Rebalance only with:
- new contributions
- dividends
- cap gains
Which implies you:
- Turn off DRIP/Dividend Reinvestments
- Never sell a holding < 1yr (i.e. always pay the LTCG, not the STCG rate)
More on how to rebalance across accounts:
There's nothing very special about switching to Sharpe's portfolio. Other than the fact that it's a gently moving target, it's like rebalancing or switching to any other target allocation in a zero-tax way. Create a spreadsheet of current and target allocations in both % and $. (If you need help with this, I can make a sample one and post it to the thread.) Turn off automatic dividend re-investment for overweighted holdings. Direct new contributions toward underweighted holdings. Rebalance within tax-advantaged accounts if possible. Within a taxable account, take advantage of asset dips to combine rebalancing with tax-loss harvesting when possible. If you need to sell assets anyway (e.g., you're in retirement/withdrawal phase), then spend down your overweighted assets first. If all your overweighted assets are in tax-advantaged accounts that you can't spend down directly (e.g., you retired early and can't access your 401k yet), then spend down an (underweighted) asset in your taxable while at the same time exchanging the same $ amount of an overweighted asset in your tax-advantaged account for the asset you just sold in your taxable account (while making sure to avoid wash sales). In order to decide which asset(s) to contribute to (or exchange between) first, it helps to think incrementally. E.g., ask "where should I place my next dollar?" rather than "where should I place my next $100k?" since the latter might involve switching multiple assets simultaneously which can be tricky to juggle. It's easier to solve the problem incrementally by buying/selling only one asset (or exchanging only one pair of assets) at a time. I generally prioritize hierarchically (e.g., I first consider overall stock vs bond ratio before worrying about US stock vs ex-US stock ratio) and then I generally prioritize by $ off-target rather than % off-target. An alternative "lifecycle investing" approach to prioritization for those in the accumulation phase would be to decide upfront on your target retirement portfolio size and allocation, and then prioritize buying stocks first (i.e., before buying bonds) for that larger target portfolio. The details for applying this to Sharpe's portfolio are described here. A further refinement when you finally get to building up bonds would be to buy longer-duration bonds (e.g., durations that exceed your target retirement date) first. But this duration-matching part is overkill for most lazy investors since it's more complicated than simply buying and holding total bond market funds at every step.
For bonds: * muni bonds(VTEB) and treasuries (short and intermediate term) to keep taxes low * OR Vanguard Tax Managed Balanced Fund (VTMFX) a 50/50
Resources: