05 April 2006

Rebalancing my portfolio (Part II)

(Due to the length of this post, I've broken it down into two pieces. Read part one here.)

My current allocations as of 3/31 were:

0.49% Cash
48.02% Domestic Value
13.09% Emerging Markets
15.20% International
12.86% Real Estate
10.34% Domestic Growth

I am primarily a value investor and seek out value stocks that pay dividends. One of my largest holdings is a Fidelity fund that specializes in underpriced stocks and is currently closed to new investors (you can figure it out if you really want to). Because of the minimums to avoid fees in this fund, it makes up over 20% of my IRA. When I rebalance I sell enough of the fund to get to the minimum in order to continue to diversify my portfolio. I am probably overly weighted in Domestic Value and need additional weighting in Domestic Growth, but I’m not terribly worried about it. I am overweighted in large-cap stocks, but the aforementioned fund invests primarily in small and medium caps, so I do have some exposure there.

On the international side, I am underweighted overall (only 28%) but overweighted in emerging market stocks. This is primarily due to the outsized returns of emerging market funds over the past year.

Real estate is right on target with 12.86% being smack in the middle of my target allocation of 10-15%.

So, by looking at my current allocations, I am overweighted in domestic stocks and emerging markets and underweighted in international stocks generally. Like I said before, I’m not overly concerned about being underweighted in domestic growth stocks. I want to get my international stocks to allocation before adjusting my domestic allocation (mainly to avoid trading fees).

I will sell off enough of the emerging markets funds to get down to my 10% target allocation. I will use the proceeds from the sale and the dividends that I received this quarter to purchase additional shares of international funds. This will not get me to my targeted allocation in international stocks, but I will continue to use my dividends and sell overweighted funds in order to reach my designated allocation.

So, that’s how I rebalance my portfolio. Your mileage may vary and it’s only one example, but it should be enough to get you started.

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