There was some cash piling up in one our RRSPs again so it was time to buy something with it. I entered in my current portfolio into a spreadsheet that I have been using for probably over five years now. Once I enter in the current values of every part of the portfolio it tells me how much of each investment I would need to buy (or sell) in order to make things balance out. This assumes I sell my investments and buy others (which I don’t, I just buy more of the investments I have with available cash). So the spreadsheets numbers don’t exactly mean much. Basically it gives me some idea of how far off my portfolio’s asset allocations are from my desired asset allocations. I was wrestling last night with the decision of which investment to buy. I had about $2400 in spare cash. My holding in iShares MCSI EAFE International Index ETF (XIN) where a bit lower than the desired. $1000 or more into it and it would be balanced (bare in my mind that I won’t be splitting up this $2400 at all; I just want one transaction here). So if I put $2400 into XIN it would be more than balanced. Which is fine. Some of the other investments that I had small holdings in, such as Vanguard’s Emerging Markets Index ETF (VWO) and iShares Real Return Bond Index ETF (XRB) had much larger deviations from their desired/original allocation relative to their original allocation. So maybe I should be buying some more of those? So I modified my spreadsheet by adding a column that showed the percent change between the desired/original and actual allocations. I decided that since XRB had declined the most recently, and it’s actual allocation was the most below the desired, in relative terms, that I should buy some of it. I only needed to put in about $500 more into XRB to rebalance it. Buying $2400 more of XRB would put the actual allocation well above the desired. Like driving a boat, I’ve overcompensated a bit but that’s ok.
The most important thing I am trying to do is to minimize cost by only incurring one buy transaction every time I have enough money to reduce my commission to 1% of the trade’s value. E*Trade trades are $20, so I make a purchase every time I have over $2000 in cash. I never plan on selling in the near term, and finally, I try to add to an existing holding whose actual allocation is less than the desired/original allocation.