Rebalancing is key


Rebalancing can help you remain properly invested as markets shift.

As markets grow over time, some asset classes may perform better than others. Especially after periods of extreme market movement, the mix of investments in your portfolio may shift. As a result, the level of risk in your portfolio may change.

The hypothetical portfolio below shows the results of an investor who let their portfolio drift over 10 years. In this example, as US stocks increased in value relative to bonds, the portfolio's allocation to US stocks increased from 42% to 59%. While having a higher allocation to stocks may provide stronger returns in an up market, the investor would be exposed to more risk. Should a market downturn occur, the investor's portfolio could sharply decline in value.

Increased risk as stock markets rise

Updated data and dates to match the chart: Two pie charts show the makeup of a hypothetical portfolio and how it can drift over time. In March 2010, the portfolio starts with 42% in U.S. stocks, 35% in bonds, 18% in international stocks, and 5% in short term investments. By March 2020, it had 59% in U.S. stocks, 26% in bonds, 12% in international stocks, and 3% in short term investments. This shows how your risk can increase risk as stock markets rise.

Hypothetical example. For illustrative purposes only. Actual performance results may vary, perhaps significantly, from the performance results shown. Differences in account size, timing of transactions, and market conditions prevailing at the time of investment may lead to different results. Chart data is valid through 3/31/20.

We believe that the mix of investments in your portfolio should be based on your ability to tolerate risk and aligned to your financial goals, not dictated by market swings. Through a long-term focus on asset allocation, we seek to provide a level of risk that's aligned to your goals to help you stay invested over time.

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The hypothetical portfolio value in the chart above is represented by the following market indexes:
Domestic Stocks: S&P 500 Index

Foreign Stocks: MSCI ACWI ex USA Index (Net MA Tax)

Bonds: Bloomberg Barclays U.S. Aggregate Bond Index

Short Term: Bloomberg Barclays U.S. 3‐Month Treasury Bellwethers Index

Bloomberg Barclays U.S. Aggregate Bond Index: A broad‐based, market value–weighted benchmark that measures the performance of the U.S. dollar–denominated, investment‐grade, fixed‐rate, taxable bond market. Sectors in the index include Treasuries, government‐related and corporate securities, mortgage‐backed securities (MBS) (agency fixed‐rate and hybrid ARM pass‐throughs), asset‐backed securities (ABS), and commercial mortgage‐backed securities (CMBS).

Bloomberg Barclays U.S. 3‐Month Treasury Bellwether Index: A market value–weighted index of investment‐grade fixed‐rate public obligations of the U.S. Treasury, with maturities of three months, excluding zero coupon strips.

The S&P 500® Index is an unmanaged, market capitalization–weighted index of 500 common stocks chosen for market size, liquidity, and industry group representation to present U.S. equity performance.

The Morgan Stanley Capital International All‐Country World Index (MSCI ACWI ex USA Index (Net MA Tax)) is a market capitalization–weighted index designed to measure the investable equity market performance for global investors of large‐ and mid‐cap stocks in developed and emerging markets, excluding the U.S. Index returns are adjusted for tax‐withholding rates applicable to U.S.‐based mutual funds organized as Massachusetts business trusts.

We continually monitor the level of risk in your portfolio and make adjustments as needed. Through rebalancing, we evaluate opportunities and may periodically buy or sell investments to help restore the appropriate risk and return characteristics of your portfolio.

Risk was higher over the period for portfolios that did not rebalance

March 31, 2010–March 31, 2020

This chart shows how the risk of two diversified, hypothetical portfolios varied between March 31, 2010 and March 31, 2020, as measured by the 3 Year standard deviation. One portfolio is rebalanced quarterly and one is never rebalanced. The chart also compares the average monthly rolling 3 year standard deviations for the two portfolios. The portfolio that was never rebalanced had an average standard deviation of 9% and the portfolio that was rebalanced quarterly had an average standard deviation of 8%. The chart shows that over the ten year period, risk was greater for the portfolio that was never rebalanced, with the disparity increasing over time. As of March 31, 2020, this portfolio had a standard deviation of 11% while the portfolio that was rebalanced had a standard deviation of 8%.

Hypothetical example. For illustrative purposes only. Actual performance results may vary, perhaps significantly, from the performance results shown. This chart's hypothetical illustration uses historical monthly performance from March 31, 2010 through March 31, 2020.

We believe that a portfolio's risk level should be based on your goals and risk tolerance - not by market fluctuations or by inaction.  The example above shows how proactively rebalancing a diversified portfolio can help keep you more closely aligned to your risk tolerance. This can be especially valuable after bouts of higher volatility.


We believe that staying invested through up and down markets can help keep your investment strategy on track. Through disciplined rebalancing, we seek to provide you with a smoother investment experience that's aligned to your goals.

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The chart is for illustrative purposes only and is not indicative of any investment. A portfolio that is not diversified within asset classes may experience different levels of risk. Portfolio risk is measured using standard deviation, which is a statistical measure of how much a return varies over an extended period of time. The more variable the returns, the larger the standard deviations. Investors may examine historical standard deviation in conjunction with historical returns to decide whether an investment’s volatility would have been acceptable given the returns it would have produced. A higher standard deviation indicates a wider dispersion of past returns and thus greater historical volatility. Standard deviation does not indicate how an investment actually performed, but it does indicate the volatility of its returns over time. Standard deviation is annualized. The returns used for this calculation are not load adjusted.

Average risk for the Buy and Hold portfolio and the Quarterly Rebalanced portfolio is the average of the monthly rolling 3 year standard deviations for the period in the chart.

Portfolio allocations:
Domestic Stocks: S&P 500 Index – 42%

Foreign Stocks: MSCI ACWI ex USA Index (Net MA Tax) – 18%

Bonds: Bloomberg Barclays: U.S. Aggregate Bond Index – 35%

Short Term: Bloomberg Barclays U.S. 3‐Month Treasury Bellwethers Index – 5%

The holdings of the Quarterly Rebalance portfolio were rebalanced on a quarterly basis back to the Initial Index Weightings for each Primary Asset Class. The holdings of the Buy and Hold portfolio were never rebalanced.

Bloomberg Barclays U.S. Aggregate Bond Index: A broad‐based, market value–weighted benchmark that measures the performance of the U.S. dollar–denominated, investment‐grade, fixed‐rate, taxable bond market. Sectors in the index include Treasuries, government‐related and corporate securities, mortgage‐backed securities (MBS) (agency fixed‐rate and hybrid ARM pass‐throughs), asset‐backed securities (ABS), and commercial mortgage‐backed securities (CMBS).

Bloomberg Barclays U.S. 3 –Month Treasury Bellwether Index: A market value–weighted index of investment‐grade fixed‐rate public obligations of the U.S. Treasury, with maturities of three months, excluding zero coupon strips.

The S&P 500® Index is an unmanaged, market capitalization–weighted index of 500 common stocks chosen for market size, liquidity, and industry group representation to present U.S. equity performance.

The Morgan Stanley Capital International All‐Country World Index (MSCI ACWI ex USA Index (Net MA Tax)) is a market capitalization–weighted index designed to measure the investable equity market performance for global investors of large‐ and mid‐cap stocks in developed and emerging markets, excluding the U.S. Index returns are adjusted for tax‐withholding rates applicable to U.S.‐based mutual funds organized as Massachusetts business trusts.