The Power of Rebalancing - A Case Study

One thing that I am consistently trying to do is find opportunities to add value to my clients and differentiate myself from a traditional adviser.

You may recall that the market dropped in the 2Q by 15%.  In late June and early July, about 30% of my clients hit our objective, systematic triggers for rebalancing.  We went through the process and rebalanced the accounts.  To date, that act created between $434 and $630 of value for every $100,000 invested, depending on the asset allocation for that client.

With our total expenses of $1500 per $100,000 of annual account value, these accounts recaptured 29 to 42 percent of their annual expense with this one act.

When you also consider with which account you rebalance (tax deferred vs. taxable vs tax free), we generated another $1112 for every $100,000 invested.  Simply stated, we rebalanced an account by trading only the non-taxable accounts, and thus we avoided $1112 in taxable gains.  So here, we capture 74% of the annual expense.

The accounts that didn't rebalance now, were likely rebalanced at another time and have captured a similar opportunity at another correction.

When you also consider the itemized deduction impact from my previous blog entry, for those accounts that can take advantage of this deduction, it adds another $212 of realized tax efficiency, on average, for every $100,000 invested.  So another 14% of value is recaptured here.

With our Wealthcare approach, we more than cover our own expenses when opportunities present themselves.  In this instance, we have generated an ROI of our investment advising on average of $1800 for $1500 in expenses (per $100K invested).  When you add the fact that, we offer rational advice with our planning process on top of that, the value of Wealthcare is even greater.

More importantly, we don't chase these opportunities, but perform them methodically.  Again, only 30% of my clients were presented with this opportunity this time, but other accounts will become out of balance and capture the same benefit in the future, again and again.