The goal of re-bal­anc­ing is to move the cur­rent asset allo­ca­tion back in line to the orig­i­nally planned asset allo­ca­tion (i.e., their pre­ferred level of risk expo­sure).  Based on your age, risk tol­er­ance and invest­ment objec­tives, we assign each asset class a ‘tar­get’ per­cent­age — see asset allo­ca­tion for a more in depth explanation.

But as time passes, some assets grow while oth­ers decline.  Re-bal­anc­ing brings those assets that are sig­nif­i­cantly greater or less than their tar­get per­cent­age back toward their tar­get.  If you didn’t re-bal­ance, the port­fo­lio would become too risky or too con­ser­v­a­tive.  Thus nearly all com­pe­tent advi­sors reli­giously re-bal­ance. But most advi­sors do not rebal­ance in an opti­mal way; the 3 factor Engine™ imple­ments advanced re-bal­anc­ing meth­ods that have been shown to sig­nif­i­cantly add value over time.

The fol­low­ing graphic shows an exam­ple of an asset allo­ca­tion, how it drifts over time and how the 3 factor Engine™ brings it back into balance:

For a more advanced dis­cus­sion of 3 factor’s approach to port­fo­lio re-balancing, please see Sys­tem­atic Re-Balancing.