Index fund rebalancing works because the rules remove discretion. The Annual Audit Workbook applies the same principle to income portfolio review — predefined thresholds, objective scoring, and a decision tree that tells you what to do without guesswork.
Without predefined thresholds, most investors hold deteriorating positions too long. The decision tree replaces "does this feel right" with specific numeric criteria.
The same way price-to-book or earnings growth gives index investors objective screening criteria, coverage ratios and NAV scores give income investors the same discipline.
Index investors track portfolio value growth annually. Income investors need to track income growth — whether distributions went up, stayed flat, or declined.
Chapters marked Most Relevant are specifically applicable to your situation.
The specific cases where quarterly auditors caught NAV erosion 6 months before it became critical.
A systematic review process for every position: yield, NAV change, coverage ratio, total return.
How to calculate and track coverage ratios for each holding, with thresholds.
A scoring system for each holding based on 12-month NAV trend and volatility.
How to track whether income is growing, flat, or declining on a position-by-position basis.
For REITs, BDCs, and MLPs — how to evaluate whether distributions are sustainable.
A visual framework for deciding when to hold, trim, or exit a position.
How to track whether total portfolio income is growing, and by how much.
Rules-based = no emotional decisions
The Rebalancing Decision Tree in Chapter 7 removes emotional decision-making from portfolio review — the same rules-based discipline that makes index investing work, applied to income allocation.
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