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

Portfolio Rebalancing Made Simple

Matthew K. Willms, PresidentQUANT IX SOFTWARE, Inc.

www.investmentaccountmanager.com

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.


Why is rebalancing important?Asset allocation important determinant of

portfolio return.


Portfolio allocation across multiple asset

classes helps to reduce risk while

improving portfolio returns.

Why is rebalancing important?Rebalancing can help control risk.


• 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 int’l stocks

Why is rebalancing important?Terminal account values of fixed income

components are higher.


• 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

Why is rebalancing important?Proper allocation can preserve / grow wealth

– periodic rebalancing is the key.


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

5 Steps to accomplish rebalancingStep 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;


5 Steps to accomplish rebalancingStep 2: Determine

your current asset allocation

Organize investment statements;

Overlap of investments by type, sector, size in aggregate;

Drill down composition of fund holdings.


5 Steps to accomplish rebalancingStep 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


5 Steps to accomplish rebalancingStep 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.


5 Steps to accomplish rebalancingStep 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


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!


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Email: QUANT IX SOFTWARE, [email protected]

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

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