The Personal Finance Podcast

Should You Rebalance Your Portfolio (The Answer May Surprise You!)

In this episode of the Personal Finance Podcast, we’re gonna talk about 15 ways you can hack your brain to save more money.

In this episode of the Personal Finance Podcast, we’re going to talk about whether you should rebalance your portfolio and my answer may surprise you.


How Andrew Can Help You: 

  • Join The Master Money Newsletter where you will become smarter with your money in 5 minutes or less per week Here!
  • Learn to invest by joining  Index Fund Pro! This is Andrew’s course teaching you how to invest!
  • Watch The Master Money Youtube Channel!
  • Ask Andrew a question on Instagram or TikTok.
  • Learn how to get out of Debt by joining our Free Course 
  • Leave Feedback or Episode Requests here.


Thanks to Our Amazing Sponsors for supporting The Personal Finance Podcast.

  • Chime: Start your credit journey with Chime. Sign-up takes only two minutes and doesn’t affect your credit score. Get started at chime.com/
  • Shopify: Shopify makes it so easy to sell. Sign up for a one-dollar-per-month trial period at  shopify.com/pfp
  • Policygenius: This is where I got my term life insurance. Policygenius is made so easy. To get your term policy go to policygenius.com and make sure your loved ones are safe.
  • Factor 75: Head to factormeals.com/pfp50 and use code pfp50 to get 50% off your first box. These are amazingly easy and nutritious meals.
  • Delete Me: Go to joindeleteme.com/PFP and use promo code PFP you’ll be able to save 20% off your DeleteMe subscription! Protect yourself online!
  • Indeed: Start hiring NOW with a SEVENTY-FIVE DOLLAR SPONSORED JOB CREDIT to upgrade your job post at Indeed.com/personalfinance
  • Monarch Money: Get an extended 30 day free trial at monarchmoney/pfp .


 Links Mentioned in This Episode: 


Relevant Episodes:


Connect With Andrew on Social Media: 


 Free Guides:  

The Stairway
To Wealth

Master Your Money with
The Stairway to Wealth



On this episode of the Personal Finance Podcast, should you rebalance your portfolio and my answer may surprise you.

What's up everybody, and welcome to the Personal Finance Podcast. I'm your host Andrew, founder of Master money.co, and today on the Personal Finance Podcast. We're gonna be talking about rebalancing your portfolio. If you guys have any questions, make sure to hit us up on Instagram, TikTok Twitter at Master Money Co.

And follow us on Spotify, apple Podcast or whatever podcast player you love listening to this podcast on. And if you want to help out the show, consider leaving a. Five star rating and review on Apple Podcasts or Spotify. Cannot thank you guys enough for leaving those five star ratings and reviews. We truly, truly appreciate that.

And if you wanna watch this, you can watch this on YouTube, on the Androgen Cola YouTube channel. And in addition, if you subscribe to that channel, we have a bunch of additional content on that YouTube channel. We really, really break down portfolios and we go into specific investments as well. So if that is something that you are interested in, Check out the Master Money YouTube channel.

Now, today we are going to be going through rebalancing your portfolio. And first I'm gonna talk through what rebalancing is at the top of the show here, and then I'm gonna go into a bunch of different factors that you need to consider. I'm gonna give the case for why you should not rebalance your portfolio, and I'm gonna talk about some of the pros as to why maybe you should rebalance your portfolio.

And so we are gonna go dive deep into some different studies and look at some different ways that you can rebalance your portfolio and some tax advantages it may have as well. So I'm excited for this episode because I think you guys can learn a lot. Now, this episode was actually created from a question that we got in.

On Instagram, on how does rebalancing your portfolio impact compound interest and maybe some other factors. And then all of a sudden we were gonna answer this question and realized, oh, there's a lot to talk about here when it comes to rebalancing. So making sure that you understand this concept is gonna be really, really important for you going forward in Index Fund Pro.

But we're gonna dive even deeper in this episode, and we're gonna talk about it for a longer period of time. So what is rebalancing? If you've never heard of rebalancing your portfolio, you may be saying, woo. What the heck is rebalancing? So rebalancing is actually a very simple concept. When you build out a portfolio, typically you want to build out your stock portfolio based on what is called your risk tolerance.

And your risk tolerance is going to be how much stocks and or how much bonds you want in your portfolio. Based on your tolerance to when the market goes up and down. That's the simplest way to put it. Now, what do I really mean by that? What I mean by that is how do you react when the market takes a dip or goes down in value over time?

Do you panic? Do you not like that feeling? Do you not like when the market goes down and or are you someone who maybe even gets slightly excited when the market goes down because you're buying stocks on sale? Those are two very different risk profiles, and so each of those individual. Folks are going to have to buy different assets.

So if you do not like when the market goes down, you don't like what is called volatility, meaning when the market goes up and down, a lot of bumpy roads when it comes to investing. If you don't like that whatsoever because you don't like the feeling of the market going down, then maybe you want. Some more bonds in your portfolio, but if the market going up and down does not bother you at all, you have a financial education and you understand that this is just a very normal part of investing, then maybe you are more prone to a more risky, and, and I put that in quotations, a more risky portfolio by adding more stocks to your portfolio.

