Rebalancing

[Ricky]

Ok, good problem I guess, but for the first time my asset allocation is out of wack.  My REITs I want at 10% and it is currently at 13%, which as I understand it should be re-balanced if it get above 12.5% or below 7.5%.  I've always been able to try to re-balance by just putting the new stuff where it needs to go, but even with my profit sharing this year going in, I'll still be high in the REIT department.

Good news, it's all in my 401K so no tax issues and no charge to trade etc, but should I sell enough to get back to 10% or enough to get back down to the correct range, ie. below 12.5%?

 

Thoughts?

[The White Coat Investor]

I'd go to 10%.

[Ricky]

That's what I though, but great to hear the confirmation.

[Josh0731]

https://www.kitces.com/blog/best-opportunistic-rebalancing-frequency-time-horizons-vs-tolerance-band-thresholds/

2.5% is a pretty narrow rebalancing threshold. Most of the time I see 5% quoted, and that's what Kitces seems to indicate the evidence supports. Of course it doesn't have a lot of negative impact in a tax-protected account. But I also think it's not likely to have a tremendous benefit either so you shouldn't worry too much about it. I'd be tempted to let it play out with new contributions.

[Ricky]

I read the article and at the end it suggest an even more narrow band of 20%, instead of the 25% I used, works better.

So many ways to do it, I guess as long as it gets done I'll be ahead of the game!