For the sake of clarity, let’s continue the example from above. Let’s imagine that the investor put all $50k of his Roth in bonds, and $25k of his 401k in bonds. The rest went into stocks. Then, as you stated, bonds go up and stocks go down. (For easy math, let’s say 10% up for bonds, and 10% down for stocks.)

In that situation, at the beginning of Year 2, the investor’s accounts would be as follows:
Roth value: $55,000 (all in bonds)
401k value: $95,000 ($67,500 in stocks, $27,500 in bonds)
Taxable account: $90,000 (all in stocks)
Grand total: $240,000 ($157,500 in stocks and $82,500 in bonds)

To rebalance back to a 70/30 allocation, he’d want to have $72,000 in bonds, and $168,000 in stocks. To achieve that, he could simply sell $10,500 of the bond funds held in his 401k, and move them into stock funds.

MyJourney: Yes, good point. No reason to put muni bonds in a tax-sheltered account!

-Rick Francis

The alternative is to equalize the allocations, and lose money from taxes, just so a person can visually verify that all of their investments are being accounted for in a grand portfolio allocation setup.

That sounds more to me like paying extra to remain intellectually lazy, rather than to derive psychological comfort.

But, worrying, being unhappy, and losing sleep are not to be ignored. It’s important to consider how stressful financial events will affect you and your psyche.