And there's no right or wrong. Answer here, because you have to have the right portfolio built out for your personality and your risk tolerance. Otherwise you're gonna make mistakes. And that is one of the most important factors that most people don't talk about. You need the right asset allocation to avoid mistakes because emotions get involved when we invest.

And the psychology behind investing is very emotional, so you have to control those emotions with your portfolio choices by making sure you have the right selections in your portfolio. Now, long-term, if you do get jittery and you do worry about your portfolio a lot, one thing I would tell you to do is look less.

At your portfolio. You don't need to be checking that bad boy every single day because short-term market fluctuations do not impact us as long-term investors. As long-term investors. We know what happens over the horizon, down in the distance is that over time, usually investments go up over time. You can look at a stock market chart from 1929 until now and you can see, hey.

This thing has gone in one direction over that long period of time and it's gone up. So if you ever are worried about that, look at the long time horizon in the long history. Go look at 1980 to now. Go look at 1990 to now, and you can see the stock market still goes in one direction. Sure, it's gonna have a really bumpy ride.

You can look at 2007, for example, when we had the great recession. And you're gonna see stocks are gonna dip about 50% during that timeframe. But this is a very normal thing that we need to make sure we understand going into this. So selecting your right asset allocation is gonna be very, very important.

Now, once you select that asset allocation, meaning the amount of stocks you have and the amount of bonds that you have in your portfolio, you wanna make sure that you maintain that asset allocation 'cause you chose it for a reason, right? Well, if you do want to do that, if you wanna maintain that asset allocation, make sure it's the same year in year out as you.

You go throughout your working career and you're building wealth, then you have to do what is called rebalancing. You have to rebalance your portfolio because what's gonna happen is over time, stocks are typically gonna become more of a higher weight in your portfolio if you do not rebalance and bonds are gonna be a lower rate because over time, typically, historically, stocks have gone up in value more, and bonds have not appreciated as quickly as stocks have.

So when that happens, Your portfolio starts to get outta whack and you have to rebalance it. To go back to the asset allocation you originally intended, so say for example, you wanted a Warren Buffett portfolio, what is a Warren Buffett portfolio? 90% stocks and 10% bonds. That is what he puts his family's money in.

And so if you wanted something like a Warren Buffet portfolio, what's gonna happen over time is if you do not rebalance that portfolio, that 90% stocks, 10% bonds, will start to turn into 95% stocks and 5% bonds, which is out of whack of what you originally intended. So what you do is you. Sell some of the stock portfolio and buy more bonds to balance it back out.

That's why they call it rebalancing. So it's a very simple concept in theory, but understanding the background of asset allocation and how you need to construct your portfolio is very, very important. So I wanted to talk about that up top at the top of the show. Now the question then becomes, and this is the biggest argument, is should you rebalance your portfolio?

And so if that's something you're into, let's get into it. Now, the first thing I want to get into is I'm actually gonna talk about the case as to why maybe you should not rebalance your portfolio. Most people you talk to who are into this stuff, who are into the investing world will say you need to rebalance your portfolio.

But what if that's actually not the case? Because if you can think about this, maybe you are selling some of your top dogs, your winners, and you are adding them to losers. And so I'm gonna show you first what Jack Bogle talks about when it comes to rebalancing your portfolio. And if you don't know who Jack.

Bogle is he is the founder of Vanguard and he is well known as the original inventor of index funds. And if you look at Jack Bogle, he wrote this book, and if you're watching on YouTube, I'm showing the book on the screen. He wrote this book called The Little Book of Common Sense Investing. If you are brand new to investing, I would pick up this book.

This book is a fantastic read for most people who are trying to. Understand passive investing in overall, which is index funds and ETFs. But in addition, this also gives you the philosophy behind it. And so this is a fantastic book for new investors if you are brand new. We're gonna talk about parts of this book actually in this episode.

But in addition, I'm gonna actually read this word for word. I know that's not the best, most entertaining thing in the world, but I'm gonna read what he said word for word in a recent interview with Morningstar about rebalancing a portfolio. So they basically asked him what he feels about rebalancing, and he said, I am in a small minority on the idea of rebalancing.

I don't think you need to do it. The data bear me out because the higher yielding asset is going to be stocks over the long term. I. That's the way the capital markets work. Not in every 10 year period, or even for that matter, every 25 year period, but the higher returning asset you're getting rid of to go into a lower returning asset.

So it dampens your returns and the differences turn out to be, if you look at a 25 year periods, very, very small and sometimes rebalancing improves your returns. Sometimes it makes them worse. So what he's saying here is that he is not really that interested in rebalancing a, because he thinks you are selling your winners and then you are buying your losers, which to him is counterintuitive over time because it's a longer period of time.

Now, some people will do this when they are individual investors because they are buying low and selling high, but in this instance, you are selling the depreciating asset. Which can also have a taxable event, and you are buying the asset that is not doing as well. Now in this book, the Little Book of Common Sense Investing, like I said, fantastic book.

Check it out if you are brand new to investing in this book. He goes even further talking about this because Vanguard did a bunch of different studies and Vanguard is amazing at doing some of these studies when it comes to rebalancing, and so he talks about it in there. He says, we've just done a study for the New York Times on rebalancing, so the subject is fresh in my mind.

