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Rebalancing bands in a taxable account — what do you actually use?

This topic has 3 replies, 3 voices, and was last updated 1 week ago by Sara Klein.

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September 12, 2026 at 4:46 pm #38

Sara Klein
Participant

The five-percentage-point rule is easy to state but in a taxable account every trade has a tax cost. I have drifted to about 72/28 from a 65/35 target. Do people hold their nose and rebalance, or use contributions only and accept slower correction?

September 13, 2026 at 8:46 am #39

D. Hollis
Participant

Contributions first, always. I only make an actual taxable sale if the drift is still outside the band after a full year of directing new money at the underweight side. In practice that has happened twice in eleven years.

September 13, 2026 at 10:46 pm #40

Marcus Ellery, CFA
Moderator

That sequencing is right. Worth checking whether you have tax-deferred space you can rebalance inside instead — for most households the IRA or 401(k) is large enough to absorb the whole adjustment without a single taxable trade. If you must sell in taxable, look for lots with the highest basis and pair the gain against any harvested losses you are carrying.

September 14, 2026 at 12:46 pm #41

Sara Klein
Participant

The 401(k) is about 40% of the total, so that should cover it. I had been thinking about each account as its own portfolio, which was the mistake.
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