Balance in Rebalancing
Our theme this opening week of 2022 is rebalancing. We discuss three important factors to help investors understand why and when to rebalance a portfolio.
Much of wealth management is managing risk over time. One component we look at is drift. Portfolio drift is when assets move considerably outside the target portfolio allocation. This activity, over time, changes the composition of a portfolio and the associated risk profile.
We generally don't want any single investment or asset class to control too much of the future results. A non-rebalanced portfolio can lead to being more vulnerable to market segment declines.
At Vector, we advocate for some drift and broadly allow markets to dictate the timing of portfolio rebalancing. But, of course, specific situations like expected portfolio cash flows or tax status also play a part.
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