Fact, a 48% s and p 516% small cap, 16% international, and 20% bond index over the past 20 years earns a 9.49% annual return without rebalancing in a 9.71% return. If rebalanced annually, that's worth describing as noise and suggest that formulaic rebalancing with precision is not necessary. We also did an earlier study of 25 year periods, beginning in 1826, using a 50 50 stock and bond portfolio and found that annual rebalancing one in 52% of the 179 periods.

Also, it seems to me noise. Interestingly, failing to rebalance never costs more than about 50 basis points, but when that failure added return, the gains were often in the 200 to 300 basis point range, doing nothing has lost small, but it has one big. And then he goes on to say, my personal conclusion, rebalancing is a personal choice, not a choice that statistics can validate.

There's certainly nothing to matter with doing it, although I don't do it myself, but also no reason to slavishly worry about small changes in equity ratio. Maybe for example, if your 50% equity position grew to say 55 to 60%, basically what he's saying here is that overall. Rebalancing is a very personal choice, but really it does not make a huge impact over very long periods of time.

And he looked at 25 year periods, but then went all the way back to the 18 hundreds as well to check out, really, does this make any impact whatsoever? And so what he's saying here is rebalancing means that you'll be selling winners. Which is counterintuitive, and it also means that you'll have a lower allocation of stocks which have outperformed bonds historically.

Those are his two arguments against doing it. But really, if you do do it, in some cases, it has actually brought greater returns than in other cases. Now, Diving deeper. I saw a video from Rob Berger who Rob Berger originally. He had a podcast called Dough Roller, and his original podcast had a major impact on my investing philosophy when I was first learning how to invest, and he does not do that podcast anymore.

Now he has a YouTube channel and I highly recommend his YouTube channel if you're new to investing also, or if you are a pro investor, because he really does dive deep into some of this stuff and we're gonna get him on the podcast. We are working on dates now, but he went back and looked at a 60 40 portfolio using a tool called Portfolio Visualizer, and he went through a date range of, from 1972 to 2021, using 60% stocks and 40% bonds, and he looked at how much $10,000 would grow over the course of this 49 years.

So 1972 to 2021, you looked at how much $10,000 would grow if you rebalanced annually. It grew to 984,000. $910, but if you rebalance quarterly, it grew to $997,037. So if you rebalance quarterly, it had barely any dramatic increase whatsoever. It's probably not even worth the stress to go through that every single quarter if you don't like rebalancing.

So the difference between the two is about $13,000. So if you really wanna maximize your portfolio and you wanna rebalance, that's what it looks like over there. However, If you did not rebalance your portfolio, and here is kind of one of the things that Jack Bogle is talking about here. If you did not rebalance, you ended up with $1,107,458.

So really you are looking about $200,000 difference based on that 50 year period. Now, this is only one 50 year period, but based on that 50 year period with a 60 40 portfolio, Now that is not the end of the story obviously, because if we think about this, if it's in a taxable account, rebalancing can also trigger taxable events when you do something like this.

So you gotta make sure that you are understanding the tax implications as well, which we are gonna talk about later in this episode on how you can rebalance and not trigger those taxable events. A little bit of hack for you there. We're gonna give you a little bit, a couple of different hacks here on how you can do that.

But that is something else that you need to consider if this is in a taxable account, should you rebalance and or do you need to make sure it is in tax advantage accounts to rebalance as well. So I'm gonna give you a couple of different reasons on why you should maybe rebalance. Although Jack Bogle is talking about here are some reasons why you should not rebalance.

He thinks it's just a kind of a waste of time for him personally, and that it is a very personal decision. I'm gonna give you some reasons on why maybe you want to consider rebalancing, and at the end of this episode, I'll tell you if I rebalance or not. So number one is if you picked that asset allocation for an inherent reason, you have an investing philosophy, you picked an asset allocation for a specific reason based on your risk tolerance, then really you may want to stick to that asset allocation because you had a philosophy and you wanna stick to it over a long period of time.

That is the number one reason. Listen. Our asset allocations are not always the most optimized, and they're not always the most optimized because we are trying to control emotions, which is a bigger factor when it comes to your money, and this is what we try to talk about in this podcast a lot, is your psychology and your emotions.

Controlling those two things is going to be imperative for you to make sure that you are actually being successful with your finances over the long term. So you gotta control those two things. And so if you pick an asset allocation for a specific inherent reason, you need to stick to that asset allocation over time.

Or if you don't really care if you just picked it to have the original asset allocation, you don't care if it drifts one way or the other and you don't care about that whatsoever. That's not as big of a deal, but if you care about that asset allocation, you want to keep that 60 40 portfolio, you want that 70 30 portfolio, you picked it for a reason, you read something on the Bogle heads, read it for 'em, or you did something along those lines, then you gotta make sure that you stick to that asset allocation number two.

In retirement, a 100% stock portfolio is risky. So in retirement, if you have a 100% stock portfolio, it is gonna be more risky than having some bonds within that portfolio because the more stocks you have, the higher the inherent risk. Now I personally am willing to take on that risk, so a lot, a large, large portion of my portfolio, Is stocks because I understand how stocks have worked over the past a hundred years, and so for me, I have a larger allocation of stocks.

