Fundranker Blog—Method 1 Rebalancing
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Method 1 Rebalancing
The Fundranker system is based on allocating your investments equally across all eight funds in the Top Eight Model Portfolio. We discuss three methods you can use to rebalance your portfolio on our FAQ page. In this post, we’ll discuss Method 1 further. See our posts on Method 2 and Method 3 for further examples.
It is important to note that Method 1 two-day rebalancing involves selling all of your funds, so consider tax consequences before you use it to balance your taxable accounts. You will realize whatever capital gains or losses your funds have made since you bought them. You may decide that leaving your taxable funds less balanced is better than realizing capital gains earlier than necessary.
Method 1 two-day rebalancing opportunities occur when a Fundranker exchange date falls such that it is at least 30 days after the previous exchange date and at least 31 days before the earliest possible exchange date for the next month, thus avoiding roundtrip transactions. This may happen in August, September, or December in 2010, depending on Fundranker’s exchange dates in July, August, and November. Here is an example of Method 1 two-day rebalancing:
Let’s assume that Fundranker exchanges on July 2, 2010. To rebalance using Method 1, on August 2, 2010, you would exchange all eight of your funds to Fidelity Select Money Market. Then on August 3, 2010, you would divide the amount you have in Fidelity Select Money Market by eight and exchange that amount into each of the funds in the Top Eight Model Portfolio for August. At Fidelity Investments, on your first seven exchanges, enter the dollar amount to exchange. On the eighth exchange, to exchange the last 1/8, select Sell all Shares, which, in this case, actually means the remaining shares after the first seven exchanges.
Although Method 1 two-day balancing opportunities only happen occasionally, note that you can rebalance your funds completely when you take advantage of this method.
Posted 3/30/10 5:40pm ET in Fundranker
