Rules-Based Rebalancing

Rebalancing is a critical element of asset allocation. It helps ensure that your portfolio reflects your needs and goals. It also provides a systematic means to "buy low and sell high."

 

I-Pension uses a rules-based system, an approach we believe is preferable to the more common calendar-year rebalancing. Here's how the two approaches differ:

  • Calendar-Year Rebalancing: At predetermined times, usually annually but sometimes quarterly, the portfolio is rebalanced back to the original allocation.

 

  • Rules-Based Rebalancing: When the portfolio allocations are determined, a "rebalancing threshold" is also established and rebalancing occurs whenever that threshold is hit. For example, if a particular asset class comprised 10% of the original portfolio allocation the thresholds might be set at 8% and 12%. When a threshold is hit within a tax-deferred account like a 401(k), the entire portfolio is rebalanced - not just the one asset class in question. In taxable accounts, we consider the tax implications of rebalancing and will usually consult the individual client before trading the account.