I don’t particularly enjoy the administrative aspect of managing my portfolio. And my correspondence with readers suggests I’m not alone. Many people find rebalancing to be confusing and/or a hassle.
Some financial advisors provide a rebalancing service. But I don’t think that’s an ideal solution in this case. The value of a financial advisor is in the advice that he or she provides. If you don’t need any advice, it’s probably not worth hiring an advisor just to handle menial stuff like rebalancing.
Similarly, target retirement funds are a step in the right direction, but they still leave some things to be desired:
- At companies other than Vanguard, they cost too much;
- Even at Vanguard, it’s possible that none of the funds have an allocation that’s a good fit for a particular investor (for example, somebody who is in a high tax bracket and investing in a taxable account would probably want to use tax-free muni bonds for his/her bond allocation); and
- There’s always the possibility that the fund company will shift the fund’s allocation (away from the allocation you were counting on) without you noticing.
My Request: A Rebalancing Service
I’d like my brokerage firm to be able to handle rebalancing for me.
In its simplest form, this would just be an alternative method of placing buy/sell orders. Currently, when I rebalance, I calculate the dollar amount of each fund that I need to buy/sell, then I place a transaction for each fund.
Rather than using dollar amounts, and rather than having to execute multiple transactions, I’d like to be able to just enter a percentage for each fund, click one button, and have the account rebalance to that overall allocation.
Even better would be a “build-your-own-target-date-fund” concept. I’d love to be able to:
- Pick a group of funds,
- Pick a current allocation between them and an asset allocation glide path (i.e., what the allocation will be in the future), and
- Have my brokerage firm automatically rebalance back to that allocation for me on pre-determined dates.
Potential Hang-Up: Multiple Accounts
Admittedly, I’m not entirely sure how the service would most-ideally work in the case of a portfolio made up of multiple accounts. It’d be easy to set things up to rebalance each account to the desired allocation, but that’s not always ideal, as it can result in higher costs as a result of:
- Holding tax-inefficient funds in taxable accounts, or
- Not qualifying for the lower-cost admiral shares as quickly as could be done otherwise.
In addition, things get tricky when the investor has a retirement plan at work that has to be considered as well when calculating the investor’s overall asset allocation.
But I don’t think that’s necessarily a problem. It seems to me that as long as the current method of rebalancing is still offered, investors could simply use that approach when it’s a better fit.
What Do You Think?
For investors: What do you think of this idea? Would you use it? Do you have any suggestions for ways to improve on it?
For fund companies/brokerage firms: Is there anything stopping you from offering this service? I know of one brokerage firm (Folio Investing) that offers something like this, but why not the larger brokerage firms too (ideally those that offer commission-free trades)?