Automated rebalancing tools are essential for investors looking to maintain their desired asset allocation without the hassle of manual adjustments. These tools automatically realign your investment portfolio to its target allocation, ensuring that your risk level remains consistent over time. Below are three diverse examples that highlight the functionality and benefits of automated rebalancing tools.
Wealthfront is a robo-advisor that offers automated investment management, including tax-loss harvesting. This feature helps maximize after-tax returns by selling securities at a loss to offset capital gains elsewhere in the portfolio. Wealthfront automatically rebalances your portfolio to maintain your desired asset allocation while considering tax implications.
For instance, if a stock in your portfolio drops significantly in value, Wealthfront will sell that stock to realize the loss. It then reinvests the proceeds into similar assets to keep your portfolio aligned with your risk profile. This process not only helps maintain your target allocation but also reduces your tax burden, enhancing overall returns.
Betterment is another popular robo-advisor that utilizes dynamic rebalancing to manage portfolios. With Betterment, users can set their target asset allocation based on their financial goals, risk tolerance, and time horizon. The platform automatically rebalances your portfolio as market conditions change, ensuring your investments remain aligned with your goals.
For example, if your target allocation is 60% stocks and 40% bonds, and due to a stock market rally, your allocation shifts to 70% stocks and 30% bonds, Betterment will automatically sell some of your stock holdings and buy bonds to restore your original 60/40 allocation. This process helps lock in gains from overperforming assets while reinvesting in underperforming ones.
M1 Finance is a unique investment platform that allows users to create customizable portfolios, known as