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12-31-2008, 08:58 AM
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#1 |
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Registered User
Join Date: Jan 2007
Posts: 78
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account rebalancing
My 401K gives me the option to automatically rebalance my account every 3 months, 6 months, annual, or semi-annual. How often should this be done?
I was told that rebalancing takes the percentage you have invested in each fund and brings it back to the investment allocation you have set up. For example if your funds are performing better or worse then the 5% you have invested in X fund. It will rebalance and buy/sell shares so it equals that amount. I just want to get an idea on how often I should be doing this. Thanks |
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01-01-2009, 11:36 AM
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#2 |
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Registered User
Join Date: May 2007
Posts: 124
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complicated question
If you are a hands off investor, I believe a quarterly rebalance is more than enough. And if you are at retirement age, consider timing your rebalance for immediately after a major distribution. I hope this makes sense.
For hands-on investors, a trend analyst should be consulted before a rebalance is done. I don't rebalance unless I talk with someone first. If you've seen my posts before, you know I'm a big fan of TAs even though they are slightly out of favor right now (They shouldn't be!). I subscribe to EMTrendadvisor's weekly service, which also allows me to e-mail them for advice once or twice a year. www.emtrendadvisors.com They are not the only game in town. They are just who I'm comfortable using. Hope this helps. And I hope you get some other opinions. This isn't a cut-and-dry issue by any stretch. |
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01-01-2009, 02:21 PM
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#3 |
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Registered User
Join Date: Oct 2001
Posts: 1,586
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Giacona,
Rebalancing takes money from sectors in your portfolio that have done well and places that money into the sectors that have done poorly or not as well. For 2008 most sectors performed poorly. Suppose your preferred balance is Sector A at 25%, Sector B at 18%, Sector C at 22%, Sector D at 22% and Sector E at 9%. After a period of time the sectors hold these percentages of your portfolio: A= 29%, B= 17%, C= 19%, D= 22%, E= 13%. Rebalancing would bring everything back to the 25, 18, 22, 22 and 9 percentages you prefer. One thing abut rebalncing, after doing a perfect rebalance, one day of trading things will be out of balance again. It is important to look at this from time to time but it can be over done. Generally rebalancing once a year is sufficient. Sometimes when you are changing funds you may do rebalancing. |
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