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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.
Kyle, thanks for the interesting article. I have a similar spreadsheet and similar process. I have not linked accounts to our Vanguard accounts yet, but based on the comments I plan to look into it. This is timely because I usually do a 6-month summary of our balance sheet and cash flow.
Worth mentioning that Quicken financial software (we use their premier version) provides our family a very easily method to both aggregate and track investment returns on our brokerage accounts held through multiple investment companies. While it can’t be used to actually initiate the rebalancing of share values on these accounts, it does makes running rebalancing scenarios in advance of making a trade very easy, and will later import the results of our rebalancing efforts right into the software directly, pulling this data from the investment company’s website after the trades are completed.
Quicken also auto-updates share NAVs daily after I log in and automatically imports both dividend and capital gains distributions for us when they are declared.
I have admittedly always been a little skittish about having any one of my investment partners know both the value and location of where my other assets are being held. Though most banks and brokerage houses offer the ability to import other accounts into their website dashboard, I fear a full-court marketing blitz would follow to try and have me move all of our assets to them. These aggregator features may be free to use , but there is likely a a pitch for more business that helps pay for them later on. Quicken data resides on my computer, and the software backs up a copy daily to our household cloud drive when I close the application.
I dispensed with spreadsheet tracking as a byproduct of buying Quicken over a decade ago. We’re extremely happy with how much their software simplifies both household cash-flow and investment tracking.
Just an FYI. Earlier this year I consolidated all my investments with Fidelity – 401k our IRAs, brokerage account, a couple of individual stocks and two deferred annuities from decades ago.
Their website allows you to designate others to see. Even though my wife has her own account, her information is also consolidated on my page.
In addition all our bank accounts are linked as well. Then we added the value of our homes.
The bottom line is a total picture of our investments, asset allocation, the ability to trade, move money from the bank in either direction. Plus an instant picture of our net worth.
Other firms probably have something similar, but after years dealing with different accounts, I thought this was pretty cool.
Vanguard allows you to add external accounts manually to your Vanguard portfolio, so they can be analyzed in Portfolio Watch entirely or in any subset. The prices of mutual funds and ETFs will update automatically each day, but for non-Vanguard accounts you have to enter share purchases or redemptions manually.
I use and enjoy this feature in Vanguard, which I believe is provided by Yodlee. Basically, you share with Vanguard your login credentials at the other sites and Vanguard automatically checks your info. there and updates itself. You can also manually “refresh” these external accounts on the Vanguard site if you want an instant update without waiting for Vanguard’s next automatic update.
Maybe I’m missing something, but I believe if you’ve made purchases or redemptions in those external accounts, Vanguard catches those when it next updates.
I use Personal Capital. Same idea. We have accounts at Fidelity and Schwab, and it’s great to see everything on one page.
Rebalancing a few times a year seems like overkill. I’ve back tested thousands of portfolios, using 50+ year data sets, and rebalancing frequency often makes very little difference. Jack Bogle would say no more than once per year, and from my own testing that seems like a good baseline. Plan in a reasonable drift tolerance, and you would often go years between rebalancing. I update balances in a spreadsheet twice a year, but the movements are often below drift tolerance, so no rebalancing is needed.