Long-time readers know the Schrodinger is the best example on this blog of a passive (index) approach to investing. No cluster analysis is used, but instead this portfolio follows a Strategic Asset Allocation (SAA) plan as shown in the following Dashboard.
Schrodinger Dashboard: All asset classes with exception of Commodities (DBC) and Cash are within the target ranges. A limit order will be placed to reduce holdings in DBC and when this ETF is sold we will have even more cash to invest in asset classes that are below target.
Developed International Markets (VEA) is most out of balance so an order to buy 100 shares of VEA makes sense once we sell shares of DBC. Even though the Schrodinger is managed using the SAA model, I am not blind to CWM analysis. Since VEA does not have a positive absolute acceleration percentage, I am not inclined to jump right in and buy more shares of VEA.
Rebalancing Table: Just to the right of the Dashboard on the Dashboard worksheet is the rebalancing table. The following screenshot shows how many shares of the “critical” ETFs need to be bought or sold in order to bring the various asset classes exactly to target. We don’t worry about the exact target percentage so long as we are within the target limits.
As an example, selling 112 shares of DBC will bring the Commodities asset class back into target. Once shares of DBC are sold we will reexamine the asset allocation mix to see what asset classes need additional shares.