Make August “Rebalance Your Portfolio” Month

by Kevin on August 26, 2010

In my last article I showed you how to rebalance your portfolio. Today I’m going to attempt to convince you that you should rebalance your portfolio every August.

Yea, I’m posting this with 5 days left in the month. Don’t give me any flak. If I had posted this on August 1st most of you still wouldn’t have done anything with your portfolio. Admit it. You know it’s true! Financial inertia is difficult to get past. So let’s get moving before the end of the month.

Now, step up, open up your retirement accounts online, login to the account management tools, and let’s get to work.

Why You Should Rebalance in August

To be completely honest just picking a month to rebalance every year and actually sticking to your commitment would make me a happy personal finance blogger. Even better it would improve your portfolio’s performance.

That having been said I think August is one of the best months to rebalance your portfolio. Here are three reasons why.

Many Portfolio Changes are Made at the End of the Year

One of the first times of the year that people pick to rebalance is the end of the year. Which is odd because I believe the end of the year is one of the worst times to rebalance your portfolio.


Because at the end of the year everyone is in a panic because they forgot to take their profits and they have some losses to offset those gains. Or more likely, they’ve been hoping those down investments would pop back up (and they haven’t) so they sell in the last week of the year so they can claim the losses on their income taxes. (Quick note: you can deduct up to $3,000 in a realized losses each year from your taxes.)

While the impact might be negligible in the long run I would personally rather not be buying and selling investments at the same time the rest of the world is to avoid paying a higher price (or accepting a lower price if selling).

Plus, I like to relax over the holidays. Dealing with finances and portfolios isn’t ultimately relaxing.

Money is Dumped Into IRAs Close to Tax Day

Another time of year you might consider rebalancing is as you wrap up your taxes close to tax day, April 15th.

Again, bad choice. It is the same scenario as the end of the year. However, I definitely doubt the affect is as strong as what happens at the end of the year.

A lot of money can be dumped into IRAs around tax time. Why? Because you have until you file your taxes (or tax day, whichever comes first) to invest money into an IRA. (For example you have until April 15, 2011 to invest money into an IRA or Roth IRA for the 2010 tax year.)

Since many people are financially lazy or broke they wait until the last possible minute to get money into the IRA for last year before they start working on this year.

I doubt the impact on the financial markets is all that dramatic right next to tax day, but I’d rather not take the chance if I don’t have to.

August is in the Middle

August is the perfect time to rebalance when you look at the financial calendar.

There is nothing of any significance going on financially. Okay, so maybe your kids are back in school, maybe you have a new tuition bill to deal with, but that’s about it.

If you’re trying to avoid Tax Day (April 15th) and the last week of the year, August is pretty much in the middle of both of those. It’s four months in either direction from August to get to the two major times of year that I like to avoid.

Pick a Day, Rebalance, Be Done

You think August is a terrible time to rebalance? That’s fine by me.

Just pick your date, make your rebalancing adjustments, and be done for the next 364 days.

Another financial task to add to your to-do list. But it can be a quick and painless one if you plan ahead. Do it. The retired you will thank you for it in the future.


Jason Unger August 26, 2010 at 6:59 am

I’ve always re-balanced right around tax time, but never thought about the fact that there are more people buying then to get in before the previous year’s IRA deadline.

Great point — and great post.

Kevin September 5, 2010 at 10:47 am

Thanks Jason. I’m guessing it isn’t as huge of an impact during tax season because it would get spread out… but definitely think the end of the year would have an impact.

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