Rebalance

This tool has several purposes:


1. To determine the transactions currently needed to approach to your target allocations.

2. To rank those transactions by cost. The displayed theoretical cost is an estimate we use to rank transactions.
First fees for buying or selling the investment are added.
Additionally, in taxable accounts, any capital gains for selling the investment will add to the theoretical cost, and any loss will reduce it (we assume a marginal tax rate of 50% here, the TIME MACHINE will use your calculated marginal tax rate). This encourages you to crystallize capital losses (i.e. tax loss harvesting).
The theoretical cost also considers that if the investment is sold, the fees for holding that investment for one year will take away from the cost. However, the expected return for one year will be omitted, and the theoretical cost will be increased by that amount (minus taxes).
If instead the investment is bought, the cost will increase by the amount of fees for holding that investment for one year, and it will be decreased by the expected return (minus taxes).
The logic is that it is better to buy cheaper funds with greater risk-adjusted expected returns and to sell high-cost funds with lower risk-adjusted expected returns.

Note that the theoretical cost can be negative, and therefore consist of a benefit. Transactions with the lowest theoretical cost (i.e. the highest negative cost) are preferred.

3. To determine which assets that you should buy/sell when adding or withdrawing money from an account.

To do this, first adjust the balance of the Cash investment to reflect the amount of money to be deposited or withdrawn. (The Cash account balance can be negative if you are withdrawing money). Then, run the tool to determine which investments you should buy or sell in order to rebalance the account.
Rebalancing while making deposits and withdrawals is usually the most cost-effective strategy. You should also check your portfolio, about once per year, in order to determine if it needs rebalancing and the cost to do so.

4. To demonstrate the approach used by the TIME MACHINE to rebalance your accounts once a year, The TIME MACHINE will use your calculated marginal tax rate.

IMPORTANT: What constitutes an Account was defined by you. The tool assumes all transactions are legal within the account. If you have merged accounts of different types or owners that may not be the case.

There are potentially several equivalent, or near equivalent, solutions to this problem. Our algorithm finds only one, but it may not be the most optimal option. The issue arises, mostly, with investments containing multiple asset classes (balanced funds, for example) and equivalent investments.


The results will include 3 tables:
  1. The buy or sell recommendations. These are for informational purposes only. Please review these recommendations to make sure they make sense for you before implementing them. The tool will make recommendations to approach the set target as close as possible, but transactions usually incur fees, and you may want to ignore some of the smaller transactions that would incur more fees than they are worth.
  2. The Asset Allocations of the account if the recommendations were implemented.
  3. The value of each investment before and after rebalancing.