Could you please clarify more on allocation?

Hi,

When answering “Adding when prices plummet, vs maintaining allocation plans.”, you said “The key here is to have a plan and stick to it. ” Could you please clarify a bit more about this? Let’s say one portfolio with both EQB and TIXT at 2% target. When time passes, EQB becomes 5% and TIXT becomes 0.5%, and both are still in the bull list. When the portfolio shall be re-balanced? How often re-balancing shall be done? When re-balancing, get both to 2% again? How about if cash could be added? still the same, i.e. get both to 2%?

Thank you!

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Asked on July 19, 2023 3:30 pm

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Private answer

Hey there. Target allocations are simply an investment strategy that removes a lot of emotion and allows investors to make stronger decisions. As per a rebalancing strategy, that is all dependent on personal preference, and doesn't necessarily need to be done by selling stock (speak on that in a bit.)

I personally rebalance once a year, typically later in the year to start thinking about capital gains/losses I can claim to offset or reduce my overall tax burden. However, if something got really out of line, as in a company I planned to have 2-3% allocation to jumping to..... 7% or something, I may trim at that time.

Depending on the size of your portfolio and the amount your contribute, rebalancing can be done simply by adding new capital. As your portfolio gets larger, this becomes much more difficult. However, even on a portfolio that is $100,000 in size, if an investor is contributing $1000 a month to it, they can easily just "rebalance" throughout the year by adding new capital to smaller positions to get them back to target.

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Posted by Dan Kent

Answered on July 20, 2023 7:08 am

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