1. Portfolio Rebalancing
Made Simple
Matthew K. Willms, President
QUANT IX SOFTWARE, Inc.
Session ID: IE 1154

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 int’l
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
 StockCentral; Manifest Investing; Toolkit; BI Funds
 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.  This class now reviews the 5 steps for
managing and implementing necessary
portfolio rebalancing.
Using Investment Account Manager software
and other software tools, we will...
 Determine asset allocation targets;
 Determine current allocation;
 Review current holdings;
 Implement rebalancing;
 Review results.
Portfolio Rebalancing Made Simple

13.  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

14. Purchase Information
Try IAM Free: 45 day download / activate
www.investmentaccountmanager.com
InvestEd 2011 Special Offer Save $30
When ordering, use promotional code IE2011
- expires 5/31/2011-

15. This has been
Session ID: IE1154
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Email: QUANT IX SOFTWARE, Inc.
techsupport@quantixsoftware.com