For some of you that is not going to be the same thing because you don't like when the market volatility is happening. You don't want that volatility to be happening in your portfolio to your specific dollars. You're brand new to investing. There is no reason for you to have a hundred percent stock allocation if that is the case, if you're nervous about that stuff.

So you gotta make sure that you're thinking through this as you go through this. Process, having more bond exposure decreases your risk, and you also have fixed income and cash, which also provides additional stability. So that's something you gotta think about. Number three, this reduces your max drawdown.

So for example, if you invested $100 in a 60 40 US stock bond portfolio in 1960 and never rebalance it again over the next 30 years, the worst point of your portfolio would be down about 30% from its highest value. So if no rebalancing, your portfolio would actually dip about 30% from its highest value, and this is the maximum drawdown over that 30 year period.

But if you rebalanced your portfolio and made sure you stuck to that 60 40 allocation, the lowest point your portfolio would go would be 25% of the highest point. So what that means in simple terms is you will have a little bit less of a max drawdown, meaning your portfolio will decrease less in the bad times.

If you actually rebalance your portfolio. So it just decreases that volatility a little bit more. It's only a 5% differential, so if it's down 30% and it's down 25%, you're still gonna be sweating bullets if you worry about that stuff. But it will still decrease the amount that it goes down over time.

Historically, that's what it's done, so it reduces that max draw drawdown of your portfolio and allows you over time to just. Weather the storm a little bit more. And then another reason to rebalance number four is when markets change. So when markets change, your portfolio may need to change as well. Not doing so can lead to losses that you may not have expected.

So for most people, I want you to pick an asset allocation and just kind of stick to it over time. But for some people, when you see markets shift, maybe you don't want to have as much exposure to specific markets. So say for example, there's some sort of crisis with small cap stocks and you own a portfolio that.

Owns, you know, the small cap index, a Vanguard Small Cap Index Index Fund, or a Fidelity one, or a Schwab one. And so you're holding that portfolio and there is a major crisis either looming or coming up, and those markets are going to shift. And so maybe you want to exit some of that small cap portfolio and move more.

Money into some of the large cap portfolio so that you can weather that storm. Some people like to do stuff like that. That is not something I personally do. But if you are interested in things like that and making sure your portfolio is weathering some of these storms and you wanna protect it against market changes, then that may be another reason why you want to keep, continue to rebalance your portfolio.

To keep it balanced exactly so that when those market shifts happen, you're balanced accordingly to your plan. And that is another reason to make that shift. Now the question then comes up, well, if I am gonna do one of those four things and one of those four reasons actually resonates with me personally, how often should you actually rebalance your portfolio?

So the ideal frequency is not something that's very certain and there's nobody that is correct on the ideal frequency. You can do it quarterly and maybe, like we said, we showed the previous example with Rob Berger, where you had an additional $13,000 if you did it quarterly. But that means you're rebalancing four times a year instead of one time a year.

So over the course of 30 years, you are rebalancing a hundred. Earn 20 times instead of 30 times. So it's a lot more work to do that for that additional $13,000 just during that timeframe. That's only one example with one portfolio. So is there an ideal time to do this and Vanguard conducted analysis of the optimal rebalancing frequency for a 50 50 portfolio?

And their research came back that there's really not much difference in a portfolio if it's rebalanced monthly. If it's rebalanced quarterly or annually. However, the frequency of rebalancing events and the associated costs rise considerably with more frequent adjustments. So Vanguard study came back and said, costs are gonna rise significantly, especially transaction costs.

If you are doing. Things like buying Vanguard funds in Fidelity, for example, you're gonna have transaction costs when it comes to index funds. You won't have those transaction costs if you buy ETFs, but when it comes to index funds, you may have some transaction costs. So costs can significantly rise.

Taxable events can significantly rise if you are doing that more frequently. So I. You gotta consider that when you go through this. Then William Bernstein's observation. So William Bernstein is a financial writer if you've never heard of him. And he came back and found no dominant rebalancing period when he studied rebalancing frequencies between pairs of global equities.

And basically he came back and said specific timing of rebalancing isn't as crucial as ensuring it is done periodically. So if you're trying to think of a timeframe of when you should rebalance once a year, in my opinion is. It's gonna be plenty for most people. A, you could just do it around tax time and just have a time of year or the end of the year or the beginning of the year.

Just have a time of year when you are gonna rebalance your portfolio if you are gonna want to do this. And I just think it's a more efficient, so it saves you more time because you're doing it annually, you're only doing it 30 times over the course of 30 years. Instead of, like I said, if you're doing it quarterly, you're doing it 120 different times.

So it's more efficient. It saves you time. It also helps you during PAC season because you can remember when you actually did that specific event. 'cause it only happens once a year. So your C P A may be asking you, Hey, why did you do this with your portfolio? You could say, oh, that's just my annual rebalancing.

I only do that once a year. And you can figure out the reasons exactly why you do that. So it helps with tax implications, it helps with your timeframe, and it helps with just making sure you're on par with your risk tolerance at that time so you don't have to. Do something where you're just making some drastic decision based on what the markets are doing during that time.

