To close out 2010, I’ve calculated the total return for the year ending Dec 31, and rebalanced both the Original and PLUS Pro-Folio models as of January 1.
If you are not familiar with the practice of rebalancing, that is when you “even out” all your Pro-Folio investments – those that have done really well, you sell a little bit of, and those that haven’t done so well, you buy more, so that you have an equal amount invested in each asset class.
In the case of Pro-Folio Original, you should rebalance so that you have 5 equal “buckets” of money, each invested in cash or the specified ETF, according to the model. In the case of Pro-Folio PLUS, there are 6 “buckets.” If you haven’t been rebalancing periodically, now is a good time to do so. I will continue to rebalance Pro-Folio annually at the end of each calendar year.
To figure out how much to rebalance, take the full value of your Pro-Folio portfolio and divide by 5 if you are following the Original model, and divide by 6 if you are following PLUS. This is the amount that you should have in each asset class (or in cash). So if you have more than this amount invested in, say, SPY for example, then sell enough shares of SPY so that you have only the specified amount still invested in SPY. If you have less than the specified amount invested in DJP, for example, then buy more DJP until you have the specified amount invested.
If you want more information on portfolio rebalancing, you can visit this link from Schwab.com.
As of December 31, 2010, Pro-Folio Original had a total return for the year of 7.08%. In comparison, Pro-Folio PLUS had a total return of 2.64% for the year.
Investors in either model should be moderately pleased with these numbers. We have chalked up positive returns for yet another year. Keep in mind that both models maintain a diversified, low-risk portfolio designed for solid positive returns in the long run. Pro-Folio doesn’t chase the latest “hot thing” — rather, it is a method that you can easily follow year-in and year-out to a satisfying conclusion, while at the same time knowing that you have a discipline in place for deciding when to sell your positions if performance moves negative. It is this protection for your existing assets, not sky-high returns, that provides the most value of all.
We live in a chaotic world, and the final ramifications of the financial crisis have yet to shake out around the world. Many banks in Europe are still at risk, and the debt crises in Ireland, Spain, Portugal, and Greece have yet to play out fully. Much risk remains. Pro-Folio lets you sleep easily at night knowing you have defenses against such global risks.