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What’s a Good Portfolio Rebalancing Tool?

In the fast-paced world of investing, staying on top of your portfolio can be a challenging task. Market fluctuations, economic changes, and shifting personal financial goals all contribute to a dynamic environment that can significantly impact your investment strategy. Enter portfolio rebalancing tools – your stalwart companions in maintaining an ideal asset allocation and mitigating risk in your investment journey. What’s a good portfolio rebalancing tool?

Rebalancing is a fundamental strategy that involves periodically adjusting the allocations in your portfolio to maintain your desired level of risk and return. As some investments may perform better than others over time, your portfolio could become skewed towards a particular type of asset. This could inadvertently expose you to more risk or decrease your potential returns, deviating from your initial investment plan. Portfolio rebalancing tool helps with the process of realigning the weightings of your portfolio’s assets to ensure it remains in line with your original investment strategy.

Navigating this process manually can be time-consuming and complex. This is where portfolio rebalancing tools come in. These tools can automatically analyze your portfolio, spot imbalances, and make suggestions or even carry out trades to return your portfolio to its original or desired asset allocation.

Rebalancing Tool in Excel

1. Betterment

Betterment is a robo-advisor service based in the United States, widely recognized as one of the pioneers in the field. Founded in 2008, Betterment uses algorithms to automate various investment tasks, offering a wide range of services like retirement planning, automatic portfolio rebalancing, and tax-loss harvesting.

Here are a few key features of Betterment:

1. Automated Portfolio Management: Betterment creates a portfolio for you based on your risk tolerance and investment goals. It invests your money in a diversified portfolio of low-cost exchange-traded funds (ETFs) spanning various asset classes.

2. Portfolio Rebalancing tool: Betterment automatically rebalances your portfolio when it drifts from your target asset allocation due to changes in market values. This helps to maintain the level of risk that you’re comfortable with.

3. Goal-Based Investing: You can set up individual goals in Betterment (like saving for a home, retirement, or an emergency fund) and the tool will advise you on the asset allocation strategy most likely to help you achieve each goal.

4. Tax-Efficient Investing Strategies: Betterment offers tax-loss harvesting, which can offset taxes on both gains and income. It also offers asset location strategies to optimize investments across taxable and tax-advantaged accounts.

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5. Cash Management: Betterment also offers cash management services including a high-yield cash account and a checking account and debit card.

6. Financial Advice: In addition to its automated services, Betterment offers access to human advisors for customers who want a more personalized touch. This service comes at a higher fee than the basic robo-advisor service.

Betterment is often used by beginner investors due to its ease of use, but it can also serve the needs of more experienced investors looking for automated portfolio management and tax optimization strategies. As with all investment services, it’s important for users to understand the fees and the investment strategy involved when using Betterment.

2. Wealthfront

Wealthfront is a robo-advisor platform that provides automated investment management services. Founded in 2008 and headquartered in Palo Alto, California, Wealthfront is designed to make investing easier for individuals by managing portfolios with algorithms, reducing the need for direct human intervention.

Here are some of the key features of Wealthfront:

1. Automated Portfolio Management and Portfolio Rebalancing Tool: After understanding your financial goals and risk tolerance, Wealthfront designs a globally diversified portfolio of low-cost index funds. It manages your investments on your behalf, handling tasks like asset allocation and portfolio rebalancing.

2. Daily Tax-Loss Harvesting: Wealthfront offers daily tax-loss harvesting on all taxable accounts. This involves selling securities that have experienced a loss and replacing them with similar ones, to help offset taxes on your other income.

3. Risk Parity Fund: Wealthfront provides a proprietary risk parity strategy, which aims to increase portfolio returns by applying leverage to asset classes with lower risk.

4. Portfolio Line of Credit: Clients with an account balance of $25,000 or more have access to a portfolio line of credit, allowing them to borrow against their investments at a low interest rate without disrupting their investment strategy.

5. Cash Account: Wealthfront offers a cash account with a competitive interest rate and FDIC insurance covering up to $1 million.

6. College Saving Plan: Wealthfront also provides a 529 College Savings Plan, a tax-advantaged investment account designed to encourage saving for future college costs.

7. Path Financial Planning Tool: This tool allows users to set and track financial goals, plan for homeownership, retirement, and college tuition, among others.

While Wealthfront offers many features, it’s important to consider your personal investment goals, time horizon, risk tolerance, and financial situation before choosing an investment platform. And always make sure to read and understand the platform’s fee structure.

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3. Personal Capital

Personal Capital is a wealth management company that offers a suite of online financial tools and advisory services. It combines digital algorithms with human advisors to provide a more comprehensive approach to wealth management. Founded in 2009 and headquartered in Redwood City, California, Personal Capital serves investors who prefer a blend of technology and direct human interaction.

Here are some key features of Personal Capital:

1. Free Financial Dashboard: One of Personal Capital’s most popular features is its free financial dashboard. This tool allows you to link all of your financial accounts, including investments, bank accounts, credit cards, and loans, to get a comprehensive view of your financial life. The dashboard provides tools for budgeting, retirement planning, and tracking your net worth.

2. Wealth Management Service: Personal Capital offers a wealth management service for clients who have $100,000 or more in investable assets. This service includes financial planning, portfolio management, and access to a team of financial advisors.

3. Investment Strategy: Personal Capital uses a tactical weighting approach to portfolio construction, aiming to enhance returns and reduce risk through diversified exposure to different asset classes. It also rebalances portfolios as needed.

4. Tax Optimization: Personal Capital employs tax-efficient strategies such as tax-loss harvesting and asset location to help reduce your tax liability.

5. Retirement Planner: This tool allows you to create, manage and forecast your retirement goals based on your actual financial data. It considers future income events, inflation, and market conditions to give a comprehensive view.

6. Personal Capital Cash: This is a high-yield cash account offering competitive interest rates.

7. Human Financial Advisors: For clients with $200,000 or more to invest, Personal Capital provides two dedicated financial advisors to provide more personalized financial advice.

As with all investment platforms, it’s important to consider your personal investment goals, risk tolerance, and financial situation before choosing Personal Capital. Always read and understand the platform’s fee structure. As of my knowledge cutoff in September 2021, Personal Capital charges an annual fee based on a percentage of assets under management, starting at 0.89% for the first $1 million.

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