That's pretty much how I do it although recently, over the last 3-4 years, I've had to sell sometimes to have enough to make the changes I wanted to make. This is largely because we have stayed mostly in stocks. Well, in January 2000 we sold almost all of our stocks in one of my wife's IRAs and put it in GNMAs because we expected the bubble to burst and didn't need the risk exposure. But that has stayed mostly static since then.
When we got serious about picking a retirement date we started shifting more into bonds, not so much because we suddenly wanted a different allocation but because we didn't want to have to make a sudden shift at the wrong time. It's kind of like dollar cost averaging in a way. We want about 30% in bonds at retirement even though we'll be relatively young. Rather than a big sale in that year we are shifting to 10%, 15%, 25%, or whatever over about 5 years. Implementing that has required some selling rather than just using monthly deposits.
When I get to where you are, I'll have to sell off some to bring my bond allocation up, but I like your strategy in doing it slowly. I've thought about selling off some when I want to add a fund to my holdings, but I when I added the REIT index a few years ago, I just focused my monthly investments at it for several months to get it in line. As an aside, I was pretty lucky with the timing of that. I bought in near its low.
One thing about rebalancing that you rarely hear mentioned is that if you have most of your money in mutual funds it can sometimes be better to rebalance in October or November rather than at the end of the year. Most funds announce anticipated year end distributions in October. For taxable accounts it can sometimes be desirable to sell before the distribution. That is less important now since qualified dividend distributions and capital gains are taxed pretty much the same. But if you are a highly paid lawyer (grin), it could be worth at least thinking about those issues.
I wasn't aware of that. I'll have to look into it more.
The uncertainty about the extension of the Bush tax policy (regardless of who wins the election) also means it could be better to sell and pay tax on gains in 2012 rather than gambling on the future. I'll definitely be watching the political scene in December.
I have been toying with the idea of selling off everything (that would result in a gain) in late December and repurchasing almost immediately, if the cap gains rates increase, and, to a lesser extent, avoid some of the new surtax on investment income from the ACA. I'm borderline on the latter, so it probably wouldn't save me much if the cuts are extended.