Asset Allocation & Rebalancing @ Vanguard
In general, there are two main investment strategies: trading and investing. Trading is to take short-term profit very often, such as on a daily basis like the day-traders do. Investing is to take a long-term view in profits. Asset allocation is one of the investment methodologies often used for investing.
The is an investment and rebalancing plan anyone may use for accounts at vanguard or at fidelity. Both mutual fund families are excellent choices for lont-term investors.
At Vanguard, an investor is usually allowed to rebalance his portfolio twice a year. This limit of twice a year of rebalancing is not enough for most investors. In order to go around this limit, one can develop a system like this. At Fidelity, there is no such limit, especially for small-amount exchanges between funds.
(1) One may need to transfer all capital gains, dividends, and interests to one of the Vanguard money market funds. All these money market funds are good. So the selected money market fund will have an income stream, e.g. $2000 per month.
(2) Exchange $100 every day from the money market fund to one of the portfolio mutual funds. There are about 250 trading days in a year. If $100 is invested in every trading day, the total annual rebalancing investment is approximately $25,000 per year. One can adjust the frequency of rebalancing according to the portfolio size. The minimum additional investment is higher at Fidelity. It is $250. Then the total annual rebalancing investment can be approximately $62,500 (250 x 250) per year.
(3) If the money market fund reaches a very low level, cash should be transferred from other sources in order to maintain the minimum investment level required by the money market fund. Otherwise, some fees can be charged by vanguard or Fidelity.
I am confident he/she will do well if he/she can really consistently follow the above procedures. The amount of $100 at the Vanguard account or $250 at the Fidelity account per day seems very small, but the cumulative impacts can be significant enough to make a difference in investment returns.
The is an investment and rebalancing plan anyone may use for accounts at vanguard or at fidelity. Both mutual fund families are excellent choices for lont-term investors.
At Vanguard, an investor is usually allowed to rebalance his portfolio twice a year. This limit of twice a year of rebalancing is not enough for most investors. In order to go around this limit, one can develop a system like this. At Fidelity, there is no such limit, especially for small-amount exchanges between funds.
(1) One may need to transfer all capital gains, dividends, and interests to one of the Vanguard money market funds. All these money market funds are good. So the selected money market fund will have an income stream, e.g. $2000 per month.
(2) Exchange $100 every day from the money market fund to one of the portfolio mutual funds. There are about 250 trading days in a year. If $100 is invested in every trading day, the total annual rebalancing investment is approximately $25,000 per year. One can adjust the frequency of rebalancing according to the portfolio size. The minimum additional investment is higher at Fidelity. It is $250. Then the total annual rebalancing investment can be approximately $62,500 (250 x 250) per year.
(3) If the money market fund reaches a very low level, cash should be transferred from other sources in order to maintain the minimum investment level required by the money market fund. Otherwise, some fees can be charged by vanguard or Fidelity.
I am confident he/she will do well if he/she can really consistently follow the above procedures. The amount of $100 at the Vanguard account or $250 at the Fidelity account per day seems very small, but the cumulative impacts can be significant enough to make a difference in investment returns.
posted by Unknown at 7:48 PM
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