In this day and age when portfolio diversification is an invaluable investment strategy, portfolio rebalancing has become a complicated procedure.
So why do it?
Because rebalancing your investment portfolio is important for many reasons. It can help reduce the risk of loss, grow your monetary returns, and much more.
Ready to learn what rebalancing looks like in real life, all the benefits of getting it done right, and the best tools for the job?
All that and more — right now.
What is Portfolio Rebalancing?
When setting up an investment portfolio, best practice is to choose what percentage of each asset type you want to hold — cryptocurrency investments, stock market holdings, bonds, etc.
You’ve probably heard of the “60/40 rule,” which dictates that a portfolio consists of 60% stocks and 40% bonds. While that balance isn’t necessarily the golden rule anymore, it still exhibits the overarching goal of setting and keeping a specific allocation balance that lines up with your investing style, goals, timeline, etc.
It’s totally normal for this balance to get out of whack as the value of investments fluctuates over time. This is often called “drift.”
When drift occurs, it can throw off your diversification efforts and increase your exposure to specific asset classes — therefore increasing the risk of loss if that asset class plummets in value.
Rebalancing is the act of correcting any drift to align with your chosen risk profile, and redirecting any overperformance toward assets that haven’t done as well.
As for timing, the absolute minimum cadence that financial experts suggest for rebalancing is once a year. Once a month is much more ideal.
Alternatively, investors can choose to rebalance when their asset percentages surpass their target asset allocation. For example, you might decide that an increase or decrease of 10% in an asset class calls for rebalancing.
See The Rebalancing Process in Action
Let’s say your ideal portfolio allocation looks like 10% crypto, 50% stocks, and 40% bonds.
After a month of market volatility, those numbers may look more like 20% crypto, 40% stocks, and 40% bonds. Your exposure to crypto, which can of course be risky, has doubled.
Time to rebalance!
The process of doing so is actually straightforward. You would simply sell off some of those overperforming assets — in this case, the crypto — and invest the proceeds into stocks, your underperforming asset class.
Just like that, your portfolio value is back in line with your goals.
Now that we know all the ins and outs of rebalancing, let’s touch on its benefits before we review the best tools for the job.
Generate Cash for Re-Investing
When you start keeping a closer eye on the balance of your assets, you’re more likely to catch overperformers at the peak of their value. If you choose to sell them at this high point, you can get more cash for them than you originally invested — which gives you more resources to pour into those assets with less-than-ideal performance.
Adjust Asset Allocation to Prevent Overexposure
Risk of loss is inevitable, but a diverse portfolio full of uncorrelated assets is one of the best tools for riding out financial downturns.
Portfolio rebalancing as a practice keeps you continuously aware of which assets make up your wealth, so you can ensure no one asset class — especially a particularly volatile one — is dominating your holdings and exposing you to more risk than you’re comfortable with.
Realign Portfolio With Changing Goals/Needs
As you get closer to retirement, move among different tax brackets, require more liquidity, and experience major life changes (marriage, etc.) — you’ll likely find your objectives and risk tolerance changing as well.
Rebalancing once in a while is a great opportunity to check if your investment strategy still meets your current goals and/or needs, and readjust as it makes sense.
Portfolio rebalancing has been found to increase returns without increasing risks.
In a world where nothing is free, rebalancing is one of the most approachable and affordable — most of the cost is your time — ways to get more return for your money without making a gamble that could be detrimental to your future.
How to Rebalance: Pick Your Portfolio Rebalancing Tool
As self-proclaimed finance nerds, we’ve seen a lot of rebalancing strategies. And we think one of the best ways to rebalance an investment portfolio is by monitoring your allocation targets.
While it may be effective, it’s also unpopular — especially among DIY investors — because it means you have to have a consistent, accurate view of all the assets that make up your portfolio.
If your portfolio is as diversified as it should be, you’re probably going to want to rely on some software to get the job done.
Lucky for you, we have several recommendations in the portfolio rebalancing software segment.
