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Rebalancing in tax-sheltered accounts

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  • Rebalancing in tax-sheltered accounts

    Dentist married to a dentist here. New in our careers. Had been working through the WCI online course when the COVID spread started. Wife and I both have 401k's through work and contribute to the backdoor Roth IRA. We do not have any investments in taxable accounts at this time. We defined our AA early this year as 45% US stock, 25% Intl stock, 25% US bonds, 5% REITs.

    I am having a hard time figuring out the best way to rebalance the holdings across these tax sheltered accounts. The funds in the 401k are "balanced" funds with different asset classes which makes it difficult to break it down and calculate my true current allocation. Because of contribution limits, should we just be doing exchanges within our Roth IRA funds to rebalance? With all of the market volatility, our allocation is off but I don't want to make any dumb moves and sell/exchange the wrong thing. Am I making this more complicated than it should be?

  • #2
    What does your written investment policy statement say about rebalancing? Annually, quarterly, or when your asset allocation gets more than 10% out of target alignment?


    • #3
      Welcome to the board.

      No you're not making it more complicated, it just is. Balanced funds in defined contribution accounts plus personal accounts = complex.

      What are your 401k funds? What are your choices?

      You probably only control over your Roths, so that's just where you have to try & hit your allocations.
      "Oh look another bajillion point declin-Ooooh!!! A coupon for pizza!!!!" <--- This is what everyone's IPS should be. ✓✓✓


      • #4
        Balanced funds are self re-allocating. You may not need to do anything.

        Morningstar website is good at breaking funds down. They also have a tool you can give your funds names and balances and it'll tell you your application. I can access into the premium features through my local library's website.

        Keep in mind that your mutual fund's reported allocation may not be accurate considering the recent volatility. Look for the reporting date next to their reported holdings.


        • #5
          Thank you for the responses. I did not know if the post was going to be approved, hence the late reply.

          Our 401k manager is just this week making changes to our fund options. Depending on what will be available, I am considering switching from our Balanced funds to something more "straightforward" and easier to re-allocate.
          As far as our written investment policy about rebalancing...we have not yet defined that. I like the idea of only rebalancing when it gets 10% out of alignment.

          I have explored Morningstar, SeekingAlpha, US New Funds rankings, and Marketwatch as resources for comparing funds, breakdowns, and performance.

          At this early point in our careers and severely reduced income due to coronavirus shut down, I do not feel comfortable taking a large portion of our emergency savings to fund a taxable account. That leaves our asset allocation, for the time being, unable to be rebalanced significantly within the tax-sheltered accounts. On the plus side, the Balanced fund has seemed to weather the downturn slightly better than a simple index.


          • #6
            I'm guessing you two are in your early 30's. Personally I would be a bit more aggressive and have less bonds but that's just me. Only buy more stocks if you can handle downturns in the market like this otherwise just keep it the way it is. Best of luck to you.


            • #7
              There’s some analysis on Bogleheads that says that there is no difference in having REITs vs (large cap) stocks unless your REIT allocation is at least 15%. So I would question whether the 5% REIT is really doing anything other than adding complexity. Just something more to think about.
              Last edited by MaxPower; 05-24-2020, 10:00 AM.