Investment Workshop 48: Rebalancing Your Portfolio

Wanderer
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Wanderer

The Wanderer retired from his engineering job at a major Silicon Valley semiconductor company at the age of 33. He now travels the world, seeking out knowledge from other wealthy people, so that he can teach people how to become Financially Independent themselves.
Wanderer
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Hello again and welcome back to the Millennial Revolution Investment Workshop! New readers, please click here to start from the beginning.

Right now, sitting in my inbox, are about a hundred emails all asking the same question:

How do you calculate how to rebalance your portfolio?

And I will freely admit, I haven’t been the best at answering this question. For the longest time, we’ve been calculating our buy orders using a lame-ass spreadsheet with lame-ass Excel formulas, and I’ve steadfastly refused to release them publicly because the entire thing is just hacked together and I don’t want that garbage floating around on the Interwebs.

What I’ve actually wanted to do for some time is to find some kind of spiffy calculator out there that people can use with pretty graphs and charts and shit to do this, and then I can link to that. But unfortunately, after months of searching I never did manage to find one that did what we wanted.

So we built it ourselves.

May I Introduce…the MathShitUp-Inator!

OK so here’s how it works. The MathShitUp-Inator will be our living, breathing toolbox for the FI community. Right now, there’s just one tab: The Rebalancer, but more will be added in the future as we develop this tool.

So first, let’s click on over to the “Rebalancer” tab.

You’ll see a table where you can put in your portfolio information.

And…that’s it! Once you’re done inputting your portfolio information, the Rebalancer figures out what your current portfolio allocation is, what it needs to be, and the buy/sell orders required to get you back on track. I’ve actually been using this tool behind the scenes for the last few weeks to figure out our bi-weekly Workshop Portfolio buys, but now you can play with it too!

Let’s give it a go, shall we?

Canadian Portfolio

For our Canadian portfolio, we start by putting our ETFs into the Rebalancer

This is what our current portfolio looks like…

This is what we want it to look like…

And this is how far each asset is from target…

So in order to rebalance, we need to do this…

Asset Action Units Cost/Proceeds
Cash SELL 509 $-509.00
VAB BUY 9 $227.52
VCN BUY 3 $97.65
VUN BUY 2 $92.84
XEF BUY 2 $62.16
XEC BUY 1 $28.19

And after rebalancing, our portfolio will look like this…

Asset Units Price Market Value Allocation
Cash 12 1 $12.00 0.1%
VAB 190 25.28 $4803.20 39.9%
VCN 74 32.55 $2408.70 20.0%
VUN 52 46.42 $2413.84 20.0%
XEF 62 31.08 $1926.96 16.0%
XEC 17 28.19 $479.23 4.0%

American Portfolio

And on the American side, we start by putting our portfolio into the Rebalancer

This is what our current portfolio allocation looks like…

And this is what we want it to look like…

So in order to rebalance, we need to do the following…

Asset Action Units Cost/Proceeds
Cash SELL 592 $-592.00
BND BUY 2 $163.28
VTI BUY 2 $265.60
VEU BUY 3 $162.27

And after we do that, this is what our portfolio will look like…

Asset Units Price Market Value Allocation
Cash 10 1 $10.00 0.1%
BND 59 81.64 $4816.76 39.4%
VTI 28 132.8 $3718.40 30.4%
VEU 68 54.09 $3678.12 30.1%

And that’s it!

And we’re done! So that’s the Rebalancing calculator you guys/gals have been asking for. Give it a whirl, and let me know if you run into any problems in the comments, or over email.

And also, despite the fact that every book about the “business side of blogging” out there is telling us we’re supposed to put “extra features” like this behind a paywall for “Gold Members Only” or whatever, we went “SCREW THAT” and decided to just give it away for free along with everything else on this site. If you find it helpful and want to support us making more tools like this, we put a donate button at the bottom of the Rebalancer, but it’s completely optional whether you want to do that.

