Comments on: 401k Match In Company Stock, How Often To Rebalance? http://www.bargaineering.com/articles/401k-match-in-company-stock-how-often-to-rebalance.html personal finance blog with anecdotes, advice and commentary. Sun, 22 Nov 2009 02:01:03 -0500 http://wordpress.org/?v=2.8.5 hourly 1 By: Robert Lebo http://www.bargaineering.com/articles/401k-match-in-company-stock-how-often-to-rebalance.html/comment-page-1#comment-155590 Robert Lebo Tue, 18 Sep 2007 23:23:28 +0000 http://www.bargaineering.com/articles/401k-match-in-company-stock-how-often-to-rebalance.html#comment-155590 I believe rebalancing is key to creating wealth and reducing risk. It is also most effective on portfolio's that are not supported by a constant stream of income (plans that you contribute into systematically). To rebalance means you have an Ideal portfolio as a base and periodically return to that model. Without thinking about it rebalancing pulls money/profit from the profitable investments and purchases into the under performing holdings(at a discount). You make money purchasing low and selling high. If you have a income stream into the portfolio you should be able to hold off the need to rebalance (occur charges) by properly allocating you contributions(Dollar cost averaging into the under performers). This becomes a bit more tricky in this situation because you have 50% of your contributions in one security. First consider the company stock, by asking a few questions. 1) What category does it fall into? (Large, Mid or Small Cap, or international) 2) Is being consistantly overweighted in this category with in the risk level I can tolerate. 3) How long till I start withdrawing from this account. 4) Strength and performance of the stock (try to avoid your bias) If you can live with the account being overweighted in that category, you won't being withdrawing from that account for at least two years and you are confident in the security. Allow the over weighting and set your limits, example I want that sector to represent 25% of my portfolio I can tolerate up to 65% of my portfolio. When you hit 65% then you occur the expense and take it down to say 15%. You should liquidate 100% of the company stock and invest the 15% in a diversified investment(same category). As your portfolio gets larger it will need to be rebalanced less and less because of your company stock. The percentages above were an example and you should calculated for what you are comfortable with. If you aren't comfortable with the overweighting and/or the stock then consider lowering the percentage that you rebalance at. I believe rebalancing is key to creating wealth and reducing risk. It is also most effective on portfolio’s that are not supported by a constant stream of income (plans that you contribute into systematically). To rebalance means you have an Ideal portfolio as a base and periodically return to that model. Without thinking about it rebalancing pulls money/profit from the profitable investments and purchases into the under performing holdings(at a discount). You make money purchasing low and selling high. If you have a income stream into the portfolio you should be able to hold off the need to rebalance (occur charges) by properly allocating you contributions(Dollar cost averaging into the under performers). This becomes a bit more tricky in this situation because you have 50% of your contributions in one security. First consider the company stock, by asking a few questions.

1) What category does it fall into? (Large, Mid or Small Cap, or international)
2) Is being consistantly overweighted in this category with in the risk level I can tolerate.
3) How long till I start withdrawing from this account.
4) Strength and performance of the stock (try to avoid your bias)

If you can live with the account being overweighted in that category, you won’t being withdrawing from that account for at least two years and you are confident in the security. Allow the over weighting and set your limits, example I want that sector to represent 25% of my portfolio I can tolerate up to 65% of my portfolio. When you hit 65% then you occur the expense and take it down to say 15%. You should liquidate 100% of the company stock and invest the 15% in a diversified investment(same category). As your portfolio gets larger it will need to be rebalanced less and less because of your company stock. The percentages above were an example and you should calculated for what you are comfortable with. If you aren’t comfortable with the overweighting and/or the stock then consider lowering the percentage that you rebalance at.

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