What is Rebalancing an Investment Account? Actually Rebalancing my 401(k)

by Evan

It has been almost a year since I rebalanced and Reallocated my 401(k), so it is about time to take a look at the account.

What is Rebalancing?

According to investopedia rebalancing is,

The process of realigning the weightings of one’s portfolio of assets. Rebalancing involves periodically buying or selling assets in your portfolio to maintain your original desired level of asset allocation

One could rebalance based on specific funds or based on total allocation (i.e. stocks to bonds).  Like everything in personal finance there are no set rules or standards.  Notwithstanding, FINRA recommends at least a yearly review of your 401(k),

As market performance alters the values of your asset classes, you may find that your asset allocation no longer provides the balance of growth and return that you want. In that case, you may want to consider adjusting your holdings and rebalancing your portfolio.

Assets grow at different rates—which means that your portfolio might end up out of line with the allocation you have chosen. For example, some assets might recently have grown at a much faster rate. To compensate, you might reallocate some of the value of fast-growing assets into assets with slower recent growth, which may now be poised to pick up steam while recent high-performers slow down. Otherwise, you might end up with a portfolio that carries more risk and provides a smaller long-term return than you intended.

Although there’s no official timeline that determines when you should rebalance your portfolio, you may want to consider whether you need to rebalance once a year as part of an annual review of your 401(k) plan.

Rebalacing my 401(k)

About a year ago I came up with the following allocation:

  • RGACX Amer Funds Growth Fund R3 20%
  • OPSIX Oppenheimer Global Strategic Inc A 10% 
  • OPGIX Oppenheimer Glob Opp A 20% 
  • CGRWX Oppenheimer Value A 20% 
  • QVSCX Oppenheimer Sm & Mid Cap Val A 30%

Since the funds offered by my 401(k) are still terrible I am going to keep investing in the same funds, but the balance over time has shifted to:

  • Amer Funds Growth Fund R3 – 31.1%
  • Oppenheimer Global Strategic Inc A – 5.1%
  • Oppenheimer Glob Opp A – 17.7%
  • Oppenheimer Value A – 22.0%
  • Oppenheimer Sm & Mid Cap Val A – 23.9%

If you are wondering why it doesn’t exactly add up to 100% is because when I rebalanced and reallocated last year my 401(k) Administrator didn’t sell out of positions completely leaving me with fractional shares.  Not sure why it occurred but didn’t really bother to research it either.

It seems that the Amer Funds Growth Fund has become nearly one third of my portfolio and that is unnecessary and just not something I am comfortable with.  I originally thought it occurred due to the 22% growth rate vs how the rest of my funds have done.

401k Rebalance

However, that doesn’t seem to be the case:

All funds 401k rebalance

I tried to dig a bit to figure out what has occurred in terms of how it grew so quickly since all the funds grew around the same amount.  I failed, but not going to worry about it too much.  Instead, I am going to rebalance to the allocation I had previously set up.

  • RGACX Amer Funds Growth Fund R3 20%
  • OPSIX Oppenheimer Global Strategic Inc A 10%
  • OPGIX Oppenheimer Glob Opp A 20%
  • CGRWX Oppenheimer Value A 20%
  • QVSCX Oppenheimer Sm & Mid Cap Val A 30%

The whole thing is pretty frustrating since all the fees on these funds are at around 1%!

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