That’s it! Peace out!

 

WORKSHOP TOOLS:


How much does it cost to participate in this investment workshop? NOTHING. Because that's how we roll. All we ask is that you sign-up using the following affiliate links to keep it free forever:


For Canadians:
Questrade

For Americans:
1) TD Ameritrade
NOTE: Due to their recent changes for their commission-free ETF program, we can NO LONGER RECOMMEND TD Ameritrade. We are currently seeking out a new brokerage to partner with and will let you know when we find one.
2) Personal Capital


Disclaimer: The views expressed is provided as a general source of information only and should not be considered to be personal investment advice or solicitation to buy or sell securities. Investors considering any investment should consult with their investment advisor to ensure that it is suitable for the investor’s circumstances and risk tolerance before making any investment decisions. The information contained in this blog was obtained from sources believe to be reliable, however, we cannot represent that it is accurate or complete.

36 thoughts on “Investment Workshop 48: Rebalancing Your Portfolio”

  1. The tool is amazing. I used it today. There are few bugs fixes. I’ll try to compile a list of bugs and send it over to you guys.

    One question I have is how did you guys calculate the units of CASH. I am not sure why did you put 602 units for cash. The price makes which should always be $1.00 ?

  2. Pretty Effing Cool! Very accurate as compare to my excel sheet, and cool charts too! Worthy to be bookmarked! =)

    Thanks guys!

  3. Slick tool! I, too, am just rocking my Excel spreadsheet but next August, when we do our annual rebalance, I’m going to use your spiffy calculator.

    Very cool tool: this will be a resource that’ll help a lot of folks, I’m sure of it.

  4. Does this mean then that retiring with $1 million is not sufficient and that you need to supplement through other income streams? The reason why I ask is that I’ve been wondering how much you really need to have set aside to ensure that you never dig into the principal portion of your portfolio. My goal would be to never touch the principal (I’d rather leave that to grateful spawn instead so they can do the same as me). If I have an annual return of 7.5% on my portfolio, the goal would be to take 3.75% (50% of the 7.5%) as income and reinvest the other 3.75% to ensure the portfolio always stays ahead of inflation. On $1 million starting point, that would mean I would have $37,500 to live on. I’ll admit that’s a bit tight for what I have planned and would prefer to start drawing on my portfolio when it hits $1.3 million instead which would give me just under $50,000.

    Considering your situation and loss of outside income like affiliates, do you still think $1 million is enough? I’m single by the way so no better half to income split the portfolio income. I just hit the $1 million portfolio mark with $0 debt but live in Toronto so contemplating when is the best time to actually pull the trigger and quit the job (ie: indentured servitude). I don’t plan on blogging to supplement income – I prefer to just read the smart ones like yours instead. I’m a reader, not a writer (lover not a fighter – LOL) Can you advise?

    Thanks in advance

    1. Congrats! I think $1M is more than enough to retire, especially if you don’t lock yourself to a high-cost area like Toronto. Like we said, living in places like eastern Europe and SE Asia causes your living expenses to plummet below $30k. And we don’t need any blog income to make our numbers work, any $ we make (and it’s not much by any means) is just bonus. I’m actually going to need to do a portfolio withdrawal for the first time in December, and I’ll write a detailed post about it when I do.

      1. Thanks for the response. I appreciate. I look forward to reading that post when it comes out.

        For the $1.3 million target, that’s specifically to handle a HCOL area so that I hopefully never feel forced to chose a LCOL area versus a HCOL area. It’s that safety net that will tell me that I can weather most any financial storm (should be done within 3 years so not too long, fingers crossed). I’m sure after the fact, I’ll look back and say to myself “you dumbass, you wasted 3 years in a cubicle for nothing when you could have been having fun”. Sigh… oh well.

