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Portfolio Rebalancing Made Simple Matthew K. Willms, President QUANT IX SOFTWARE, Inc. www.investmentaccountmanager.com.

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Presentation on theme: "Portfolio Rebalancing Made Simple Matthew K. Willms, President QUANT IX SOFTWARE, Inc. www.investmentaccountmanager.com."— Presentation transcript:

1 Portfolio Rebalancing Made Simple Matthew K. Willms, President QUANT IX SOFTWARE, Inc.

2 What Is Rebalancing? The process of reallocating assets within a portfolio. Getting your investments back in line with your target allocation of stocks, bonds and short-term reserves. Removing money from those investments that have performed well and reinvest into your portfolio underachievers. Portfolio Rebalancing Made Simple

3 Why is rebalancing important? Asset allocation important determinant of portfolio return. Portfolio Rebalancing Made Simple Portfolio allocation across multiple asset classes helps to reduce risk while improving portfolio returns.

4 Why is rebalancing important? Rebalancing can help control risk. Portfolio Rebalancing Made Simple Over time, investment returns can lead to significant shift in your portfolio, increasing risk. Periodic rebalancing allows you to maintain target allocations, while reducing portfolio drift. Add bonds, reduce intl stocks

5 Why is rebalancing important? Terminal account values of fixed income components are higher. Portfolio Rebalancing Made Simple Over longer time periods bonds and cash generate lower returns. Excess gains from other assets rebalanced into these lower return assets. create a sort of fixed-income lockbox for liquidity, emergency needs. ARB growth of $10,000: $468,929 BH growth of $10,000: $364,835

6 Why is rebalancing important? Proper allocation can preserve / grow wealth – periodic rebalancing is the key. Portfolio Rebalancing Made Simple Annually rebalanced portfolios had higher ending account value in 14 out of 20 twenty-year rolling periods than the buy-and-hold portfolio. source: Financial Planning 2/2009

7 5 Steps to accomplish rebalancing Step 1: Determine your asset allocation targets What allocation of stock/bond/cash is right for you? Not sure? Review asset allocation of target- date mutual funds geared towards individuals in your age range; Web sites to complete questionnaires; Morningstar, Vanguard, Fidelity; Portfolio Rebalancing Made Simple

8 5 Steps to accomplish rebalancing Step 2: Determine your current asset allocation Organize investment statements; Overlap of investments by type, sector, size in aggregate; Drill down composition of fund holdings. Portfolio Rebalancing Made Simple

9 5 Steps to accomplish rebalancing Step 3: Review your individual holdings use research tools to review/analyze current holdings to spot early warnings signs examine performance short and long term results contributed or detracted most to portfolio performance; consider tax consequences tax-loss selling rebalance in tax-sheltered accounts Portfolio Rebalancing Made Simple

10 5 Steps to accomplish rebalancing Step 4: Implement your rebalancing plan Identify where current allocations need trimming; Shift/rebalance money from those asset types that have performed well and reinvest into your portfolio underachievers; Continually review allocation changes to get back in line with your target allocation of stocks, bonds and short-term reserves. Portfolio Rebalancing Made Simple

11 5 Steps to accomplish rebalancing Step 5: Make a habit to periodically rebalance your portfolios! Set a schedule; 1 or 2x per year Year end rebalance with eye towards harvesting losses to offset gains elsewhere Portfolio Rebalancing Made Simple

12 Summary... Portfolio Rebalancing... Helps reduce chances for disproportionate losses if over concentrated in one asset class; Proper allocation is a cornerstone of good portfolio management; Avoiding portfolio drift is critical to your long-term investment success; Rebalancing: helps investors to buy low and sell high; Portfolio Rebalancing can grow/preserve wealth! Portfolio Rebalancing Made Simple

13 Investment Account Manager Free 30 day trial version QUANT IX SOFTWARE, Inc.


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