Marcus Invest’s Approach to Asset Allocation and Rebalancing

What we’ll cover:

• Strategic asset allocation is how asset classes in your portfolio are divvied up in order to align with your risk tolerance and investment goals
• Marcus Invest’s strategic asset allocation has two levels
• Strategic asset allocation can make a big difference in your account and we rebalance your account when needed

One of the key components to our investment portfolios is strategic asset allocation—how we thoughtfully spread your funds across different types of investments that align with your investment goals to try and maximize returns while balancing risk to achieve your investment goals.

Normally, figuring this out on your own can be accompanied by a lot of time, effort and uncertainty. 

Luckily, we’ve built Marcus Invest to take on some of this heavy lifting for you. Based on what you tell us about your investment timeline and risk tolerance, we’ll actually recommend a strategic asset allocation approach we think best suits your needs (so you can sit back and let us do the work!).

Now let’s jump into what exactly strategic asset allocation is, as well as how we determine your strategic asset allocation. 

Later on we’ll discuss the importance of rebalancing, and pull back the curtain on how exactly we rebalance your account(s) with Marcus Invest.

What is strategic asset allocation?

At its most basic level, asset allocation is how all of the assets in your portfolio (stocks, bonds, cash, so on) are divvied up. Strategic asset allocation takes that a step further, and works as a portfolio strategy in which target allocations are determined for various asset classes. 

The idea behind our strategic asset allocation is to ensure that your portfolio aligns with your risk tolerance and is diversified, so if one asset class is down, ideally the others can help mitigate any losses.

You can think about Marcus Invest’s strategic asset allocation as having two levels:

• The first level determines if the ETFs in your investment portfolio are heavier in stocks, bonds, or evenly split, based on what you told us about your risk tolerance and timeline.
• The second level figures out what types of investment are suitable for your stock allocation and bond allocation (ETFs) across industries, geographies and sectors. Should you be heavier in international, domestic or emerging market stocks? What about real estate and other income generating assets? High-yield bonds vs. municipal bonds? We help determine all of that by recommending a strategic asset allocation for your portfolio that’s suitable and aligned to your risk level and preferences.

And then…where do portfolio themes come into play?

Marcus Invest offers three unique portfolio themes that allow you to customize your approach. There’s a lot to learn about each, and you can read more about them here, but in a nutshell:

• Goldman Sachs Core: Designed to track market benchmarks with a diverse mix of asset classes
• Goldman Sachs Impact: Designed to track market benchmarks while supporting sustainable business practices (our ESG option)
• Goldman Sachs Smart Beta: Designed to potentially deliver higher long-term gains with more variability to market benchmarks by investing in select Goldman Sachs ETFs (not available for IRAs)

Your strategic asset allocation is based on what types of investments could be a good fit for you, and at what relative weights. 

The portfolio theme you select determines which specific ETFs will be included in your portfolio, so you can invest according to your priorities. 

If your portfolio were a coloring book, you could think of your strategic asset allocation as the outline, and then your portfolio theme determines what color makes up the actual picture. 

Say, for example, that your stock holdings have been doing really well as of late. Your strategic asset allocation was set at 50% stocks and 50% bonds. 

With your stocks outperforming your bonds, though, your asset allocation has drifted to 55% stocks and 45% bonds. To get back to 50/50, certain assets will need to be bought or sold so your portfolio returns to the right mix.

How does rebalancing work at Marcus Invest?

Institutions and individual investors can all approach rebalancing a little differently. Some choose to rebalance periodically, on regular time frames (think monthly, quarterly, annually).

Others might choose to rebalance on an as-needed basis, whenever their portfolio drifts a certain percentage away from their target asset allocation, like in response to market activity.

At Marcus, we start by determining your strategic asset allocation, such as 60% stocks and 40% bonds (which we’ve already gone over!). Our team of investment professionals has determined a tolerance margin that your account can stay between as the market moves. That tolerance margin is also known as the “drift parameter,” essentially meaning how much your account can drift outside your target allocation before requiring rebalancing.

For example, our team might determine that your account can drift 2 points, so you might be 58% stocks, 42% bonds. As soon as your account drifts outside the drift parameters that have been determined for your account, your account will be flagged as needing to be rebalanced. 

Our technology monitors your account day in and day out to remain on the lookout for required rebalancing. The software also recommends what trades could help you get back on track, and our team of (human) portfolio managers review all potential trades and execute them if they agree with the strategy. 

Now you experienced investors might be looking at all that and wondering about the costs associated with said rebalancing moves. Rest assured, rebalancing is included in the cost of your annual advisory fee. 

Plus, whenever we rebalance (or any time you make a withdrawal or deposit), we’re mindful of year-end tax implications. We apply tax lot relief methodology—essentially the practice of selling the assets with the lowest taxable gains first—to help you minimize this year’s tax bill* (you can read more about our tax lot relief methodology here).