Investment Portfolio Rebalancing

  • Besides asset allocation, portfolio rebalancing has more impact on total return than any other aspect of investment policy.
  • All investment portfolios should have an investment policy that includes asset allocation target percentages and allowable ranges around those targets.
  • Bull Markets in equities are relatively steady, long lasting, and hence create an “upwardly biased” long term pattern.
  • Bear Markets are sudden and sharp, but comparatively brief.
  • Equity markets exhibit a “Central Tendency” that may be unpredictable in the short run, but ‘revert’ to their mean of 10 – 12% return per year over time.
  • All rebalancing methods involve marginal selling of out-performing assets and re-deploying into under-performing investments.
  • Age-old questions: When do we rebalance and by how much?

Why Dynamic RebalancingSM?

  • By rebalancing based on the ‘calendar’ (every month, quarter or year etc.), investors may not be able to take advantage of long running bull markets or rapidly rebounding bear markets.
  • By rebalancing when an investment is ‘out of balance’ by a fixed %, investors may lose their chance to capture profits or take advantage of extraordinary investment opportunities.
  • Dynamic RebalancingSM uses markets cycles monthly to tell us:
    • When to Rebalance: use the momentum of the markets to capture larger returns as the market moves between bull and bear phases
    • How much to Rebalance: use the strength of market moves to enhance the probability of achieving greater returns by allowing over and under weighting in addition to “target-only” rebalancing
  • Dynamic RebalancingSM reviews asset class-specific trends each month and only takes action on “outlier” signals which reduces noise and turnover. In most months there are no trades made.

 See Dynamic RebalancingSM in Action

To learn more about Dynamic RebalancingSM
contact Insightful Ideas, Inc.

Past performance provides no assurance of future returns