Portfolio Drift & Rebalancing

Over time, the asset weightings of an investment portfolio may fall out of balance with an investor’s objectives, a fact which highlights the importance of a diversified portfolio.  Diversification reduces volatility, the advantage being that a less volatile portfolio creates greater wealth over time than one that is more volatile. Investors should keep in mind that, unlike savings accounts, their original investment in a portfolio of mutual funds can fall, as well as rise, in value.

Systematic re-balancing is also important to keeping investments on track with goals.  As the capital markets change over time, varying growth rates from different asset classes and investment styles can move your portfolio away from your objectives and risk comfort level.  If your portfolio has deviated from the asset mix laid out in your Investment Policy Statement, your portfolio needs to be re-balanced.

CAPITAL G uses a disciplined approach to the rebalancing process, regularly screening portfolios to ensure that they are within their target asset mix parameters.  If your portfolio has drifted too far away from your personally optimized mix, as laid out in your Investment Policy Statement, your portfolio will re-balanced. This occurs a minimum of four times a year.

Rebalancing, when required, has the effect of ‘selling high’ and ‘buying low’ since, as the value of an asset class rises, profits are taken and re-invested in the underperforming asset classes.  Systematic re-balancing returns the portfolio to its original asset allocation in order to avoid excess risk and achieve the target returns laid out in your Investment Policy Statement.

<< Return to YOUR Investments page