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The issue with rebalancing is that it often has tax implications if you aren't careful. You have to weigh the benefits of rebalancing with the tax loss. It work
by jandrewrogers 3y ago
The issue with rebalancing is that it often has tax implications if you aren't careful. You have to weigh the benefits of rebalancing with the tax loss. It works in tax deferred accounts but, at least in the US, a significant percentage of people do not have material access to such accounts.
- hammock 3y agoIf you have 10% in cash you ought to have enough to cover the tax bill from rebalancing, in most years
- anonporridge 3y agoThis is why the first order move when "rebalancing" is to just adjust your allocations of new investment money from your post tax income. e.g. if your stocks and bonds are doing very well and have inflated beyond their allocation, stop buying them and divert all of your savings to cash and gold/bitcoin.
- jandrewrogers 3y agoYes, and also you can sometimes select tax lots that minimize or completely eliminate the net tax exposure. This does have practical limits though e.g. if the portfolio greatly exceeds income or all of your tax lots of consequence are deep into positive territory.
- anonporridge 3y agoBoth very good problems to have.