How and When Your Portfolio is Rebalanced at Embark
What is portfolio rebalancing?
Over time, the value of individual ETFs in a diversified portfolio moves up and down, drifting away from their target weights. For example, over the long term, stocks generally rise faster than bonds, so the stock portion gradually becomes a larger portion of your overall portfolio, unless you rebalance. The difference between the target weight and actual weight of a position in your portfolio is called drift.
If your portfolio is never rebalanced, and stocks become a larger portion of your portfolio, the risk or drawdown potential of your portfolio becomes larger when the inevitable correction occurs. In addition, rebalancing tends to sell appreciated asset classes and accumulate others when they are cheaper, in effect, helping you “buy low” and “sell high”.
When Embark portfolios are rebalanced
You do not have to do anything to enable the rebalancing feature in your Embark-Invest.com account. Auto rebalancing is a default feature. If you would like to turn off automated rebalancing so that your portfolio is only rebalanced in response to cash flows (deposits, withdrawals, dividends) and not by reshuffling assets that are already in your portfolio, please contact us.
All accounts are automatically rebalanced based on several factors. These include:
- Cash Flow Rebalancing. Whenever there are cash flows occurring in your account, each cash flow (deposit, dividend reinvestment or withdrawal) seeks to reduce the overall drift in your portfolio. When buying, dollars are added to asset classes that are currently below their target weight. When selling, the system targets selling asset classes that are currently overweight relative to their target allocation.
- Sell/Buy Rebalancing. Your portfolio is monitored daily for drift exceptions. Whenever the total portfolio drift exceeds certain thresholds, the system will seek to rebalance your portfolio. This may not always occur, as there are other factors that are considered. For example, in a taxable account, rebalancing may not occur if it would generate short-term capital gains. Thus, it’s possible for your portfolio to remain above the threshold drift if there are no long-term tax lots to sell.
- Allocation Change Rebalancing. Whenever you move the slider to change your custom portfolio, you will change your allocation. Accepting a change will rebalance your portfolio to the target allocations in the new portfolio. Note- The interface will prompt you with the tax impact of any proposed portfolio change. This typically only applies to taxable accounts as there generally is not a tax impact for non-taxable accounts. Whenever you make and accept an allocation change, those changes are affected immediately, and trades will occur in your account. Thus, if you are unsure about changing your allocation settings for a goal, please call us or the Betterment for Advisors before doing so. Also, only one allocation change per day is permitted in an account.
- Tax Loss Harvesting. When tax loss harvesting transactions are occurring in a taxable portfolio, the system will also seek to reduce drift in your portfolio.
How Embark portfolios are rebalanced
When buying, dollars are added to security groups that are currently below their target weight. When selling, the system targets the sale of security groups that are currently overweight relative to their target allocation.
Have questions?
If you have any questions about holdings in your account or one of our models, or perhaps have another question about our services, you can contact us directly at 920.785.6012 or email us at clientservices@embark-invest.com. Betterment maintains a support line you can also call for help with navigation, linking your accounts or other site functionality. You can call the Betterment for Advisers support line at 800.400.1571.
Last updated August 17, 2023
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