Instead, you're just doing it once a year and you're just kind of waiting it out through the market. As markets go up and down. Now there are other two other options that you have here on when you can rebalance. One is you can just rebalance only when your target asset allocation strays by five or 10%.

So some people do it this way, so, Say, for example, your target allocation is 60% stocks, 40% bonds. Well, once it strays past 65% stocks and 35% bonds, then maybe you rebalance and get it back, or you can do it by 10%, or you can do it by 15%. It doesn't really matter, but if it strays by a certain percentage, then you do it.

That is another way that you can make sure that you are rebalanced, and sometimes that's gonna be more frequent in some years, and some years you may not even rebalance whatsoever, and so it's gonna balance out that way, or you can do it again. According to a set timeframe, but only if your asset allocation has strayed by a certain percentage.

So you could do it yearly, but only if it's strayed by that five or 10%. If it has not strayed by that percent, then you just wait till the next year and then you do it that way and you're gonna rebalance even less frequently if you do it that way. I really like that idea because what's the point of rebalancing if it hasn't really strayed that much from your actual asset allocation?

So making sure that you do it maybe annually. I like the combination of the two. You can do it annually, but if it doesn't stray enough to make it really worth your time to rebalance your portfolio, then you can do it that way. So I really like that idea of rebalancing based on percentages. And if that percentage has not strayed far, then you can just go ahead and move on and wait till the next year.

So I don't think you need to be rebalancing quarterly. I don't think you need to be doing it monthly for sure. And I just think that's just a waste of time for most situations. When we look at the data here. Now let's look at ways to rebalance your portfolio. And avoid paying taxes. Alright, so now we are gonna look at ways to rebalance by avoiding taxes.

And there are a couple of different ways that you can do this. And there are some ways where you just do not have to pay taxes when you rebalance your portfolio. 'cause tax implications are gonna be a major factor if, especially if you are rebalancing frequently. You really wanna make sure that you are avoiding taxes now.

The first one I'm gonna talk about is called the Accumulation Rebalance Strategy, and the name was created by Nick Majuli in the book. Just Keep Buying. If you've never read, just Keep Buying. It's a fantastic book that came out last year, and Nick came on this podcast talking about it. Highly recommend that episode.

We will link it up in the show notes if you have not checked it out. But Nick has this accumulation rebalance strategy inside of his book that I think is a great, great option for some people who are trying to reduce some of the taxable events that happens when it comes to their portfolio. So instead of making a sale, so selling your winners, Then adding to your losers, what you can do if you're in the accumulation phase of your life is you can just buy more of the asset that is underperforming.

So say for example, you won a 70% stock, 30% bond portfolio, and all of a sudden it strays to 80% stocks and 20% bonds. What if you just started buying out the bonds with your investment money and you started buying out some of your bond portfolio until it gets up to 30% to balance it out. That way you're not selling any assets and creating taxable events on your winners because if you sell your winners inside of a taxable brokerage account, you are gonna be paying capital gains tax.

On that money, and depending on how long you've held the asset, it's either gonna be short-term capital gains, which you never wanna be paying because it's a really high tax rate, and or you wanna pay paying long-term capital gains, which is either gonna be 0%, 15%, or 20% of your income based on how much money you make.

So between those two things, you could just actually just buy up the losers. And this is much easier to do if you have a smaller portfolio. So if you have a portfolio that is smaller, this is much easier to do. It's a lot harder to do if you have a multi-million dollar portfolio because you're gonna be buying bonds for a very long period of time to make that adjustment.

And stocks are gonna continue to rise over time potentially. And. Increase the disparity of that gap. But this is something where if you are early on in your accumulation phase, it could be very good for you to be able to reduce that taxable event. And in addition, doing this would actually help you. Nick argues this would help you actually reduce those drawdowns again, we were just talking about earlier in this episode.

And you would experience a smaller maximum drawdown in that portfolio if you do something like this. But like I said, larger portfolios, it's gonna be much more difficult to make this work. So if you have a a million dollar portfolio or more, this is probably a lot more difficult of a strategy. You may have to do traditional rebalancing or some of these other options I'm gonna talk about here.

Now the second option is if you are a charitable person and you love to give money away to causes you believe in, that is one thing we truly believe here, is that you need to be giving money in addition to building wealth, especially as you start to accumulate wealth. Now, if you're just trying to get by paycheck to paycheck, I understand, but I love, and I've always done this, Even when I had no money is I love giving money away to causes I believe in.

And I truly believe building wealth, if everyone learned how to build wealth and they also gave, gave a portion of their income or gave when they felt inclined, it would truly make the world a better place. And this is one really, really cool thing that you can do. So if you are someone who loves giving money away, or you are a charitable person, Then this is something that you can definitely do, is you can pair rebalancing with charitable contributions.

So here's how it works. I'm gonna explain how this works first, because you can donate some of your appreciating positions. So many investors currently review their portfolios to adjust for market conditions, and then rather than selling appreciated positions to rebalance your portfolio, what if you sold those appreciating positions and.

