Maintaining the Portfolio

It’s ironic that the one constant in life is change, and this is especially true with an investment portfolio. Change can occur in a number of ways; one portion of the portfolio performing better than another, going from one phase of life to another (working to retirement) and situational changes such as raising children to name but a few.

Therefore it is imperative to keep an eye on the portfolio and ask critical questions such as; are the asset classes in the portfolio still weighted appropriately? Have my life circumstances changed? Have there been any legislation changes that affect my portfolio? And so on. It’s a dynamic process and this next section will explore how to approach maintaining your investment portfolio.


By far the most common issue with maintaining a portfolio is rebalancing the weights of the asset classes. For example, if a portfolio initially starts with an allocation of 60% equity and 40% fixed income, and over time the equity portion outperforms fixed income, you may end up with a portfolio weighting of 75% equity and 25% fixed income. In order to maintain the required weightings you’d need to shift some money from equity to fixed income.

You may be asking yourself, “equity is evidently doing really well, why should I move money over to an asset class that’s doing relatively worse?” It’s a good question, and there are two reasons why rebalancing is in your best interests.

  • Rebalancing forces you to sell high and buy low as you move money from an out-performing asset class to an under-performing one. There is no guarantee that the out-performing asset class will continue to out-perform.

  • You went into a 60/40 split for a reason, and if no life circumstances have changed then the 60/40 split should still be applicable. Rebalancing allows you to move back to an appropriate level of risk.

There is significant evidence showing that disciplined rebalancing provides superior returns over time. Here are a few techniques you can use to guide you in rebalancing your portfolio.

Calendar approach

This is the simplest method. You may decide that you want to rebalance annually, semi-annually or quarterly for example. Some issues with this method is that at some points it may not be appropriate to rebalance since the weightings may be very close to the original.

You may also miss out on an opportunity to rebalance at an ideal time. For example, if the weightings move far from the original weightings within the rebalancing period, only to return to their starting allocation at the time of rebalancing, you would have missed an opportunity to sell high and buy low. The benefit though of this technique is that it is simple to follow and easy to remain disciplined.

Percentage change approach

This is a more dynamic approach in that you set an acceptable range in which the weightings can deviate, once this range is breached you rebalance. The benefit of this method is that it forces you to rebalance at ideal times. The tricky part is monitoring your portfolio and being disciplined in rebalancing.

For instance, if the equity portion is performing well, you may need to rebalance today, only to rebalance again next week. This can be time consuming. Further, some people may struggle with actually rebalancing when they need to because they may think; “well equity has gone this far, let’s see if it can go further”, only for it to turn and fall back within the rebalancing range.


As stated previously, there will be times in life when it will be necessary to reconstruct your portfolio to better represent your new financial goals. You may need to go more conservative because you’ve retired. Or perhaps you can be more aggressive due to receiving a large inheritance.

The appropriate time to reconstruct your portfolio is entirely subjective but normally pretty evident, since it’s generally associated with a life event. The important thing to keep in mind is to always ask yourself if your portfolio continues to represent your financial goals according to your circumstance.

If the answer is no, then you will need to start the portfolio construction process from the beginning to determine what kind of portfolio is most appropriate.


Many people aren’t aware that rebalancing comes with costs. These come in various forms such as taxes and transaction costs (broker fee etc). It is imperative to be aware of the costs associated with rebalancing your portfolio.

As a rule of thumb, the more costs you are exposed to and the higher the applicable taxes, the less a portfolio should be rebalanced. Costs are sneaky and can eat away at the theoretical superior returns rebalancing offers.

In terms of the calendar approach, it may be prudent to lengthen the amount the intervals in which a portfolio is rebalanced. With regards to the percentage change approach, it may be prudent to increase the acceptable range.

Applicable costs are incredibly subjective and there is no one size fits all. The point here is to always be aware of that there is a cost to rebalancing, and at times it may not be in your best interest to rebalance.

Next: Asset Allocation Strategy 1: Samantha

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