    2. Congrats on reaching $1M. My husband and I are also from Toronto and 2017 is our first year on our journey to FI. We are targeting to be FI in 10 years. Hope someday I will have your ‘problem’ on when to pull the trigger. 🙂

  5. It’s an interesting tool for sure BUT Gosh, buy and SELL orders? Most of us rebalance our portfolios by adding fresh money to it and rebalance things on the buy side only !!! (buying more units of one and less units of other(s))
    You guys have to build a tool like this instead and then I’ll use: http://optimalrebalancing.tk/index.html

    1. Well if you add cash into the portfolio, the tool will tell you to “sell” the cash and buy the ETFs in the right amounts. Same thing that you’re describing. I haven’t actually sold any units yet either.

  6. Sorry guys but this name really doesn’t come out easily and it might not stick ! some are already calling it Spiffy (simpler guys, simpler)

  7. Pretty sweet tool! The only “complaint” I would have is that you need to fill it in each time you use it (as far as I can see). If there was a way to save your portfolio so when you come back the information is there (except market price) that would be good. Otherwise, using an excel template remains a little easier for me.

    Perhaps there is potential to create your own little portfolio manager, where you can input buys into the tool each month so it automatically knows your portfolio, all you need to do is update the current market price. That might be getting a little complicated though, but it would be neat!

    1. Hey VancouverBrit! You don’t actually have to fill out the tool each time. You can save it by clicking the “Save” button in the “Save Your Results” section at the bottom. This will bring up a link to save it as a file, or just save the url so you don’t have to refill your information.

      Thanks for the feedback!

  8. Hi Firecracker-
    Love the site! You are inspiration! Rebalancing is very much conventional wisdom. However, there is plenty of evidence that it doesn’t do a whole lot.

    See the writing of Nobel prize winner bill sharpe https://web.stanford.edu/~wfsharpe/aaap/wfsaaap.pdf and Jack Bogle. http://www.morningstar.com/cover/videocenter.aspx?id=615379

    The only way I “rebalance” is by taking dividends and investing in areas that my percentage is lower than where I want it to be. It has worked very well for me.

    Just my 2 cents. Continue being awesome.
    Rob

    1. Very good read, when I run some numbers and approach the subject of balance, you come to the conclusion, that too much balancing is a bad thing. I like to “let the dogs run” which means if a market is doing well, don’t touch it. But use Robs approach to adding to your portfolio, buy the asset that is out of your target range, therefore still adjusting your balance, just not as aggressively. I think the key to investing is leaving your money in Equities for as long as you can stand it… Long gone are the days of Bonds returning 7-10% annually. But I do not believe in 100% Equity portfolios, with no cash in hand. Not at my age, I need to balance risk/reward, a key fundamental of investing.

      cheers

  9. Thanks guys, awesome tool! I apologize for the other complaints about the name! haha (“don’t look a gift horse in the mouth” people!) (also “that which we call a rose by any other name would smell as sweet”)

    I’m also a developer and have been wanting to look into Questrade’s API to see if it would be possible to develop something that would let me rebalance with one click (or at least avoid having to look up the market price and enter it). Have you considered that?

    I’m new to investing and was surprised at how much of a repetitive chore it is to figure out your buys (not to mention error-prone) when it seems like such an automatable task.

  10. I kinda like the name, and love the tool, its slick, kind of the stuff I want to do in retirement which is approx 4-5 years away. So Wanderer, what tools do you use to generate your code, I am struggling with PHP, PERL, and, SQL.

      1. thanks, I want to embed a program into my own blog, ya me a blogger too now.. OMG…
        see my Gravatar? Anyway… would you suggest perl, or C as the source code?

        can you even use a compiled C program on most platforms? I haven’t tried it yet.

  11. Looks spiffy indeed. Any thoughts on how to divide assets between accounts? That was kind of tricky when I wrote software to do this (and made students make changes to that software as part of their class).

  12. Hi! Great site. I’m a newbie…just starting my FI journey later in life (wish I was 10 years younger, lol). Do you have any info or anyone who’s doing it in the UK?

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