401GO is excited to announce their new Dynamic Rebalancing system for clients on their 401(k) platform. As the climate surrounding investments and market volatility is raging, 401GO made a push to create some stability to the frequency of account investment rebalancing.
Portfolio rebalancing is the practice of buying or selling holdings in a portfolio to help it stay in-line with investment objectives. It is especially important for portfolios with a long-term investment horizon such as retirement plans. For example, let’s say an asset allocation is 70% stocks and 30% bonds. If the overall stock market increases in value for a few months, the allocation to stocks would increase as well. That means the holder should sell some stocks to get back to the desired level.
Traditionally, rebalancing is done on a periodic bases such as every quarter or twice a year but in highly volatile markets such as what is happening now with the COVID-19 pandemic, that can leave a portfolio out of balance for longer than is necessary. Previously advisors would often warn of the dangers of rebalancing too frequently but the primary reason given are generally related to the transaction costs associated with buying and selling. In the case of 401GO, there is no cost to the participant and with automation, it requires no time so the ability to balance based on market factors is an advantage.
401GO CTO Nate Beck explains, “While the industry standard is to rebalance investments on a quarterly, semi-annual, or annual basis, we wanted to create a system that rebalances in relation to market fluctuation not a fixed schedule. This will certainly help participants that want some level of structure with their investments.”
Known in the industry as threshold rebalancing, the primary reason to rebalance is based more on risk mitigation or re-alignment than profit taking. However, there are numerous studies by organizations such as Vanguard and Sigma Research that show portfolios with rebalancing may outperform portfolios that are allowed to drift. The problem with many of these older studies however is they are based on scenarios with higher transaction costs than what would occur with a low cost 401k platform like 401GO’s.
401GO states that Dynamic Rebalancing is a necessary technology to keep up with the changing tide and volatility that currently plagues the market, especially for small business 401(k) plans.
Founded in 2018, 401GO has the mission to make 401(k) plans accessible to all businesses. Whether it’s a new startup 401(k) plan or an existing 401(k) plan, they make setup and administration easy and straightforward. To help ensure everyone is ready for retirement they have low costs and suitable 401(k) investments. No hidden costs, such as setup, document, or filing fees. Their pricing is a simple per participant fee of $9 per month—and that’s it.