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Re-balancing

Q: At the end of the month we have a new 25% amount for each ETF. So what is the best way to adjust our portfolio or calculate the new shares we need to buy and sell to get the correct weighting?

A: Do you mean like dividing your portfolio by four and then dividing by the share price? Or were you talking about something more complex such as fully re-balancing the portfolio monthly? I suspect the later.

For most people, it won't be worth the extra cost to re-balance and equally weight the portfolio.

Those with larger portfolios over $500,000 will definitely want to do this. It's a form of taking some money off the table if one asset class starts getting really large. Even passive indexing gets a 2% boost in alpha by doing this annually (my testing showed no benefit for shorter-term re-balancing periods).

Typically, an ETF will only be held a few months. The record so far is DBC, which was held nine months.

Now if you do want to re-balance monthly, it's really simple.

You divide your portfolio by four. You then divide that number by each of the ETF prices. Now you know how many shares you SHOULD have.

Next, you see how many shares you ACTUALLY have...and adjust accordingly.

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