Version 1.1 of the Simple Portfolio Rebalancing Spreadsheet

Released version 1.0 of the Simple Portfolio Rebalancing Spreadsheet back in May, but that one was missing a way to track cash withdrawals. Not a major change, but here's a new version that makes that process pretty straight forward.

In a good example of synergy between this blog and Risk Parity Radio, this post is inspired by a listener from episode 182 who asked about a spreadsheet to track a portfolio. I published one such tool in early May, but the question asked about one key feature absent in mine: a way to track cash withdrawals in the portfolio, including what to take from in order to keep the portfolio close, or even perfectly aligned with, target allocations.

I thus present version 1.1 of the RPC Simple Portfolio Rebalancing Spreadsheet, now with an additional feature of allowing you to track cash needs.

If you’re not familiar with version 1.0, it may be a good idea to read through this post explaining it. There is also a screencast tutorial embedded in the post taking you through it step-by-step.

Simple Portfolio Rebalancing Spreadsheet
Investors who try to maintain any given asset allocation in a portfolio will soon find that asset price ups and downs have taken that portfolio “out of whack.” Here’s a quick explanation of rebalancing - getting that portfolio back in line - with a helpful tool to make the process easier.

As for the specific addition of how to handle cash withdrawals, there are many possible ways to do this, but in keeping with the priority on keeping the spreadsheet simple, I went with the easiest path I could think of.

  • Basically, it treats cash as an asset class, though one without a stock ticker associated with it. So there is no updating of prices, as the price is always $1, or 1 Euro or 1 yen or whatever.
  • I’ve grayed it out so that it appears distinct - the gray should be a signal that this asset class is handled a little bit differently.
  • The easy way to do this also means that cash needs to be treated as having its own desired target allocation in percentage terms, i.e. cash should be 1% of your portfolio. I realize that this isn’t the way most people think of it - they think, “This month, I am withdrawing $5,000" - but it’s the best way to track cash needs and still keep it simple.
  • This will mean you would need to adjust your other asset class allocations to make room for cash. Your portfolio will still need to add up to 100% to make sense.
  • I did play with a section that would convert the normal needs for cash into percentage of portfolio terms, but got stymied when thinking about frequency. Some people will take out monthly, others quarterly, and others annually, or even ad hoc. If you’re following the 4% rule and withdrawing monthly, then it's just .33% per month (4%/12), and so on.
  • If you have an account into which your dividends or cap gains are deposited, then you can put those in the cash allocation, and it will just tell you how much to top it up with.
  • One flaw in the spreadsheet is that it doesn’t use fractional shares, so in some cases, you won’t get it to balance out to the dollar. If you can trade using fractional shares or use mutual funds, this is not a problem, but another way to do it is just to have a bit of a cushion. The drive to get things perfectly balanced to the dollar, every time, is a bit of a fool’s errand, anyway. The next day of market trading, the percentages will be off again.

Hopefully this helps, and if any readers have suggestions for improvement or questions, please don’t hesitate to let me know!