Self-Aligning Portfolios
Our proprietary (patent pending) system includes a unique feature within its trading component which we refer to as AssetManager.¹ Instead of investing an employee’s payroll contribution based on the percent allocation for each investment option within the model‚ AssetManager analyzes each holding and determines if any holding is under-weighted or over-weighted according to the percent allocation for the model.
After the analysis‚ AssetManager purchases more shares for any investment that may be under-weighted and fewer shares for any investment that may be over-weighted. “By investing contributions using this methodology‚ each employee’s model maintains its balance by self-aligning itself each pay-period‚” explains Darwin Abrahamson‚ founder and CEO Invest n Retire‚ LLC.
Risk / Reward
Portfolios may become skewed out-of-alignment due a recent run-up in the value of the assets in an asset class such as large cap stocks or a devaluation of the assets within a different asset class such as international stocks. This imbalance may result in a portfolio with a higher risk/reward characteristic than originally intended.
Since our self-aligning technology uses payroll contributions to maintain alignment‚ the employee’s portfolio maintains its risk/reward characteristic by avoiding a portfolio with an unintentional higher standard deviation.
The advantages of self-aligning portfolios are obvious:
(a) the method maximizes the investment strategy known as dollar-cost-averaging
(b) less trading is required at the end of
each calendar quarter in order to maintain portfolio alignment and‚ as a result‚ lowers trading costs
(c) maintaining balance controls risk relative to the target asset allocation in all market environments
If an investment advisor makes adjustments to a model or if an employee provides instructions to change models‚ the portfolio may need to be rebalanced. To ensure that each model maintains its alignment, INR automatically rebalances each employee’s portfolio quarterly‚ if necessary.