Question 1

What is cash-flow rebalancing?

Accepted Answer

Cash-flow rebalancing aligns your portfolio back to its target asset weights by directing new monthly savings or dividend payouts exclusively into underweight asset classes. This eliminates capital gains taxes and transaction fees incurred when selling winners.

Question 2

What is the 5/25 rebalancing rule?

Accepted Answer

Under Larry Swedroe's 5/25 rule, you rebalance an asset class only when it deviates by an absolute 5% from target (e.g. 40% drops below 35% or rises above 45%), or by a relative 25% of its allocation for smaller positions (e.g. a 10% allocation shifts outside 7.5% - 12.5%).

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