Rebalancing is key


Rebalancing can help you remain properly invested as markets shift.

As markets move over time, some asset classes may perform better than others. Especially during 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 30 years. In this example, as US stocks increased in value relative to bonds, the portfolio's allocation to US stocks increased from 42% to 73%. 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

Two pie charts show the makeup of a hypothetical portfolio and how it can drift over time. In January 1988, the portfolio starts with 42% U.S. stocks, 32% in bonds, 18% in international stocks, and 8% in short term investments. By December 2017, it has 73% in U.S. Stocks, 17% in bonds, 8% international stocks, and 2% in short term investments. This shows increased 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 December 31, 2017.

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: Dow Jones U.S. Total Market 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.

Dow Jones U.S. Total Stock Market Index: A float‐adjusted market capitalization–weighted index of all equity securities of U.S.‐headquartered companies with readily available price data.

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 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.

The danger of drifting into higher risk vs. the benefit of rebalancing risk

This line chart shows how two diversified, hypothetical portfolios with an initial investment of $100,000 have performed over time. One is periodically rebalanced and one is not periodically rebalanced. In the market crash of 2009, the rebalanced portfolio had $30,014 less of a drop than the non rebalanced portfolio. The rebalanced portfolio also recovered by October of that year, four months faster than the non rebalanced one. This shows the positive impact rebalancing can potentially have on long‐term performance.

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 represents January 1, 1988 through December 31, 2017.

The example above shows the value of proactively rebalancing a diversified portfolio. When the market reached a low in February 2009, the rebalanced portfolio had lost less value. Additionally, it recovered its losses faster when compared to the non-rebalanced portfolio*.


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 hypothetical examples of portfolio value in the chart above were estimated using a hypothetical portfolio consisting of a 60% allocation to stocks and a 40% allocation to bonds and short‐term investments, represented by the following market indexes and weightings:
Domestic Stocks: Dow Jones U.S. Total Market Index ‐ 42%

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

Bonds: Bloomberg Barclays: U.S. Aggregate Bond Index ‐ 32%

Short Term: Bloomberg Barclays U.S. 3‐Month Treasury Bellwethers Index ‐8%

The holdings of the Rebalanced portfolio were rebalanced on a quarterly basis back to the Initial Index Weightings for each Primary Asset Class. The holdings of the Never Rebalanced 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.

Dow Jones U.S. Total Stock Market Index: A float‐adjusted market capitalization–weighted index of all equity securities of U.S.‐headquartered companies with readily available price data.

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.