Back on February 11, 2016, I executed a series of transactions to
rebalance The ETF Monkey Vanguard Core Portfolio. As explained in that article, the severe decline in both domestic and foreign stocks left these two asset classes significantly underweight, with bonds being overweight. Here, for convenience, is a "before and after" snapshot of that transaction.
As it turns out, the timing of that rebalancing could not have been better. In hindsight, it can be seen that February 11 represented, at least to this point, the low point for 2016. I don't take particular credit for this. My efforts were simply an application of the principles found in
this article.
As I also noted in my previous article, I executed a fairly aggressive set of transactions. Mindful of the fact that I am deliberately incurring trading commissions on all transactions in this particular portfolio, to make the exercise as "real world" as possible, I commented that I need to make each transaction count. This being the case, I temporarily underweighted bonds in favor of adding to the other two severely depressed asset classes.
Here is the equivalent Excel spreadsheet for today's transaction. Have a look and then I will offer some comments (please note that you can enlarge both pictures by clicking on them, for better viewing).
Likely, the first thing that jumped out at you is that both domestic and foreign stocks have staged fairly stunning comebacks since February 11. The
Vanguard Total Stock Market ETF (VTI) registered a gain of 14.69% during this period while the
Vanguard FTSE All-World ex-US ETF (VEU) did even better, at 15.55%! On the flip side, this incredible performance, combined with my aggressive rebalancing transaction, left bonds substantially underweight, with their 13.37% weighting being a full 4.13% below my target weight of 17.50%, or a full 23.6% in relative terms (13.37 / 17.50).
Given these developments, it appeared to me that this was a fitting point to take some of those profits, so to speak, and get the portfolio more closely aligned with my target weights. While it is not yet May, I will admit that the old adage "sell in May and go away" contributed in some small way to the timing of this decision. I didn't want to take a chance on being overweight domestic equities, only to have them experience a summer swoon!
You may also notice that foreign stocks were about even with my target allocation as I reviewed the portfolio today. This is because I did not add as heavily to this asset class in the prior rebalance. Therefore, I decided to only affect the domestic stock and bond asset classes with this transaction, saving me one trading commission.
Take one last peek at the "after" section of the spreadsheet and you will notice that all 3 asset classes are now fairly closely aligned with their targets. I hope that this sets the portfolio up nicely for the summer.
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Disclosure: I am not a registered investment advisor or broker/dealer. Readers are cautioned that the material contained herein should be used solely for informational purposes, and are encouraged to consult with their financial and/or tax advisor respecting the applicability of this information to their personal circumstances. Investing involves risk, including the loss of principal. Readers are solely responsible for their own investment decisions.
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