Made them a charitable gift via something like a donor-advised fund. Now we are gonna have a full entire episode on donor-advised funds coming up in the near future. 'cause I really, really think there's some cool stuff that you can do with them, and it's a way that you can have charitable giving, saving on taxes, a lot of cool, cool benefits with that.

But if you do this, the potential benefits are your eligible to take a tax deduction at the fair market value of the asset and eliminates capital gains tax. And Medicare surtax. So between those two things, this allows you to reset your basis on the equity position as noted above, and reduce your vulnerability to stock markets corrections.

So you can sell this asset, you can actually give it away in a donor-advised fund. This is much easier In a donor-advised fund, DAF E is a tool that you can utilize that if you're interested in donor advised funds, there's a bunch of 'em out there, daff E'S one, and you can go out there and you can actually give this asset away to a charity that you are.

Interested in giving money away to, and this will actually help you with your tax situation come tax time as well. So that is another great option for some people who are charitably inclined. Number three is you can actually pay rebalancing with tax loss harvesting. So there's a number of different ways.

We'll do a full episode on this also, but there's a number of different ways you can pay rebalancing. With tax lost harvesting. So tax loss harvesting. If you don't know what that is, it is when your portfolio is down for a certain period of time. So you sell some of your portfolio in order to offset the gains of your portfolio.

We'll do a full episode on it because we have a ton of ton of thoughts on tax loss harvesting and tax gain harvesting as well. And then number four is you can also make sure that if you're gonna rebalance your portfolio, you're rebalancing your portfolio in your Roth accounts. Why does this matter? Why does it matter to rebalance your portfolio and your Roth accounts?

Well, think about this for a second. When your Roth accounts have gains, the growth of your money is not taxed inside of a Roth because you already pay taxes when you put the money in, and so your, your money grows tax free and you can pull the money out tax free. So once the money's in there, nothing is getting taxed after you get the money.

Into your Roth account. So once it's inside of your Roth account, you already pay taxes on the money that you put in. And so your money grows tax free and you can pull the money out tax free, meaning that you can start to rebalance in there as much as you want, and you're not gonna be paying taxes on that money.

So, I'm starting to see like another reason why I love the Roth account. Fantastic for stuff like this is going to allow you to rebalance without having to worry about that. So if there's like a portion of your portfolio, the majority of your portfolio is in a Roth I r A or a Roth 4 0 1 K, then make sure.

If you wanna rebalance, that's a great place to do it 'cause you don't have the tax implications. So those are four different ways that you can avoid taxes when rebalancing your portfolio. I think some of those are some pretty cool ways that are gonna help you, uh, save some money on rebalancing if you are interested in rebalancing.

Next we are gonna talk about ways to rebalance a portfolio. Alright, so we are now diving into ways to rebalance a portfolio and your boy is gonna go into a couple of these so that you understand some different ways and I'll show you how to d i y. Rebalance your portfolio as well. So the first one is automatic portfolio rebalancing.

So the best way to describe this is target date retirement funds. So if you invest in something like target date retirement funds, this is gonna automatically rebalance your portfolio for you, so you don't even have to think about it or you don't have to sweat about it. So that is one pro to target date retirement funds.

And if you don't know what they are, those are the funds in your 4 0 1 K or your traditional 4 0 1 K or ssep that have the year in front of the portfolio. And then it has target date. Retirement funds is typically what it says. So you can see something like, it'll say 2060 target date retirement fund, whatever the the advisor is, it'll be like 2060 Vanguard target date retirement fund.

And so when you look at these funds, I really like target date retirement. Index funds because it's index funds inside of a target date retirement fund. But when you look at these, first of all, they will help you rebalance your portfolio over time. This is like the foolproof way to invest is you just buy a target date retirement fund.

Just make sure you're looking at what is called the expense ratio because that's how much you're paying in fees and anything above 0.30 is gonna be too high in my opinion. So make sure you are. Monitoring those fees. You don't wanna have really high fees in a target date retirement fund. And then what happens in those target date retirement funds is the glide path will kind of take that fund over time.

It will adjust over time to your age and where they think you need to be with your stock and bond portfolio. So it'll actually adjust and change over time. But if you have a higher risk tolerance, it doesn't, you don't need to put the actual year you're gonna retire. If you have a higher risk tolerance, you can put the later years and that'll have more stock allocation in that portfolio.

Number two is Robo-Advisor rebalancing. So there's a bunch of robo-advisors out there, betterment Wealth Front. There's a bunch of 'em out there that will actually rebalance your portfolio for you, and they'll actually fully automate this investment process. So they will actually rebalance your portfolio for you.

They will do tax loss harvesting for you, which I think is the biggest pro for robo-advisors is the tax loss harvesting. And they will do all this stuff. That will allow you to make sure that your portfolio is balanced and so it does all the work for you. And then it just does it for a, a little bit of a higher fee than would be a Vanguard fund traditionally, or a Fidelity fund traditionally, or Schwab, whatever.

And so the price they typically charge is like 25 basis points or 0.25%, which is okay in most situations. So if you want to go with the robo-advisor 'cause you want that, set it and forget it thing, I have no problem with that. Sometimes you just gotta make sure that they don't have a huge 10 99 at the end of the year that they give you during.

