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Author: Crazylegs883 Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76398  
Subject: Coffeehouse Portfolio Rebalancing Date: 11/25/2003 10:19 PM
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Hi there.. I'm new to this board, but I ran a search and noticed that at least a few people here are familiar with the Coffeehouse Portfolio. My retirement fund is based on the Coffeehouse model (not exactly as of yet, but close enough), but I have a situation that's been perplexing me a bit.

Essentially I converted my 401(k) to a Roth back in March/April. However, due to circumstances, the asset allocation percentages were skewed - with the REIT portion being severely underrepresented. Since then, the REIT fund has outperformed to narrow this gap a bit. I'm looking to start the yearly rebalance process - which forces you to sell high performing funds and buy under performing funds. However, if I want to truly follow the Coffeehouse Portfolio, the REIT should be 10% of the portfolio - not the 6% or so it is now. So, technically, I should buy more REIT, which is contrary to the reallocation theory since this was the highest performing fund. Because of this, I'm thinking of leaving the REIT fund out of the reallocation process for this year and waiting until it 'comes back to earth'.

I guess my question is.. am I making too big a deal out of this? I suppose I could throw next year's annual contribution entirely into REIT to help narrow the gap, but again, I'd be buying high, not low. Other suggestions?

Mark
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Author: Mark0Young Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 37990 of 76398
Subject: Re: Coffeehouse Portfolio Rebalancing Date: 11/26/2003 2:06 AM
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I don't follow the Coffeehouse Portfolio but I do have an Asset Allocation plan with annual rebalancing.

I do aim back to balance by directing new contributions. In taxable accounts, that minimizes the tax impacts. Or if there are any trading fees or sales commissions, this would help keep them down.

If it is way out of balance on the annual rebalancing date (for me, around March) in my tax-favored account I will move money around to bring it closer to balance. However, if it is reasonably close (say within a couple months contributions to bring it back to balance), I won't rebalance but just direct new contributions.

I have been using just the percentages of the values of my investments to determine where to put new money or how much to move where to rebalance--I haven't looked at "expensive" vs. "cheap" when it comes to rebalancing; what may seem "expensive" might in the future prove to be inexpensive.

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Author: Macnab Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 38029 of 76398
Subject: Re: Coffeehouse Portfolio Rebalancing Date: 12/2/2003 7:22 PM
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Hi Mark,
I don't have your answer, but rather I'm interested to know where the "proper percentages" for the 7-fund coffeehouse portfolio are listed.

Thanks,
Dan


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Author: Crazylegs883 Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 38030 of 76398
Subject: Re: Coffeehouse Portfolio Rebalancing Date: 12/2/2003 10:57 PM
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Dan,

Here's a couple of websites that should prove useful. The first (sorry, I don't know how to tinyurl it) is an article from last year. As a bonus, it lists the Vanguard family funds that match the allocations. One note: since this article was written, I believe Vanguard has added a 'Large Cap Growth Index Fund' that could replace the 500 Index Fund in this portfolio. FWIW, I follow these as both my Roth and 401(k) are in Vanguard:

http://www.marketwatch.com/news/yhoo/story.asp?source=blq/yhoo&siteid=yhoo&dist=yhoo&guid=%7B13F04CB4%2D020D%2D4170%2D8150%2D9CEDAD91A808%7D

The second is more generic, but the percentages are listed under "Three Principles of Investing":

http://www.coffeehouseinvestor.com/

Personally, I'm still in the building stage. My bond fund is under-represented - only 5% or so. This is by choice as 1) I'm still fairly young and 2) I feel bonds have bottomed out for the most part and need to come back up some before I think of upping the percentage. Also, my REIT is under-represented as noted in my original post. This is not by choice - thus, my dilemma in rebalancing the portfolio.

HTH,
Mark

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