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

2. Portfolio Rebalancing Made Simple
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.

3. Portfolio Rebalancing Made Simple
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.

4. Portfolio Rebalancing Made Simple
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

5. Portfolio Rebalancing Made Simple
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

6. Portfolio Rebalancing Made Simple
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

7. Portfolio Rebalancing Made Simple
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;

8. Portfolio Rebalancing Made Simple
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.

9. Portfolio Rebalancing Made Simple
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

10. Portfolio Rebalancing Made Simple
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.

11. Portfolio Rebalancing Made Simple
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

12. Portfolio Rebalancing Made Simple
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!

13. Investment Account Manager
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