Portfolio Rebalance
Workflow
Step 1: Current State
For each account, capture:
- Account type (taxable, IRA, Roth, 401k)
- Holdings with current market value
- Cost basis (for taxable accounts)
- Unrealized gains/losses per position
Step 2: Drift Analysis
Compare current allocation to IPS targets:
| Asset Class | Target % | Current % | Drift | $ Over/Under |
|---|---|---|---|---|
| US Large Cap Equity | ||||
| US Small/Mid Cap | ||||
| International Developed | ||||
| Emerging Markets | ||||
| Investment Grade Bonds | ||||
| High Yield / Credit | ||||
| TIPS / Inflation Protected | ||||
| Alternatives | ||||
| Cash |
Flag positions exceeding the rebalancing band (typically ±3-5%).
Step 3: Trade Recommendations
Generate trades to bring allocation back to target:
Tax-Aware Rebalancing Rules:
- Prefer rebalancing in tax-advantaged accounts (IRA, Roth) first — no tax consequences
- In taxable accounts, avoid selling positions with large short-term gains
- Harvest losses where possible while rebalancing
- Watch for wash sale rules (30-day window) across all accounts
- Consider directing new contributions to underweight asset classes instead of trading
Trade List:
| Account | Action | Security | Shares/$ | Reason | Tax Impact |
|---|---|---|---|---|---|
| Buy/Sell | Rebalance / TLH | ST gain / LT gain / Loss |
Step 4: Asset Location Review
Optimize which assets are held in which account types:
- Tax-deferred (IRA/401k): Bonds, REITs, high-turnover funds (highest tax drag)
- Roth: Highest expected growth assets (tax-free growth)
- Taxable: Tax-efficient equity (index funds, ETFs, munis), tax-loss harvesting candidates
Step 5: Implementation
- Total trades by account
- Estimated transaction costs
- Estimated tax impact (realized gains/losses)
- Net effect on allocation drift
Step 6: Output
- Drift analysis table
- Recommended trade list (Excel)
- Tax impact summary
- Before/after allocation comparison
Important Notes
- Don't rebalance for rebalancing's sake — small drift within bands is fine
- Tax costs can outweigh rebalancing benefits in taxable accounts — calculate the breakeven
- Consider pending cash flows (contributions, withdrawals, RMDs) before trading
- Check for any client-specific restrictions (ESG, concentrated stock, lockups)
- Document rationale for every trade for compliance records
- Wash sale rules apply across accounts — coordinate trades across the household