Tax time and make sure that you actually understand what they are doing with your portfolio instead of just doing all these different taxable events that you really don't need. So that is another thing. They charge fees and commissions, and so it's 0.25% is typically what it lands at. So, and then the third option is D I Y.

Rebalancing your portfolio. And this is the cheapest way to do it, obviously, is to do it yourself. You can also have your financial advisor doing it, but if you have assets under management and your financial advisor is charging you a fee, For your assets under management, like a one to 2% fee. You know, I don't like that.

So if you haven't heard that episode or those multitude of episodes that we talk about that, definitely check those out because it is millions of dollars that you are giving away. So how did D I Y rebalance your portfolio? So the first thing we wanna do is obviously review your asset allocation. And that is the number one thing.

Make sure your asset allocation is on par. If it's not, you're gonna look at your ideal asset allocation and figure out what the current asset allocation is, and then you're gonna buy and sell shares to rebalance your portfolio. It's actually a very simple process, and you can track this. Over time in a spreadsheet or something like that if you want to, but you just buy and sell shares in your portfolio that's going to allow you to get that rebalance back to the asset allocation that you want.

So it's very simple to do with a spreadsheet. You can just put together the dollar amounts and it'll tell you percentages very easily. There's also a bunch of online calculators that you can use to be able to do that. And d i y it really, it's just making sure you do the calculation right and the calculation is just a percentage.

That's all it is. So making sure you do it that way is, is pretty simple. Now the final question before we wrap this episode up is, do I personally, does Andrew rebalance his portfolio? Nothing like a little third person talk there. So do I rebalance my portfolio? Personally, I do not, and the reason why I do not is I have a very high risk tolerance, so my personal risk tolerance is extremely high.

At this current point in time, I have a long time for money to compound. Still, I am not really worried about market fluctuations whatsoever. If the market does have a major fluctuation or a major impact, I will go back out there and work on earning more money to build up that portfolio again, 'cause I have more time to do that.

And so for me personally, I have a very high risk tolerance. And I do not rebalance. Now, I tend to have a much higher asset allocation towards stocks than I would bonds, and so I have a higher risk profile when it comes to my investment portfolio. And so for me, there's not much to rebalance anyways because I have so much invested into a higher portion of stocks Now.

My bond side of my portfolio would be more so my cash, where I have like T-bills, things like that. And so that is really like where my emergency fund is, that kind of stuff. Or I bonds that is where I have cash. So I consider that my less risky part of my portfolio is maintaining cash in my emergency fund in T-bills, in I bonds in high yield savings accounts.

Then when I'm investing my dollars, I have a larger allocation inside of stocks than I do inside of bonds. Now if I do rebalance, I tend to do it, but I just buy more of one asset than the other. So I tend to do the Nick Majuli method where I just buy more of an asset. I don't actually sell winners and and losers.

Now I do tax loss harvest. That's a different story, but rebalancing is not something that I am truly, truly, I. Doing much of, and then that is just a personal preference. That's the reason why if you rebalance, there is nothing wrong with that. Don't take this as you should not rebalance because I don't think that at all.

I think that you need to make sure you understand your personal preference, and there is a lot of things out there where people believe that they need to rebalance or they don't need to rebalance and more power to you. I have nothing wrong with rebalancing. In fact, if the data came back and told me that rebalancing would help my return significantly, I would be rebalancing.

All day long. The reason why I don't do it is that the data, as of it stands right now, the studies that I have gone into, and there's way more studies than even the ones I've talked about on this podcast. I've looked at all the studies and rebalancing has not made a major impact on my portfolio, and I don't care if my portfolio strays to a higher stock asset allocation between those two things.

Those are the reasons why I don't rebalance. If you care that it strays to a higher stock asset allocation, you should probably rebalance because you gotta make sure that the asset allocation is exactly what you want it to be. So, no, I do not rebalance my portfolio, but it's for those reasons, it's 'cause I have a very high risk tolerance.

If there was a recession today and my portfolio got cut in half, I honestly wouldn't even lose a wink of sleep because I know what happens over the long term with markets and it just does not phase me anymore. I. At beginning when I was a new investor, it definitely phased me. And then as I started to continue my financial education over time, it doesn't phase me at all anymore.

So that is the main thing about rebalancing today. I hope you guys learned a ton about rebalancing. We worked really hard to put these episodes together for you guys. If you guys have any questions, make sure to ask me. On any socials or if you're on the Master Money newsletter, which you definitely need to be.

If you're not, then you can reply to any of those newsletters there, and I will answer some of your questions there as well. Thank you guys so much for listening to this episode, and thank you for investing in yourself because that's exactly what you're doing, is you are investing in yourself and it is so powerful for you to listen to these episodes and listen to podcasts, read books, all these other things.


More Episodes You Will LOVE:

How Much Should You Spend on a Family Vacation? (By Income!)

In this episode of the Personal Finance Podcast, we’re going to talk about how much you should spend on a family vacation by income.

View Episode

Should I Pay Off Student Loans OR Start Investing NOW?! – Money Q&A

In this episode of the Personal Finance Podcast, we’re going to do a Money Q&A about should I pay off student loans or start investing now?

