Automatically allocating and rebalancing discretionary portfolios

• US 7,216,099 B2
• Filed: 03/05/2002
• Issued: 05/08/2007
• Est. Priority Date: 03/05/2002
• Status: Active Grant

• Current Assignee: Ibbotson Associates, Inc. (Morningstar Incorporated)
• Original Assignee: Ibbotson Associates
• Inventors: Ibbotson, Roger, Chen, Peng, Henkel, Michael C.
• Primary Examiner(s): Subramanian; Narayanswamy
• Application Number:
  US10/091,046
• Publication Number:
  US 20030172018A1
• Time in Patent Office: 1,890 Days
• Field of Search: 705/36.R, 705/35
• US Class Current: 705/36.00R
• CPC Class Codes: G06Q 40/00 Finance; Insurance; Tax strategies; Processing of corporate or income taxes
• CPC Class Codes: G06Q 40/02 Banking, e.g. interest calculation or account maintenance credit or loans G06Q40/03
• CPC Class Codes: G06Q 40/06 Asset management; Financial planning or analysis
• CPC Class Codes: G06Q 40/10 Tax strategies

Abstract

An automated retirement plan manager manages the assets of an employee retirement benefits plan on behalf of an employer. The plan manager executes trades on investment vehicles based on instructions from an automated independent investment advisor. The advisor calculates a human capital for each plan participant based on data derived from the employer and from the participant through an interface, and based on that human capital calculation recommends an allocation of portfolio assets to the participant. This recommendation, once presented for review by and perhaps modified by the participant, becomes an instruction to the plan manager. As the participant ages his or her human capital is recalculated, and this is used to determine whether the participant'"'"'s present portfolio type should now be switched to a more conservative one.

Claims

1. A method for automatically rebalancing a portfolio of an investor, comprising the steps of:

for a first time, determining a human capital of the investor;

dividing the human capital of the investor into at least first and second investment types according to a predetermined formula, the first and second investment types having different degrees of risk;

determining a financial worth of the investor;

summing the financial worth of the investor and the human capital to derive a total worth of the investor;

determining and storing a ratio;

making a target allocation of the total worth of the investor between the first and second investment types according to the predetermined, stored ratio;

for the first time, recommending an allocation of the assets of the financial worth of the investor between the first and second investment types such that the asset allocation of the total worth of the investor meets or most closely approaches the target allocation;

determining how assets in an investment portfolio of the investor ought to be allocated among predetermined investment vehicles based on the last said recommendation of allocation of assets; and

allocating the assets among the predetermined investment vehicles based on the determining step.

2. The method of claim 1 and further comprising the steps of:

for a second time following the first time, recalculating the human capital of the investor;

for the second time, recommending an allocation of the assets of the financial worth of the investor between the first and second investment types such that the asset allocation of the total worth of the investor most closely approaches the stored ratio; and

for the second time, using the last said recommendation of allocation of assets to determine bow assets in the investment portfolio of the investor ought to be allocated among predetermined investment vehicles.

3. The method of claim 1, wherein the human capital is determined as a function of the investor'"'"'s age.

4. The method of claim 3, wherein the human capital is additionally determined as a function of the investor'"'"'s mortality, income and savings rate.

5. A machine-readable medium on which has been prerecorded a computer program which, when executed by a processor, performs the steps of:

for a first time, determining a human capital of an investor;

dividing the human capital of the investor into at least first and second investment types according to a predetermined formula, the first and second investment types having different degrees of risk;

determining a financial worth of the investor;

summing the financial worth of the investor and the human capital to derive a total worth of the investor;

determining and storing a ratio;

making a target allocation of the total worth of the investor between the first and second investment types according to the predetermined, stored ratio;

for the first time, recommending an allocation of the assets of the financial worth of the investor between the first and second investment types such that the asset allocation of the total worth of the investor meets or most closely approaches the target allocation;

determining how assets in an investment portfolio of the investor ought to be allocated among predetermined investment vehicles based on the last said recommendation of allocation of assets; and

allocating the assets among the predetermined investment vehicles based on the determinist step.

6. The medium of claim 5, wherein the processor further performs the steps of:

for a second time following the first time, recalculating the human capital of the investor;

for the second time, recommending an allocation of the assets of the financial worth of the investor between the first and second investment types such that the asset allocation of the total worth of the investor most closely approaches the stored ratio; and

for the second time, using the last said recommendation of allocation of assets to determine how assets in the investment portfolio of the investor ought to be allocated among predetermined investment vehicles.

7. The medium of claim 5, wherein the processor determines the human capital as a function of the investor'"'"'s age.

8. The medium of claim 7, wherein the processor additionally determines the human capital as a function of the investor'"'"'s mortality, income and savings rate.

9. A system for automatically rebalancing a portfolio of an investor, comprising:

a memory for storing a value for a human capital of at least one investor, a value for a financial worth of the investor, data relating to the assets composing a financial worth of the investor, a predetermined formula and a predetermined ratio;

a processor coupled to the memory and programmed to divide the human capital of the investor into at least first and second investment types according to the predetermined stored formula, the first and second investment types having different degrees of risk;

the processor further programmed to sum the financial worth of the investor with the human capital of the investor to derive a total worth of the investor;

the processor further programmed to make a target allocation of the total worth of the investor between the first and second investment types according to the predetermined, stored ratio;

the processor calculating, at a first time, a recommended allocation of the assets of the financial worth of the investor between the first and second investment types such that the asset allocation of the total worth of the investor meets or most closely approaches the target allocation; and

the memory at the first time storing the recommended allocation of the assets of the financial worth of the investor for use in directing the allocation of assets in a portfolio of the investor.

10. The system of claim 9, wherein at a second time following the first time, the processor recalculates the human capital of the investor, the processor calculating a recommended allocation of assets of the financial worth of the investor between the first and second investment types such that the asset allocation of the total worth of the investor most closely approaches the ratio stored in the memory, the memory at the second time storing the recommended allocation of assets for use in directing the allocation of assets of the portfolio of the investor.

11. The system of claim 9, wherein the memory stores the age of the investor, the processor calculating the investor'"'"'s human capital as a function of the investor'"'"'s age.

12. The system of claim 9, wherein the memory stores the investor'"'"'s mortality, income and savings rate, the processor calculating the investor'"'"'s human capital as a function of the investor'"'"'s mortality, income and savings rate.