deciding on an asset allocation for a portfolio seems simple enough. Sticking with a plan isn’t always easy though.
For example, I ran into a roadblock with an investment account designated for healthcare expenses in my later years. I started with a portfolio of bonds but have begun to add more equities. As a result, I’ve wrestled with maintaining my portfolio design and making day-to-day decisions associated with managing the account.
But portfolio management and rebalancing has been made easier with i3DIY and the following steps:
Keep a Portfolio Plan for Each Investment Account
When you’re getting started with a financial goal, you’ll devote time and attention to designing a portfolio synced with that need or desire. You’ll establish a mix of stocks and bonds. You’ll choose the ETFs, mutual funds, and/or individual securities and bonds within those asset classes.
Depending on your goals, you may open multiple accounts and create many investment portfolios. For example, you could create one asset allocation for your child’s college account to fund tuition in 10 years and another for holding investments intended for the eventual purchase of a vacation home in 25 years.
If you’re financially fastidious, you’ll document the portfolio specifics and rationale for each account. And, if you’re foresighted, you’ll never give the portfolio design another thought.
But you may need help with this process. At some point in your investing life, you may wonder if your asset allocation still makes sense. When you created the plan, were you overconfident or overly cautious? Has your overall approach or have your goals changed since then? Should you update your allocations as your time horizons shorten, for example, when college tuition bills come due? i3DIY offers services to help implement, maintain, and adjust your portfolio plans.
An i3DIY account allows investors to sync various investment accounts with its system and align them with specific portfolio plans, each with a custom asset allocation. Each plan carries a unique name and you’ll have the option to update plans as needed. You can design your own portfolio or choose from plans available on the platform. Throughout the year and over the long term, you can easily keep up with your intentions.
Learn Automatically When Your Portfolio Needs Rebalancing
You may have a general idea of when to rebalance or when to check your account. But this process could be overlooked or pushed aside during busy seasons of your life, perhaps when you have young children or take on extra projects at work.
i3DIY offers investors the opportunity to receive alerts via email whenever one of your accounts is out of balance. If there are slight moves to the portfolio, you won’t hear anything. But you’ll be alerted when the allocations stray from their appointed percentages outside of specified ranges. Rebalance alerts are also available in your dashboard.
For example, if the target allocation for Vanguard Intermediate-Term Bond Index Funds; Admiral Shares (VBILX) is 30%, its minimum allocation is 25% and its maximum allocation is 35% and you opt to receive alerts, then you’ll receive a notice when the allocation falls to 24% or rises to 36%. The Rebalance Alert will indicate the target and actual allocation along with reminders of the minimum and maximum allocation percentages.
You can choose to rebalance when you receive alerts. Alternatively, you can check your i3DIY dashboard according to a predetermined schedule and ascertain whether a rebalance is needed. For example, you may want to review accounts quarterly or annually and make moves at these times if your portfolio has deviated from its plan.
Determine the Specific Trades Needed for Fast Execution
When you’re ready to rebalance, you’ll need to figure out the specifics. These calculations aren’t difficult, but they can be time consuming.
To get started, you’ll need to:
- record the original asset-allocation plan with percentages assigned to individual securities
- determine the market value of each holding in the account and the entire account
- calculate the percentages of individual securities compared to the total value
- identify the difference between the desired allocation and actual allocation
Next, you’ll want to determine the dollar amount associated with bringing each security back into balance. Then you’ll take these totals and divide by the current price of each stock or ETF to determine the number of shares to buy or sell. The exception is the mutual fund, which you can purchase or redeem by specifying dollar amounts.
The paid version of i3DIY offers Smart Rebalancing services to make these calculations quickly and initiate trades almost effortlessly. From the dashboard, you can select an account to rebalance. You’ll view a report indicating the buy or sell dollar amounts of each security in need of rebalancing, based on the portfolio plan. Then, you’ll generate a rebalance order report, which will give you the specific number of shares to buy or sell. You can use this information to place your orders with your brokerage firm.
The i3DIY tool also allows you to avoid short-term capital gains and consolidate orders to minimize trading fees, such as those associated with the purchase of transaction-fee mutual funds.
Rebalancing isn’t rocket science but you can become entangled in decisions and calculations surrounding portfolio design, timing of reviews, and more. As a result, you may delay or forget to take steps altogether. i3DIY makes rebalancing fast and easy.