Rebalancing Mutual Funds

I want to talk about mutual funds today. Let's say that you want you want to have 20% of your money in fund ABC and 80% of your money in fund XYZ. Great. You have $1,000 to invest, and you put $200 in ABC and $800 in XYZ and call it a day. However, after a few months (or even a few days), your ABC investment is now worth $300 and your XYZ investment is worth $750. You wanted a 20%-80% split, and now you have 28.6%-71.4% instead.

Fear not. You can rebalance! This means you can choose to either:

  1. Sell $90 of ABC and buy $90 of XYZ. This will bring you back to 20%-80% ($210 & $840).
  2. Buy a higher amount of XYZ the next time you invest to bring it closer to your 80% target.

Option 1 can be more straightforward, but if this account is not a tax-advantaged retirement account, this may result in having to pay capital gains tax. Option 2 requires some more calculating, but avoids sells that could result in taxable gains.

I ran into this problem with accounts I manage myself, and I chose to use Option 2 above. To help with this, I created an Excel calculator to help me figure out how much to invest in each fund each time I created buy orders.

However, I found situations where I did not have access to my Excel calculator and needed to submit my re-balancing buys. This looked like a job for a client-side calculator web application!

rebalance.skylerlewis.io

github.com/skylerwlewis/rebalancing-calculator 

After creating the web version of the calculator (using React, big.js, and Material UI components), I am now able to re-balance on the go! I also added a share function so you can bookmark your inputs for future perusal.

I hope that others may find use in this, as it has been a time saver for me. If you do happen to use it and have any feedback, feel free to leave a comment.

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