Kubera: Portfolio Visibility + Management Tool for DIY Investors
Kubera is personal balance sheet software with best-in-class connectivity that means you, the DIY investor, can see and manage all the assets that make up your portfolio.
It all starts with connecting your account-based assets: bank accounts, crypto and DeFi accounts, brokerage accounts, and so on. Thanks to our robust integrations with global financial institutions, data from these accounts will update in real-time inside your Kubera dashboard.
Then, add in those harder-to-monitor items: physical real estate holdings, metals, collectibles, heirlooms, vehicles, domains, and more. Thanks to our easy-to-use interface, keeping their value up to date is fast and easy.
And, our custom stock tickers offer yet another way to track nearly any stock, ETF, or mutual fund.
With all your assets added to Kubera, you get the instant overview you need to understand current allocation — and what tweaks need to be made to rebalance your portfolio.
Additional features like our IRR for investments calculator, a Recap screen that tracks changes in net worth and investable asset value over time, investable asset and cash on hand settings, and a unique beneficiary management workflow make Kubera the ultimate option in all-in-one portfolio monitoring and management.
Kubera has affordable and simple pricing packages for DIY investors and professional wealth advisors and managers alike.
Morningstar Total Rebalance Expert: Rebalancing Tech For the Pros
Morningstar’s Total Rebalance Expert platform gives financial pros the tools they need to rebalance portfolios on behalf of their customers.
Features include monitoring that automatically zeros in on clients whose portfolios are out of whack, rules and customizable models that bring speed and accuracy to the rebalancing process, tax-gain and tax-loss harvesting, cash holding features, and more.
Morningstar Total Rebalance Expert is accessible via a subscription to Morningstar Office, the pricing of which is not readily available.
Personal Capital: Hands-Off Rebalancing for Wealth Management Clients
Personal Capital is a financial platform with a free tier that provides standard wealth management capabilities and a paid tier where users can take advantage of professional advisory services.
Portfolio rebalancing is part of their Personal Strategy offering, which combines technology with human expertise to build, allocate, rebalance, optimize, and otherwise manage client portfolios.
To access this portion of Personal Capital’s wealth management services, clients must have $100,000 in their account. Fees range from .49% to .89% of the value of assets under management.
Vanguard: Multiple Rebalancing Options for Vanguard Clients
Vanguard is a legend in the investing world for making affordable index mutual funds and ETFs (exchange-traded funds) accessible to DIY investors.
Of course, you can log into your Vanguard account to monitor and rebalance these investments on your own. However, they also offer a few solutions for folks who are overwhelmed by that prospect. One option is to choose one of their all-in-one funds that rebalances automatically. Another is to work with one of Vanguard’s financial advisors. To work with a person, there is a $50,000 account minimum, and fees will range up to .30% of your balance yearly.
Charles Schwab Intelligent Portfolios: Automated Rebalancing
From the financial services giant Charles Schwab comes Intelligent Portfolios, which applies both robo-advisors and some human oversight to provide automated portfolio monitoring and rebalancing. This tool also recommends ideal allocation targets based on the client’s goals and risk tolerance.
While these Intelligent Portfolios are monitored daily, in the typical market environment clients should only expect a few rebalancing events every year, whenever an asset class drifts just far enough from its intended target.
The minimum investment to use Intelligent Portfolios is $5,000, and a more expensive premium version is also available.
Balance Your Portfolio and Your Life With Kubera
At Kubera, we know finances are a big part of your life — but you don’t want them to take up a big part of your time.
We help you achieve portfolio balance as well as finance/life balance by making it exceedingly easy to view and understand all the assets that come together to make up your wealth. And we do it with style, security, and affordability.
Check out our reviews to see why almost 500 people can’t live without Kubera.
Worried about working around your investment advisor? You don’t have to with Kubera! Our white-label solution for financial advisors, wealth managers, family offices, and beyond makes it easy for them to integrate Kubera into their client portal. That means you still get all the benefits of working with your trusted pro as well as all the modern functionality of working with Kubera.