When to rebalance a portfolio??

grey_gym_sock

i use the dividends to rebalance my SIPP. (i am not currently making further contributions to the SIPP.)

i have a target % of the portfolio for each investment held, with rebalancing bands (upper and lower limits, either side of the target).

1) i wait until enough cash from dividends has accumulated inside the SIPP that it's worth reinvesting it.

2) then i check whether any holding is over it's upper limit, or under it's lower limit. if it has, i'll sell or buy enough of it to put in back between its upper and lower limits, and if possible will put it exactly back on target.

3) otherwise, or if there's still some cash left over after that, i'll use the cash to buy more of whatever holding is under target and closest to falling under its lower limit. if there's enough cash to put it back on target, i'll do that; otherwise, i'll use all the available cash (putting it nearer its target). if this step leaves a non-trivial amount of uninvested cash, then repeat the step.

in practice, it's rare that any action needs to be taken in (2). so usually, it's no sales, and just a purchase under (3).