Why It Pays to Be Careful When Rebalancing a Portfolio

Here is the article.

Follow a discipline

"You have to follow the discipline, and that means when equities are down you have to put more in," he says. "That can be the hardest thing to do, emotionally."

A year-and-a-day. 

The reason for this is that short-term capital gains tend to be taxed at a much higher percentage than those on long-term gains. But the good news is if you hold a security for a more than a year it will be classified as a long-term gain.

When not to bother. 

When to break the rules. 

A year-and-a-day. When you rebalance a portfolio it involves making a trade and if the securities you buy and sell are not inside a tax advantaged plan, such as a 401(k) or individual retirement account, there could be immediate tax consequences.

"Give yourself as much leeway as possible to let yourself take long-term gains rather short-term ones," says Adam Johnson, founder and author of the Bullseye Brief investment newsletter. "The ideal time to rebalance is 366 days," one day more than a calendar year.

The reason for this is that short-term capital gains tend to be taxed at a much higher percentage than those on long-term gains. But the good news is if you hold a security for a more than a year it will be classified as a long-term gain.