3 Examples of How To Rebalance an All Seasons Portfolio
I wanted to share a special tutorial today on how to balance the All Seasons Portfolio.
If you don’t know what I’m talking about, I’ll explain it to you.
So, an All Seasons Portfolio is where you allocate your money as follows:
7.5% Gold
7.5% Commodities
15% Intermediate Term US Treasuries
30% Stocks
40% Long Term US Treasuries
So let’s say you invested your money by the percentages above, and a year goes by.
Well, maybe Gold went down and stocks went up, and so on.
So your percentages are not the same anymore!
What do you do?
You rebalance so that your percentages are back to what you started.
How?
Today you get to find out with 3 detailed examples.
Example #1 All Seasons With Monthly Deposits
The first example is an All Seasons Portfolio that was started in October of last year, and has monthly deposits of $100 to $121.
When I looked at it today, these were the market values for each category:
$75.84 Gold
$75.48 Commodities
$389.50 Long Term U.S. Treasury Bonds
$167 Intermediate U.S. Treasury Bonds
$324.64 Stocks
$154 Cash
$1,186.46 TOTAL
So you take the TOTAL and then calculate your percentages to see how much money you want to have invested in each category.
$88.98 7.5% Gold (actual value $75.84) – bought 1 share of gold fund at $18/share
$88.98 7.5% Commodities (actual value $75.48) – did not buy as a share was $25.
$474.58 40% Long Term U.S. Treasuries (actual value $389.50) – bought 2 shares at $44/share for total of $88.
$177.97 15% Intermediate Term U.S. Treasuries (actual value $167) – took no action as shares were around $30
$355.94 30% Stocks (Actual Value $324.64) – bought 1 share at $33/share
As you can see, once you know how much you should have, and compare it to how much you actually have, then you can determine whether to buy more shares to correct your percentages and rebalance.
Example #2 Beginning an All Seasons With Monthly Deposits
In this second example, we just started this portfolio with just a little bit of money. Also, fund shares are more expensive to buy.
$39.71 7.5% Gold (actual value is $37.91) – did not buy new shares
$39.71 7.5% Commodities (actual value is $39.20)- did not buy new shares
$211.75 40% Long Term U.S. Treasury Bonds (actual value is $169.32) – did not buy new shares because each share is over $100.
$79.42 15% Intermediate U.S. Treasury Bonds (actual value is $0) – did not buy shares because each share is about $120
$158.84 30% Stocks (actual value is $156.72) – did not buy shares
$126.33 Cash
$529.48 TOTAL
In this portfolio, there is actually not enough money to invest in Intermediate Term US Treasuries.
Since there are monthly deposits being made, it is best to check back later and see if there is enough money in the account to buy shares.
This often happens when you start with a small sum of money and invest monthly.
Example #3 All Seasons With Lump Sum
In the next example, there was a lump sum investment of $5,000 back in April.
This is after 3 months and includes only the actual percentages vs. the all seasons percentages.
10.59% – 7.5% Gold – no action was taken because Gold shares are over $100.
8.09% – 7.5% Commodities – close enough so no action taken
35% – 40% Long – since there is no additional cash, must wait until selling off of a different security/category to buy more shares
14.02% – 15% Intermediate – close enough so no action was taken
31.84% – 30% Stocks – close enough so no action was taken
In this case the investor wants to do a lump sum deposit annually, and will probably rebalance when he makes his deposit.
If he feels one category gets so high that he can sell, then he can use the money to buy a category that is too low.
Conclusion
I hope these 3 examples help you to understand how to rebalance an All Seasons Portfolio.
As your investments grow, you can fine tune your percentages even closer.
The book Money Master the Game by Tony Robbins is where I learned about the All Seasons Portfolio.
In the book, they rebalanced once a year.
They recommended to rebalance at least once a year, though you can rebalance more often if you choose.
Please leave a comment below on what you thought of this post and if you have any questions!