Portfolio Rebalancing – Part 3

Time to continue with the portfolio rebalancing, part 3. I think I have to add a habit in my Dailey Task just to make time to write half a page each day, haha. Transforming a long story short, in the first two parts of the series we analyzed the risk appetite of our investing profile, studied a bit the All-weather portfolio of Ray-Dalio (how did it evolve during the years considering some ETFs/Stocks to reproduce it), and made some conclusions regarding how our portfolio should look. And you find all the details here:

  • Part 1 – What type of investors are we
  • Part 2 – Our All Weather Portfolio

And our desired brake-down of the portfolio:

  • 20% – Forex and Crypto Investments
  • 25% – Stocks and ETFs
  • 30% – Bonds and Mutual Funds
  • 17.5% – P2P
  • 7.5% – Gold ETFs (and maybe silver + Copper)

The goal of the current post is to find which investment we should trim and where should we add, so we respect the asset allocations presented.

Slim it down

The first step will be to add the value of each asset we have in the last Portfolio Update (link here), and this leads us to the following table:

AssetValuePercent
Stocks and ETFs324039.1%
Forex and Crypto163519.8%
Bonds and Mutual Funds187122.6%
P2P Investments149518.1%
Gold360.4%
Portfolio Rebalancing

What can we see is that Forex and Crypto are close to where they should be, but we have way too many Stocks and ETFs. Some rebalancing rules state that you can use the5/25, so when one of your asset allocations is over or under the desired percent with 5%, you have to sell or buy until you get your desired slice. Considering this, P2P is safe for this, but both Gold and Bonds and Mutual Funds need more meat.

With the help of a rebalancing calculator (which I picked from here Whitecoatinvestor) we have an overview of what we have to sell or buy:

image 11

Fat it up

For an easy interpretation of the table, we should sell Stocks in value of 1171 USD and some P2P investments for 47USD and buy more Crypto, Bonds, and Gold. Appling the 5/25 rule, we should sell only Stocks, as they are the only ones above 5% increase. So what do you say? Should we do that?

There is a common certitude that some investors are in their accumulation phase, where they avoid selling their investments and rebalance with new cash. And considering we are still away from the first milestone of 10k USD invested in assets, we will focus on bringing money to the portfolio respecting the target allocation.

A small simulation on how much money we need to invest and where (a small math exercise is always good for the brain), gives us the next table (we need 4500USD more invested with the condition that the stock’s value won’t change):

image 13
There is a lot of money to invest in Bonds, as we have only Mutual Funds at the moment. So that will be our next investment target (and I hope that Crypto and Forex will just pump their selves up). But at the moment there are multiple variables: like Stocks and ETFs to remain the same, and not only do they change their value each day, but we are also investing 100 USD monthly in an automatic manner. Same with Mutual Funds.

Conclusions

What I have learnt working on this series is that:

  • Our portfolio is way too small to do a rebalancing. I mean, yes, we can sell stocks and move them to the other assets. We could sell the low performant stocks or ETFs (but this means just to lose some money and pay taxes at the end of the year)
  • A diversified risk can help in the long run, and we saw how the All-Weather portfolio behaves
  • There are GOLD ETFs that are performing very well and they are easier to hold than actual gold or gold derivates
  • That we have a lot of Stocks and ETFs compared to other assets
  • A rebalancing should happen once or twice a year, depending on how the portfolio evolves. And maybe it is worth it to match it with a diverse time of the year (like summer Holidays, bonuses from work, things that pop up the market).

Thank you all for reading this series. I do not know how much it helped you, I wanted to give you some good material to read and pick up an idea or two. I know it helped me by giving me a target for next year’s financial objectives (and to work on some simulations on how much time I can get that portfolio in check) and even the remaining of this year.

Good luck everyone and see you soon in the next article on P2P and Mintos as I keep receiving emails that I should do a rebalancing of risk (nice ).

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