vanguard for free trades.

I haven't done my taxes yet for last year, and I just started the PP in 2010, so I will let you know.  I think Fidelity provides pretty good reports for tax purposes.  They mentioned that they had to improve the cost basis reporting for all shares.

[Plumbline]

I then total up the current value of the portfolio + my current contribution, in this case it’s $1020, and divide that by four, which is $255 in this case.  I then calculate the current balance less this amount.

Gold $85
Stocks ($35)
Cash $10
Bonds ($70)

As a check these amounts plus the current contribution, should add up to zero.  I then try to move all these numbers as close to zero as possible.  In the case the one most out of whack are Bonds, so I’d invest all $20 there.

I’m serious, this is all I do.  I don’t worry about anything else.  Granted it mostly doesn’t matter as nearly everything is tax deferred or otherwise tax advantaged, but should I do something more, well, advanced?

I like your approach.  To make sure that I understand, should your Cash Total be $5 ($260-$255) and Bonds total -$75 ($180-$255)?