View Episode

The Complete Guide to Real Estate Notes (Should You Invest!?)

In this episode of the Personal Finance Podcast, we’re going to talk about the complete guide to real estate notes and should you invest in real estate notes?

View Episode

Here’s What Our ListenersAre Saying

Customer Reviews 4.8• 477 Ratings

Never Too Late, And Here’s Why!

Andrew is positive, engaging, and straightforward. As someone who saw little light at the end of the tunnel, due to poor saving/spending habits, I believed I would be entirely too dependent on Social Security. Andrew shows how it’s possible to secure financial freedom, even if you’ve wasted the opportunities presented in your youth. Listened daily on drives too and from work and got through 93 episodes in theee weeks.

Bradley DH
Just What I Have Been Searching For!

This podcast has been exactly what I have been looking for. Not only does it solidify some of my current practices but helps me to understand the why and the ins-and-outs to what does work and what doesn’t work! Easy to listen to and Andrew does a great job and putting everything in context that is applicable to everyone.

M. Marlene
Simply Excellent!!!

Excellent content, practical, straight to the point, easy to follow and easy to apply! Andrew takes the confusion, complexity and fear as a result (often the biggest deterrent for most folks) out of investing and overall money matters in general, and provides valuable advice that anyone can follow and put into practice. Exactly what I’ve been looking for for quite some time and so happy that I came across this podcast. Thank you, Andrew!

Great Information In An Understandable Way

Absolutely a must listen for anyone at any age. A+ work.

Wealth Building Magician

Absolutely love listening to this guy! He has taken all of my thoughts and questions I’ve ever had about budgeting, investing, and wealth building and slapped onto this podcast! Can’t thank him enough for what I’ve learned!

Fun Financial Literacy Experience

I discovered your podcast a few weeks ago and wanted I am learning SO MUCH! Finance is an area of my life that I’ve always overlooked and this year I am determined to make progress! I am so grateful for this podcast and wish there was something like this 18 years ago! Andrew’s work is life changing and he makes the topic fun!


The StairwayTo Wealth

Master Your Money with The Stairway to Wealth

Learn to Invest and Master your Money

You know there’s power when you invest your money, but you don’t know where to start. Your journey starts here…

The Stairway To WEALTH

We will only send you awesome stuff


Lorem ipsum dolor sit amet, consectetur adipiscing elit, sed do eiusmod tempor incididunt ut labore et dolore magna aliqua. Ut enim ad minim veniam, quis nostrud exercitation ullamco laboris nisi ut aliquip ex ea commodo consequat. Duis aute irure dolor in reprehenderit in voluptate velit esse cillum dolore eu fugiat nulla pariatur. Excepteur sint occaecat cupidatat non proident, sunt in culpa qui officia deserunt mollit anim id est laborum.

Semper feugiat nibh sed pulvinar proin gravida hendrerit lectus a. Sem viverra aliquet eget sit amet tellus. Pellentesque habitant morbi tristique senectus. Sem viverra aliquet eget sit amet tellus cras adipiscing. Amet justo donec enim diam vulputate ut pharetra sit. Sit amet consectetur adipiscing elit duis tristique sollicitudin nibh sit. Pulvinar etiam non quam lacus suspendisse faucibus interdum posuere. Iaculis at erat pellentesque adipiscing commodo. Aenean et tortor at risus viverra adipiscing at. Volutpat blandit aliquam etiam erat velit scelerisque in dictum. Eu augue ut lectus arcu. Lorem donec massa sapien faucibus et molestie ac. Mauris in aliquam sem fringilla ut. Ut porttitor leo a diam. Malesuada pellentesque elit eget gravida cum sociis. Lectus urna duis convallis convallis. Ipsum dolor sit amet consectetur adipiscing.

Lorem ipsum dolor sit amet, consectetur adipiscing elit, sed do eiusmod tempor incididunt ut labore et dolore magna aliqua. Ut enim ad minim veniam, quis nostrud exercitation ullamco laboris nisi ut aliquip ex ea commodo consequat. Duis aute irure dolor in reprehenderit in voluptate velit esse cillum dolore eu fugiat nulla pariatur. Excepteur sint occaecat cupidatat non proident, sunt in culpa qui officia deserunt mollit anim id est laborum.

Semper feugiat nibh sed pulvinar proin gravida hendrerit lectus a. Sem viverra aliquet eget sit amet tellus. Pellentesque habitant morbi tristique senectus. Sem viverra aliquet eget sit amet tellus cras adipiscing. Amet justo donec enim diam vulputate ut pharetra sit. Sit amet consectetur adipiscing elit duis tristique sollicitudin nibh sit. Pulvinar etiam non quam lacus suspendisse faucibus interdum posuere. Iaculis at erat pellentesque adipiscing commodo. Aenean et tortor at risus viverra adipiscing at. Volutpat blandit aliquam etiam erat velit scelerisque in dictum. Eu augue ut lectus arcu. Lorem donec massa sapien faucibus et molestie ac. Mauris in aliquam sem fringilla ut. Ut porttitor leo a diam. Malesuada pellentesque elit eget gravida cum sociis. Lectus urna duis convallis convallis. Ipsum dolor sit amet consectetur adipiscing.