16 May When and How Portfolios are Rebalanced at My Robo Adviser™
What is portfolio rebalancing?
Over time, the value of individual ETFs in a diversified portfolio move up and down, drifting away from their target weights. For example, over the long term, stocks generally rise faster than bonds, so the stock portion gradually becomes a larger portion of your overall portfolio, unless you rebalance. The difference between the target weight and actual weight of a position in your portfolio is called drift.
If your portfolio is never rebalanced, and stocks become a larger portion of your portfolio, the risk or drawdown potential of your portfolio becomes larger when the inevitable correction occurs. In addition, rebalancing tends to sell appreciated asset classes and accumulate others when they are cheaper, in effect, helping you “buy low” and “sell high”.
When My Robo Adviser™ portfolios are rebalanced
You do not have to do anything to receive the rebalancing feature in your MyRoboAdviser.com account. All accounts are automatically rebalanced based on several factors. These include:
Cash Flow Rebalancing: Whenever there are cash flows occurring in your account, each cash flow (deposit, dividend reinvestment or withdrawal) seeks to reduce the overall drift in your portfolio. When buying, dollars are added to asset classes that are currently below their target weight. When selling, the system targets selling asset classes that are currently overweight relative to their target allocation.
Sell/Buy Rebalancing: Your portfolio is monitored daily for drift exceptions. Whenever the total portfolio drift exceeds 3%, the system will seek to rebalance your portfolio. This may not always occur, as there are other factors that are considered. For example, in a taxable account, rebalancing may not occur if it would generate short-term capital gains. Thus, it’s possible for your portfolio to remain above 3% drift if there are no long-term tax lots to sell.
Allocation Change Rebalancing: Whenever you move the slider to change your goal, you will change your allocation. If you move your allocation just 1%, your account will be completely rebalanced to match your new desired target allocation, regardless of tax consequences. Note- whenever you make and accept an allocation change, those changes are affected immediately and trades will occur in your account. Thus, if you are unsure about changing your allocation settings for a goal, please call us or the Betterment for Advisors before doing so. Also, only one allocation change per day is permitted in an account.
Tax Loss Harvesting: When tax loss harvesting transactions are occurring in a taxable portfolio, the system will also seek to reduce drift in your portfolio. If you would like to turn off automated rebalancing so that your portfolio is only rebalanced in response to cash flows (deposits, withdrawals, dividends) and not by reshuffling assets that are already in your portfolio, please contact us.
How My Robo Adviser™ portfolios are rebalanced
When buying, dollars are added to asset classes that are currently below their target weight. When selling, the system targets the sale of asset classes that are currently overweight relative to their target allocation.
If you have any questions about account rebalancing you can contact us directly at 920.785.6012 or email us at email@example.com My Robo Adviser™ has partnered with Betterment for Advisors as our technology solution to provide our services to our clients. Betterment maintains a support line you can also call for help with navigation or site functionality at 800.400.1571.
Last updated May 14, 2018
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