Re-balance Cycle Reminder All MyPlanIQ’s newsletters are archived here.

For regular SAA and TAA portfolios, the next re-balance will be on Monday, March 28, 2016. You can also find the re-balance calendar for 2015 on ‘Dashboard‘ page once you log in.

As a reminder to expert users: advanced portfolios are still re-balanced based on their original re-balance schedules and they are not the same as those used in Strategic and Tactical Asset Allocation (SAA and TAA) portfolios of a plan.

Please note that we now list the next re-balance date on every portfolio page.

Smart Rebalance When Market Trend Changes

Strategic Asset Allocation (SAA) based portfolios performs periodical portfolio rebalance. There are three major advantages to rebalance periodically: 

  • Rebalance portfolio allocations to a preset target allocation that is more aligned to one’s risk tolerance. For example, after stocks have risen a lot, stock allocation in a portfolio can become too overweight to conform with the investor’s risk tolerance. Similarly, after stocks have lost a great deal in a market downturn, their allocation can become underweight relative to other assets (usually fixed income bonds). 
  • Rebalancing is a buy low and sell high strategy as it sells rising assets and buys beaten down assets. 
  • Rebalancing is also a way to periodically check the underlying holdings (for example mutual funds) and weed out bad performers. This is often needed for a 401k account as it has a pool of candidate funds from the plan to select. This is more important for a portfolio using actively managed funds than passive index funds. 
Other common reasons to rebalance a portfolio include tax efficient investing: for example, at the end of year, a smart rebalance can try to harvest tax loss by selling funds that have loss and substitute them with similar funds. By doing so, one can incur loss to offset other capital gains. 

Rebalance with a fixed schedule

The most commonly used rebalance strategy is to regularly rebalance based on a fixed schedule. For example, in MyPlanIQ, our SAA portfolios have a quarterly rebalance frequency by default. Users can also specify other frequencies such as monthly and annually. 

An often asked question is what is the best rebalance frequency. The answer is surprisingly confusing among investment professionals. Some would suggest quarterly rebalance, others suggest annually. However, empirical evidence is all over a map and inconclusive. 

The following table compares results for various rebalance schedules for a Harry Browne permanent portfolio that consists of 1/3 of each in stocks, gold and long term Treasury bonds. Unlike Harry Browne Permanent Portfolio, the portfolio does not have CASH component to amplify the rebalance effect. Since the three assets in these portfolios are very much uncorrelated, rebalance should show a greater effect than other SAA portfolios such as MyPlanIQ Diversified Core Allocation ETF Plan Strategic Asset Allocation – Equal Weight Moderate

Portfolio Performance Comparison (as of 02/29/2016):
Ticker/Portfolio Name 1Yr AR 3Yr AR 5Yr AR 10Yr AR Since 12/15/89
Harry Browne Permanent Portfolio Without Cash Annually 0.4% 3.8% 6.4% 8.4% 7.8%
Harry Browne Permanent Portfolio Without Cash Quarterly 0.2% 3.0% 6.1% 8.2% 7.7%
Harry Browne Permanent Portfolio Without Cash Monthly 0.2% 3.2% 6.1% 8.2% 7.7%
Harry Browne Permanent Portfolio Without Cash No Rebalance -1.6% 5.2% 7.2% 6.9% 7.5%
Harry Browne Permanent Portfolio Without Cash Tactical Rebalance 0.2% 4.5% 6.9% 8.5% 8.2%

Detailed year by year comparison >>

A few observations:

  • Among portfolios with a fixed rebalance schedule, annual rebalance has the best returns in the last 10 years and since 1989. 
  • quarterly and monthly have almost identical returns. 
  • No rebalance since 1989 has the worst long term returns, indicating the benefit of rebalance. 

Smart tactical rebalance

Many users have asked us on how to improve rebalance. Intuitively, the best rebalance strategy should let the winners run. Similarly, it should buy when assets are beaten down at a bottom. However, it is well recognized that there is no way to accurately predict market tops and bottoms. So trying to perform rebalance when one knows a top or a bottom is futile. 

