Market Movement’s Impact on Portfolio Rebalancing


Investor-UpdateSometimes, the market does the hard work for you. Such is the case with my 403(b) account, which is similar to a 401(k) account. Over the weekend, I looked at it for the first time in six months. I could have easily skipped doing so because Mr. Market took care of things for me. There was nothing for me to do except to forget the balance and not look again until the end of next April.

Each six months, I look to see if I need to rebalance. I hold five funds in the account: Vanguard S&P 500 (VFINX), Vanguard FTSE All-World ex-US Small-Cap (VFSVX), Vanguard Intermediate-Term Investment-Grade (VFICX), Vanguard REIT (VGSIX) and Vanguard Small-Cap Value (VISVX). Each fund as has the same target allocation of 20%. When one fund goes too far astray from this target, I rebalance the portfolio. (As a quick side note for those who are interested, the ETF versions of the funds are Vanguard’s S&P 500 (VOO), FTSE All-World ex-US Small-Cap (VSS), REIT (VNQ) and Small-Cap Value (VBR). Vanguard does not offer an ETF version of the bond fund.)

I expected some difference in the allocation weightings because of the portfolio’s diversification. Bonds move differently than stocks and REITs don’t follow the same path as stocks or bonds. What I found instead was surprising. The largest positions (the bond fund and the U.S. small-cap fund) each accounted for 20.2% of the portfolio. The smallest position (the REIT fund) had a 19.8% allocation. Given that investing is messy and over time each fund will experience different returns, I expected bigger differences. Perhaps not large enough to warrant rebalancing, but certainly more than a 0.4-percentage-point difference between the largest and the smallest positions.

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The Week Ahead

Tuesday is Election Day, though early voting has already started in many states.

AAII president John Bajkowski will discuss our Model Shadow Stock portfolio with our Portland Chapter on Saturday, November 12.

Earning season marches on as 31 members of the S&P 500 will report. Included in this group is Dow component Walt Disney (DIS) on Thursday.

The week’s first economic reports will be the Labor Department’s September job openings and labor turnover survey (JOLTS), released on Tuesday. Friday will feature the University of Michigan’s preliminary November consumer sentiment survey.

Four Federal Reserve officials will make public appearances: Chicago president Charles Evans on Monday and Tuesday; Minneapolis president Neel Kashkari and San Francisco president John Williams on Wednesday; and St. Louis president James Bullard on Thursday.

The Treasury Department will auction $24 billion of three-year notes on Tuesday, $23 billion of 10-year notes on Wednesday and $15 billion of 30-year bonds on Thursday.

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