AS A COLLEGE professor, there are a few times during the year when things quiet down. During these lulls, I take on tasks that have moved to the bottom of the to-do list. The items include things like doctor’s appointments, home repairs and portfolio rebalancing. I can hear my students’ reaction: “But professor, you teach us about investing in companies and you write about investing. Why do you drop your portfolio review to the bottom of the list?” Valid question.
I find reviewing our portfolio to be tedious. Also, the ultimate output of the process—shift some percent of our portfolio from investment A to investment B—doesn’t get my juices flowing. I’d rather read company financial statements and debate valuations. But I know that regular rebalancing is necessary, so I do it a few times a year. Here’s the process I follow.
We have almost all our money at a single brokerage firm, Schwab, but it’s still a manual process to summarize our positions across our nine accounts. This may sound like too many accounts, but all of them have a specific purpose. Beyond our standard brokerage account, my wife and I both have rollover and Roth IRA accounts. We also have custodial and 529 accounts for our two children. I haven’t found a way on Schwab.com to generate a report on our combined accounts, given the different Social Security numbers involved. Instead, I lean on my Excel skills to summarize the data.
To our Schwab data, I add the positions from our employer-sponsored defined contribution plans. Once I’ve got all the information downloaded, I categorize each investment as U.S. stocks, international stocks, bonds and cash. Once I do this, I use a “SUMIF” formula in Excel to determine the market value for each category.
The final step is to calculate our total investment portfolio’s percentage allocation to each category and compare those allocations to our targets. Based on our investing experience and age, we use the following targets: 55% to 60% U.S. stocks, 20% to 25% international stocks, 15% to 20% bonds and less than 5% cash.
How are things looking? Our allocations to international stocks and bonds were spot on. The main issue was that, at 9%, we had too much cash, and we were low on our allocation to U.S. stocks.
To rectify the situation, we shifted about half the extra cash to a few U.S. stock index funds. To get the rest of the cash invested, I increased our semi-monthly automatic U.S. stock investments. Thanks to that increase, our remaining excess cash will be invested by the end of the summer.