Replies to post #38074 on A.I.M. Users Bulletin Board (AIMUSERS)

[ls7550]

Yes equal monetary value, but also you can use percentage weightings. The median weighting of all holdings is an appropriate choice of mid value target amount. That can be measured as a percentage i.e. the stock value divided by the total portfolio value for each holding, or a actual capital value amount (median value of all stocks held). Or the median % can be transposed to a capital (money) value. Its not a fixed monetary value, but a dynamic monetary value that generally changes from one review to another (reflects the overall average value). That median is just a ideal target monetary value that all holdings would be leveled to, but leveling each and every asset is expensive so you just focus on the outliers - those that are furthest either side of the median. So if one is 1.5 times the median then reduce that by a third and add the proceeds to another that might be half the median value. 25 holdings, median value $10,000, one at $5000, another at $15,000 then sell $5000 of the latter to add to the former. You might have others at $9000 and yet others at $11,000, but that's relatively small amounts to warrant spending money to rebalance them to $10,000 each. You just want to focus on those at the left and right tails (that have gained/lost the most relative to the average (median).

Depending upon how much is invested a simple rule of reduce by a third when 1.5 times the media, or when 0.5 times the median then double up the number of shares could be a reasonable choice of hold zone range. In some cases you might not have enough that are being reduced to top up those that are relatively light. In other cases you might have some surplus cash after rebalancing. Its more of a art than a science - just a relatively inexpensive way to target somewhat close to a approximately equally weighted (or valued) set of stocks and approximately equally weighted set of sectors. That way you're neutral overall and can just reduce whatever so happens to be the big winner(s) that year and top up whatever happened to be the years biggest loser(s). More often you'll be totally surprised by what stocks/sectors actually produced the wildest (largest) positive and negative price changes.