However, one can adopt a trend following approach, similar to MyPlanIQ’s Tactical Asset Allocation(TAA) that uses stocks or risk asset momentum to signal a time to perform rebalance. Notice this is still different from TAA based portfolios as in a TAA portfolio, when risk assets have a downward trend, it can partially or completely reduce stock or risk asset exposure. On the contrary, an SAA rebalance is only to rebalance back to its preset target allocation. 

In Harry Browne Permanent Portfolio Without Cash Tactical Rebalance, we use stock momentum score to guide our rebalance. The portfolio performs rebalance at the end of a month only when stock momentum changes from negative to positive or from positive to negative. By doing so, the portfolio will sell the extra percentage of a stock asset when stocks are exhibiting a negative (downward) trend. This often occurs after a stock market top. Similarly, it will buy some stocks to get back to its target allocation when stocks start to have a positive trend, often after a bottom is reached. 

In the above table, one can see that such an approach (Harry Browne Permanent Portfolio Without Cash Tactical Rebalance) has a meaningful improvement in terms of returns compared with other portfolios with a fixed schedule. Notice that this portfolio also has a similar or better maximum drawdown (not shown in the table, click on Detailed year by year comparison to see the details). 

The tactical rebalance portfolio has a total of 31 rebalances since 1989 (about 26 years), about 1.2 times rebalance in a year. the number is close to that in the annual rebalance portfolio. 

We also did a study for a Five Core Asset Equal Weight Tactical portfolio that has the following allocations: 

IntlStk VGTSX 20%
EmStk VEIEX 20%
Bonds VBMFX 20%

Portfolio Performance Comparison (as of 2/29/2016):
Ticker/Portfolio Name YTD
1Yr AR 3Yr AR 5Yr AR 10Yr AR Since 5/13/96
Five Core Asset Equal Weight Annual -4.1% -9.9% 2.3% 3.5% 4.9% 7.2%
Five Core Asset Equal Weight Tactical -4.3% -10.4% 2.4% 3.5% 5.0% 7.6%

We again see that the tactical portfolio has a meaningful improvement over the fixed schedule annual rebalance portfolio. 


Portfolio rebalance using a market trend indicator such as the ones on 360° Market Overview or that used in our TAA portfolios can yield better returns. This is especially pertinent to the current market situation. Currently, stocks are in a down trend and it will create an excellent rebalance opportunity when they bottom out. Though we are not there yet but as stocks are going lower and lower and eventually shake off their frothy valuation, they will become more attractive again. By using the trend indicator to signal a time to rebalance, one should be able to capture some large upside. Such a smart tactical rebalance not only yields better returns but it also has a similar risk. An almost ‘free’ lunch. 

Market Overview

Even though stocks recovered a bit last week, the ongoing economic data are painting a mixed and negative picture. As expected, based on Factset, most S&P 500 companies (96%) have reported their earnings in the last quarter and they are very consistent to the early data: earnings have been down for the last three consecutive quarters while revenues have had four consecutive quarter declines (last quarter is -3.3% decline). The weekend G-20 financial and central bank meeting recognized the current situation acutely: they promised to “enhance a structural reform agenda” and declared monetary policies are increasingly becoming ineffective. For now, our best action is to stick to the investment strategies and respond accordingly. 

For more detailed asset trend scores, please refer to 360° Market Overview

We would like to remind our readers that markets are more precarious now than other times in the last 6 years. Since the financial crisis in 2008-2009, we have not seen meaningful or substantial structural change in the U.S., European and emerging market economies. Even though U.S. stocks have had a recent correction, their valuation is still at a historical high level.  It is thus a good time and imperative to adjust to a risk level you are comfortable with right now. 

We again would like to stress for any new investor and new money, the best way to step into this kind of markets is through dollar cost average (DCA), i.e. invest and/or follow a model portfolio in several phases (such as 2 or 3 months) instead of the whole sum at one shot. 

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