2010 is a great year for the stock market and our portfolio has recovered nicely from the Great Recession dip. Some sectors did better than others though and this has thrown my portfolio out of whack. It’s time to reshuffle and bring it back to the targeted allocation.
I used the combination of these two ways to rebalance the portfolio.
- Send new contribution toward the under-weighted segment throughout the year.
- Sell some assets and reallocate once or twice a year
My 2010 Target Asset Allocation
My allocation at the beginning of December
Small cap has gone up over 20% this year and it has grown bigger than the targeted allocation. Luckily, some of these small cap funds are in my 401k and I can move them to large cap funds with no trading cost.
All new contributions are going toward international and emerging markets so they should go up to 20% some time in Q1 or Q2 2011.
There are a bit more cash and bonds than I’d like, but most of that is in the company-matched 401k account and I can’t touch the investment in that account. My 401k is split into two accounts – employee contribution and employer matching. Cash also includes the 3-6 months emergency fund so I’m not worry too much about the allocation being a bit high.
This is what the allocation currently looks like after a little rebalancing.
The small cap is still overweight and I will need to sell 4% and split the proceeds to international and emerging. I’ll do that in my Roth IRA so I don’t incur any tax penalty.
2010 was a great year for small cap (18% gain) and mid cap (16% gain) US stocks.
Emerging market was a little disappointing, but it still had 12% gain. Large cap came in at 9%, not bad. International stocks did quite poorly due to the European debt crisis only gained 8%.
Which segments will be good in 2011? Hopefully Europe will work out their problems and my international holdings will see some nice gains next year, but anything can happen. The one thing I know is this – small cap won’t be leading the pack at the end of 2011. That’s why we need to rebalance every year. We’ll revisit this in 2011 and see if I was correct.
Have you rebalanced your portfolio? Many investors do not take the time to reallocate and their portfolio does not reflect their risk tolerance anymore. If you haven’t gone over your asset allocation in 2010, now is the time to do it.