Paying real money now for an uncertain benefit at an indeterminant future time can be hard. If stocks have gotten too much, you're paying for risk reduction when you know neither when the benefit of risk reduction will show up, nor how much risk will show up.
I used to have soft and hard rebalancing points. Breaching the soft point meant I redirected dividends out of stocks and all new savings into bonds. Only breaching the hard point meant I'd sell and incur costs. But my points were wider than the OPs: 5% was my soft rebalancing point and 15% was the hard. During accumulation I in fact never needed to sell stocks. The soft points and the wide bands worked, except in the global financial crisis. That was the one time stocks fell so far and so fast that my plan called for selling bonds to buy stocks. And obviously rebalancing in that direction, capital gains taxes were not an issue.
I think paying tax for risk reduction is worth it, but I'd tolerate wider swings than the OP in order minimize the number of times I incur tax. It's also worth considering that you don't have to rebalance all the way back in one go. Minimize tax cost by rebalancing back to the edge of your band or half way back to neutral, instead of all the way back in one go. The market might regress and do the rest of your rebalancing for you at no tax cost.-)
I used to have soft and hard rebalancing points. Breaching the soft point meant I redirected dividends out of stocks and all new savings into bonds. Only breaching the hard point meant I'd sell and incur costs. But my points were wider than the OPs: 5% was my soft rebalancing point and 15% was the hard. During accumulation I in fact never needed to sell stocks. The soft points and the wide bands worked, except in the global financial crisis. That was the one time stocks fell so far and so fast that my plan called for selling bonds to buy stocks. And obviously rebalancing in that direction, capital gains taxes were not an issue.
I think paying tax for risk reduction is worth it, but I'd tolerate wider swings than the OP in order minimize the number of times I incur tax. It's also worth considering that you don't have to rebalance all the way back in one go. Minimize tax cost by rebalancing back to the edge of your band or half way back to neutral, instead of all the way back in one go. The market might regress and do the rest of your rebalancing for you at no tax cost.-)
Statistics: Posted by asset_chaos — Sun Oct 19, 2025 7:59 pm — Replies 12 — Views 626