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Q & A:

April, 2010

Q: How important is it to adjust my allocations monthly?

Q:        Hi Chip,

I like the idea of following your asset allocation, but I don’t see myself as someone who would adjust my allocation every month to make sure my portfolio is perfectly aligned with your allocation.  How important is this really?

Thanks,

A:        For many people, just taking the time to figure out where their assets are currently located is an insurmountable task.  I applaud you on taking the initiative to become actively engaged in trying to optimize your portfolio’s allocation.

I must admit I hadn’t really looked at the level of importance that monthly (vs. quarterly, biannually, annually) rebalancing played in my results.  Now that I have five-and-a-half years of documented portfolio performance, I can do some tests.  I looked at how well the Plumb Performance Portfolio© would have performed if I had done less frequent adjustment to the allocations.

Over the last five-and-a-half years, with monthly allocation adjustments, the Plumb Performance Portfolio© has had a compound annual return of 11.15% per year.  For comparison:

  • With quarterly allocation adjustments, the return would have been 10.80% per year.
  • With biannual allocation adjustments, the return would have been 10.33% per year.
  • With annual allocation adjustments, the return would have been 9.70% per year.

For someone who had invested $1,000,000 in the Plumb Performance Portfolio© on September 30, 2004:

  • With monthly allocation adjustments, the portfolio would have grown to $1,788,910.
  • With quarterly allocation adjustments, the portfolio would have grown to $1,758,188.
  • With biannual allocation adjustments, the portfolio would have grown to $1,716,913.
  • With annual allocation adjustments, the portfolio would have grown to $1,664,051.

Whether this difference is worth the extra time devoted to one’s portfolio is an individual decision, but this can at least give you some indication of what kind of difference it might make.

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Tags: asset allocation
Posted in Q&A | 1 Comment »

One Response to “How important is it to adjust my allocations monthly?”

  1. Beth Simminger says:
    June 8, 2010 at 7:06 pm

    “For many people, just taking the time to figure out where their assets are currently located is an insurmountable task.”
    Chip ~ this couldn’t be more true. I have just recently dedicated time to disecting this and trying to learn. Is it worth having a professional financial advisor and if so, how is a good one determined?
    Thanks!

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    Q: How does the gold/silver ratio impact your allocation?
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    Q: How important is it to adjust my allocations monthly?
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©2009 PlumbReport.com

The opinions as to portfolio allocation and specific investment vehicles contained herein are solely the opinions of the author and are not intended to be specific recommendations which would be suitable for every investor. The suitability of any specific investment or recommendation is dependent upon many subjective factors and characteristics of the individual investor including, but not limited to, particular investment objectives, risk tolerance, investment horizon or timeline, net worth, overall portfolio allocation and income needs. Specific investments may be suitable for some investors and yet unsuitable for others due to different needs and objectives. All readers should carefully consider their individual objectives and needs and should consult with their investment and financial advisor as to the suitability of any particular investment. The author specifically disclaims any liability or responsibility for any losses, which may result from any investment or allocation referenced herein.