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Should I Rebalance My Portfolio Now?

August 27, 2015 - 5 comments

Many investors consider the recent stock market pull-back to be a great buying opportunity, and are eager to rebalance (at least the ones that aren’t panicking and selling their stocks). But should they rebalance now, or wait a bit longer?

To make this decision easier, I’ve created a downloadable rebalancing table that incorporates Larry Swedroe’s 5/25 rule, which is an excellent way to keep your rebalancing schedule disciplined in times like this. Using the 5/25 rule, you would rebalance your portfolio if an asset class wanders either plus or minus 5% from the original asset allocation target, or plus or minus 25% of the original asset allocation target (whichever one is less). If this all seems a bit confusing, download the rebalancing table and plug in your target asset mix (the spreadsheet will automatically calculate the minimum and maximum rebalancing thresholds for you using the 5/25 rule).

Rebalancing Table: 40% Fixed Income + 60% Equity Target Asset Mix

*ETF Portfolio is comprised of 40% Vanguard Canadian Aggregate Bond Index ETF (VAB), 20% Vanguard FTSE Canada All-Cap Index ETF (VCN) and 40% Vanguard FTSE All-World ex Canada Index ETF (VXC)

As long as your asset class weightings are within these minimum and maximum rebalancing thresholds, you can just sit back and not enjoy the ride. If cash from distributions or new contributions has accumulated, top-up whichever asset classes are underweight.

Believe it or not, many investors will be surprised to learn that their portfolios are still relatively in balance. As of the market close on August 25, 2015, the asset allocation for a balanced ETF portfolio*purchased at the beginning of 2015 would still be within their minimum and maximum rebalancing thresholds (see chart above as of August 25, 2015).

More aggressive investors will likely find the same result. Although their Canadian equities will be down slightly, most portfolios will generally be within their rebalancing thresholds (see charts below as of August 25, 2015).

Rebalancing Table: 25% Fixed Income + 75% Equity Target Asset Mix

*ETF Portfolio is comprised of 25% Vanguard Canadian Aggregate Bond Index ETF (VAB), 25% Vanguard FTSE Canada All-Cap Index ETF (VCN) and 50% Vanguard FTSE All-World ex Canada Index ETF (VXC)

Rebalancing Table: 10% Fixed Income + 90% Equity Target Asset Mix

*ETF Portfolio is comprised of 10% Vanguard Canadian Aggregate Bond Index ETF (VAB), 30% Vanguard FTSE Canada All-Cap Index ETF (VCN) and 60% Vanguard FTSE All-World ex Canada Index ETF (VXC)

By: Justin Bender with 5 comments.
Comments
  31/08/2016 3:53:22 PM
Justin Bender
@Phil: Unfortunately, for compliance reasons I can't post an unprotected spreadsheet (investors tend to overwrite the most important cells). Please send me an email with the updates you're looking for and I'll see what I can do: jbender@pwlcapital.com
 
  30/08/2016 9:29:12 PM
Phil
Hi Justin,
Thanks for the new version including the 5/25 rule. I want to transfer my current holdings from the last version to this one and try to add some lines but cells are locked. Is there a way to add some lines in the spreadsheet ? Thanks Phil
 
  17/12/2015 5:06:26 PM
Sid
Really nice work, thanks. A few suggestions
* The Inputs sheet is very limited, since we can only input 1 or 2 holdings in each category. We cannot insert rows.
* The rebalancing sheet could have an option to show the results on a per-account basis. I have TFSA and RRSP's using Mutual funds and ETFs respectively, and have my asset allocation divided within accounts, rather than across everything as a whole.

I prefer this way since mutual funds allow me to make automatic weekly savings with no cost. I could of course have multiple copies of the workbook, one for each account, and then a "joint" one to see asset allocation across all accounts, but seems like a lot of work!
 
  08/09/2015 9:15:04 AM
Justin Bender
@Dwayne - the 'input' worksheet is not password protected (although certain cells with equations in them have been protected).

If the spreadsheet does not allow you to input numbers into a certain cell, the user should not be entering values into that particular cell.

Please let me know if you have any additional questions - thanks!
 
  06/09/2015 1:34:59 PM
Dwayne
Very nice Justin - thank you. I can see where this worksheet will save me from re-balancing when it's not necessary. The input sheet appears to be password protected. Did I miss your password somewhere or will I have to rebuild this worksheet before I can make use of it? Thank you
Dwayne
 



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