Friday, January 2, 2015

Check Your Portfolio Asset Allocation

Every six months, you should check your asset allocation in your portfolio and rebalance if necessary.  If you have Quicken, you can get your allocation easily.  You can also create a simple spreadsheet with 4 or 5 rows with your current holdings such as shown below.  If you have a financial advisor or broker (shown below), they can also do this for you.

Ideally, you should decide which asset classes to sell and buy, then sell the stocks or mutual funds in a way that:

  1. Minimizes taxes.  Buying and selling within your RRSPs or IRAs or 401K's will not generate any taxable income.
  2. Gets rid of funds and stocks you no longer want, like mutual funds with high expenses or stocks that you no longer favor.
  3. Keeps your bonds in tax deferred accounts as much as possible and keeps stocks and equity mutual funds in taxable accounts as much as possible to reduce taxes.
Right now I am over my target for small cap domestic and large cap domestic stocks.  I will sell a small cap index ETF and some of my large cap holdings.  The proceeds will be used for living expenses and to buy bond funds.


Asset ClassAllocation %Target %Difference
Domestic Bonds33.538-4.5
Large Stocks20200
Small Cap Stocks9.763.7
International Stocks20.1200.1
International Bonds3.54-0.5
Cash12.3120.3
Other0.900.9
TOTAL100100

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