Rebalancing Redux

 

In the previous section on rebalancing I briefly went over why you want to rebalance, and linked to a spreadsheet that will help you rebalance by buying more or less of each fund to help bring your portfolio back into balance. For most young investors, the regular contributions are large enough relative to the portfolio size that just adjusting new purchases is enough to get the investment portfolio back into line with the plan. However sometimes you may find that more rebalancing is needed than can be achieved with just new purchases. In that case, for e-series with TD you’ll find the “switch” option from the order entry handy: it will allow you to sell one fund and buy another in a single step (i.e. switching!). Other than for rebalancing, there isn’t much need to worry about the switch option with TD Direct Investing [64]. With ETFs, you will have to enter separate sell and buy transactions – don't forget that there will be commissions to sell for both TD and Questrade, and to buy for TD. Of course, investments with Tangerine funds will automatically rebalance for you.

When it comes time to rebalance it's important to remember what your target allocation was in the first place. After a year or so, you can't trust your memory for that important detail. I highly recommend creating a reference sheet and keeping it somewhere safe that details your plan: your asset allocation, your account and product allocation to meet that, and the details of your savings plan. This will help you better determine when you are off-target, and when corrective action may be needed.

Along with the bare facts, explaining to your future self why you made the decisions you did will be very helpful to stick to that plan. Below is a sample reference sheet I prepared for myself; I've also shared it electronically on Google Drive which may help you jump-start your own: valueofsimple.ca/RefSheet.html

Remember that your processes will have to fit your life. Rebalancing regularly is a good habit to have, but there's nothing special about January 1. Indeed, in my life I always find I'm short of time around the winter holidays so I set my annual check-up and rebalancing reminder to happen in March, when I have started to pull out all my financial statements to get ready for tax season anyway.

 

Footnotes:

64: But with TDMF, you can’t sell a fund without also withdrawing, so if you need help from a TD rep withdrawing cash (e.g. for the RRSP Home Buyer’s Plan), you’ll first have to switch your e-series funds to a fund they can help you with, such as the money market fund.