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February 13, 2004
Annual portfolio re-balancing
[Originally written 01/11/04, but I didn't get around to posting it until today.]
I'm about 10 days late, but I finally got around to re-balancing my investment portfolio (I was hoping to get it done during the Christmas/NewYears break).
This year, I decided to rebalance comprehensively. I am managing five different retirement accounts: an independent brokerage account, two IRA's with the same brokerage, retirement account with another brokerage through my employer, and yet another IRA with the same employer brokerage. This is actually the fewest number of accounts I am willing to manage, in part due to my belief that I can get higher returns through my own brokerage than through my employer's.
Previously, I was managing each of these kind of independently. As in, the same distribution of funds in each account, according to my investment strategy. This creates an incredible amount of work when I rebalance (redistribute funds between investments to get back to the same distribution proportions) each year.
So, I decided to allocate funds globally. Easy in theory, a lot of work in practice. Because not only did I have to calculate amounts globally, I also had to determine how investment options in my employee accounts matched up to my investment strategy and to comparible index funds available in my independent accounts. Complicated and time-consuming.
I finally decided to keep my international, fixed-fund and real-estate investments in the employee accounts, since those appear to be the best-managed (i.e. they stick to an index instead of mucking with the returns via "professional active managers"). The rest (large cap, mid-cap, small cap) will be in my independent accounts, because I can choose better investments there than are available in my employee accounts.
Then it was on to figuring out how to reallocate in my independent brokerage account with the fewest number of trades. This would probably be a cool exercise for a Computer Science class. Given current allocations, desired new allocations, and costs of each transaction, minimize the effort to the fewest trades. I got it down to 4 sells and 6 buys (could have been less, but the two IRAs have to be managed separately, and only cash can be moved into IRAs).
Put all the orders in to be executed tomorrow morning. Then I don't have to worry about anything until the end of this year, when I rebalance again.
Posted by pete at February 13, 2004 11:46 PM