AssetBuilder Inc. Registered Investment Advisor - Simple Investing. Smart Future.

I have a portfolio mix of Vanguard total stock market/Total international, Vanguard TIPS, international bonds, and T. Rowe Price New Era (commodities). My portfolio mix is about 60% stock, 40% bond (with 30% of bonds in international bond) and about 2% commodity. I have about $5000 more to invest in my taxable portion of my $300,000 portfolio. Is it more sensible to invest in the areas that are way down (the stock portion) as opposed to trying to reach an asset allocation target with more commodity or bonds? Then, in the future, when the bond or commodity funds go down, I will put money in them. With the stock portion down 15%, the bonds/commodities up 5-8%, it seems more sensible to put money into the current losers than to follow the asset allocation theory of trying to bring my portfolio into a 20% balance for each even if that is my goal.

There is a lot to be said for dollar-cost averaging--- which is what you are talking about doing by putting more money in the depressed sectors--- but in this case can delay thinking about that until you get close to the asset allocation you want to have. If you want 20 percent in commodity related investments but have only 2 percent, you really don't have the portfolio you intend to have.

As I have pointed out a number of times, people were saying energy was "over" several years ago and it hasn't quit yet. Will commodities continue to rise from here? I don't know. What I do know is that those who read a crystal ball and saw that commodity prices were at a peak have been wrong month after month. Someday they will be right. I just don't know when. Neither do you. Neither do they.

That argues for getting to your chosen allocation first, then rebalancing when the proportions are changed.

Scott

My personal IRA is maintained with Vanguard and consists entirely of diversified index funds.  I balance my portfolio annually.  I do not currently have any investments outside of employer 403b (wich is maxed out with regard to matching contributions for a total of 15% of my annual salary) and my IRA.  I am now financially able to begin a modest investment program outside of these plans.  Once I have contributed the annual maximum to my IRA, does it make sense to invest any additional funds I might have in some of the same index funds I have in my IRA in a non-taxed advantaged account or should I be looking at different funds?

Everyone on this forum is going to want to know where you had your equity money invested that you only lost 15 percent!!! The loss range, all over the equity markets, runs from 35 to 65 percent.

Normally, when an asset class takes a big hit you take money from the asset classes that did better and transfer it to the asset class that took the big hit.

Suppose, for instance, that you have a 60/40 equity/fixed income portfolio and the equity side fell 40 percent. If your old portfolio was 100, your new portfolio would be 76 with a 36/40 mix of equities and bonds. To balance the 76 to your target 60/40 allocation you would now need to have a 46/30 mix of equities and bonds to be at your 60/40 allocation.

You can start the rebalancing process by adding that $5,000 to the equity side of your portfolio. It will reduce, but not eliminate, the need to transfer money from fixed income to equities.

Scott