Portfolio Optimization and Rebalancing

Portfolio Optimization and RebalancingJust as with institutional portfolio managers, individuals must determine what their ideal portfolio looks like and how to rebalance their portfolios regularly.  A recent Wall Street Journal article showed individual tax payers lagged the overall market by upwards of 7%.  This is mostly because they sold after the market crashed and bought when it was high.  Investing in a balanced portfolio, an optimized tax plan, and executing a disciplined rebalancing strategy will help increase wealth and provide security.

Typical users include wealth managers, financial planners, and individual investors.

Problem: The explosion in ETFs and the wide arrays of investment accounts with their different tax treatments make creating an optimal portfolio a challenge.  In addition to determining what to invest in, savers need to determine where to invest it.  In creating the ideal portfolio, savers need to think about the tax consequences of different investments and need to balance the need for immediate income with enough growth so that they do not outlive their assets.  Once an ideal portfolio allocation is established, it is a constant challenge to rebalance the actual portfolio to meet the goal allocations.

Solution: By solving an asset allocation and location problem, savers can ensure they are invested properly so they will not outlive their assets.  As they make more contributions to their savings accounts the rebalancing engine determines what assets the saver should buy and sell in order to balance risks, returns, taxes, and trading costs.

 

Resources on Portfolio Optimization and Rebalancing:
Maximizing Long-Term Wealth Accumulation: It’s Not Just about “What” Investments to Make, but also “Where” to Make Them
Multi-stage stochastic linear programs for portfolio optimization