How to split a monthly contribution across several assets to pull a portfolio back toward its targets — without selling anything or paying taxes.
Every long-term investor hits the same wall: you set a target allocation (say 40% stocks, 25% fixed income, 20% REITs, 15% international), the market moves, and three months later your portfolio is lopsided. The classic advice is to rebalance by selling what went up and buying what went down.
The problem: selling triggers taxes, brokerage fees, and — here in Brazil — the headache of filing a DARF. There's a far cheaper way to rebalance if you contribute every month: steer the new money toward the categories that are lagging. Without selling a single share.
This post walks through the algorithm I used for that. It's subtler than it looks.
The naive temptation (which is wrong)
