A question about balancing invested assets

[Rubeskies]

Not sure if you guys have heard of this but I was intrigued about an article I saw that offered the following strategy.


Step 1: Invest $100 a month amongst Vanguard and the 4 major iShares.
Step 2: Choose a target percentage for each one. They suggest 33% in the Vanguard, 25% in the EFA, and fill out the rest with AGG, IYR, and IYM.
Step 3: When you add new money, you add this money to the ETF's that have underperformed or lost money until your percentages are back into their correct ratio.

The idea here is that the ETFs that have underperformed will even out in the long run therefore you are buying low.


What do you guys think of the rebalancing and the overall strategy?

[TheMetetron]

Eh, it's rebalancing. Obviously a good idea but nothing new.

[Rubeskies]

[ QUOTE ]
Eh, it's rebalancing. Obviously a good idea but nothing new.

[/ QUOTE ]

Yeah, I figured as much. I'm still getting into this and am trying to figure it all out. Does the rest of the strategy sound pretty standard? Anything to add?

[housenuts]

this is def not a good strategy. if you are making montly contributions, especially of smallish amounts, you don't want to be doing it into ETFs. because they are stocks you're going to have to pay a commission charge to buy the stock. the cheapest i've found is $4.95. so if you only have $100 a month, and you're re-balancing between 5 ETFs then you're spending 25% of your monthly contribution on commission charges.

for frequent contributions you should look into mutual funds

[Rubeskies]

[ QUOTE ]
this is def not a good strategy. if you are making montly contributions, especially of smallish amounts, you don't want to be doing it into ETFs. because they are stocks you're going to have to pay a commission charge to buy the stock. the cheapest i've found is $4.95. so if you only have $100 a month, and you're re-balancing between 5 ETFs then you're spending 25% of your monthly contribution on commission charges.

for frequent contributions you should look into mutual funds

[/ QUOTE ]

That makes sense.

1.) How much per month would I have to be adding to make it worthwhile (I wouldn't be adding to each of the 5 each month, only the 1 or 2 that were under weighted).

2.) Could I do it if I saved up my total for the year and only bought the stocks once a year?

3.) I don't know much about mutual funds and I couldn't find much in the sticky. Do you have any good links?

Thx in advance.


EDIT: I have enough to do more than $100 a month out of my income, I just would like to know how much per month I'd need to do to make it worthwhile.