How to Rebalance Portfolio with i3DIY

Portfolio rebalancing is the critical procedure for portfolio investing and performed in response to changes in asset value and allocation. The calculation of shares (Stock or ETF) or amount (Mutual Fund) for rebalancing must consider to reduce the transaction cost and avoid short-term capital gains. This article described the process step by step on how to use i3DIY Smart Rebalancing to achieve the above purpose.

When carrying out the Portfolio Rebalancing, you must consider the following points:

Determine your target Portfolio

The target portfolio is the asset allocation of specific assets. You can build your target portfolio bases on financial goals, risk tolerance, target return, or referring to financial media such as Kiplinger and Morningstar. Ownla LLC is not an investment advisor and cannot provide portfolio advice.

When to Rebalance your Portfolio

Because the market is volatile, the difference between the current and target asset allocation must be calculated every day. If the difference exceeds a threshold (usually 5%), you need to perform Portfolio Rebalancing.If the difference exceeds a threshold (usually 5%), the Portfolio Rebalancing is performed.

Calculate the Buy/Sell Shares

If you are investing in mutual funds, it is straightforward to calculate the amount of the transaction.

You can use the spreadsheet to calculate the excess or insufficient amount of the allocation. However, if it is an ETF or a stock, the buy/sell orders are put by the number of shares. These require complicated calculations.

Brokerage Transaction Cost

The cost of rebalancing should also be considered.

If your portfolio consists of five stocks or ETFs with a $10,000 asset value, the brokerage transaction fee is $ 7 per order. The cost of rebalancing is $ 35 a year or 0.35% of the asset.

If your portfolio consists of five mutual funds with the same asset value, the minimum transaction fee is $ 50 per order, and the annual rebalancing cost is $ 250 or 2.5% of the asset.

For those with low investment, the cost of rebalancing will greatly erode their profits.

Short-Term Capital Gain

If you are not investing in tax-advantaged accounts (401(k), 403(b), IRA….), you must consider the taxation on capital gains. If you sell an asset held for one year or less, any profit is considered a short-term capital gain. Short-term capital gains do not benefit from any special tax rate – they are taxed at the same rate as your ordinary income. For 2018, the long-term capital gains tax rates are 0, 15, and 20 percent for most taxpayers.

Let i3DIY Smart Rebalancing help you

i3DIY Smart Rebalancing is an automatic rebalancing tool that calculates your asset value and allocation daily. When the asset and target allocation ratio exceeds the limitation, it sends a rebalance alert to remind you to rebalance.

Consider many factors to calculate shares/amounts to buy/sell on assets. You can avoid complicated calculations, significantly reduce your transaction fees, and avoid short-term capital gains taxes.

  • Calculate the number of shares to buy/sell and eliminate the difference between the current and target allocation.
  • Avoid short-term capital gains tax by not sell the shares/amounts of the asset hold less than one year.
  • According to the rules for transaction fees, it calculates shares/amounts to buy/sell and minimizes the transaction fee for portfolio rebalancing.

Here’s the step by step procedure on how to use Smart Rebalancing to rebalance your portfolio.

Step #1: Determine your target portfolio

Link to i3DIY Wizard and select Manual Portfolio,click [Next Step]

Enter your target portfolio. Please refer to Manual Portfolio for details.

Step #2: Sign up an i3DIY membership to track your portfolio.

 Please refer to Join i3DIY Membership for details.

Step #3: Account aggregation

Entries of your email and password to login i3DIY.

Click [Link account now] to link an account.

Click [Next]

Please refer Link to your Account for Detail.

Step #4 Portfolio Rebalance Alert

When your asset allocation exceeds the threshold from the target portfolio, i3DIY will send the Portfolio Rebalance Alert to your email. The Dashboard will also display the Rebalance Alert, you can click (1) to view the Portfolio Rebalance Alert Report. Click(2) to Rebalance your portfolio.

Portfolio Rebalance Alert Report

Or you can also click the Portfolio on the menu and click [Rebalance / Reinvest / Widthdraw] to enable the Rebalance function.

Smart Rebalancing is an exclusive function of Standard, please click [Upgrade to Standard Now] to upgrade to Standard.

Step #5 Generate Rebalance Report

Enter the amount you want to reinvest or withdraw (-) in (1), tick (2) to represent you want to sell non-planned assets, and press [Calc. Buy / Sell Quantities] for rebalancing calculation. If you have checked “Avoid short-term capital gain”. you will avoid selling shares or amounts held less than one year. Please refer Rebalance for detail.

Click (4) [Generate Rebalance Order Report] to generate a rebalace order report. You can use this report to enter the symbols, the shares/amounts to place orders on your brokerage’s website for portfolio rebalancing.

Conclusion

Smart Rebalancing is our impressive feature. Not only it dramatically reduces our customers’ cost but also reflects we are from the user’s perspective and for the benefit of customers.

How do you rebalance your portfolio? Do you have any ideas about portfolio rebalancing I didn’t mention in this post?

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