Behind the scenes, one of our most important portfolio management tools is the rebalancing of portfolios.

Over the long term, rebalancing, executed with discipline, benefits our clients by maintaining the desired volatility and return characteristics in their portfolios.

Three key takeaways about the process:

This is a tool for risk management, not return enhancement: We believe the primary function of rebalancing is to keep a portfolio’s expected level of risk aligned with the defined risk tolerance for an investor.

Establishing a rebalancing framework: There are two primary rebalancing approaches and the mechanics which involve several tradeoffs that merit consideration, including monitoring frequency, transaction costs, asset class characteristics and liquidity, tax implications, and risk tolerance, among others.

The role of consistency and discipline: No one-size-fits-all approach exists when it comes to portfolio rebalancing. What matters most when it comes to rebalancing, in our view, is consistency and discipline, to ensure that a portfolio stays aligned with the risk-return balance embedded in a selected strategic asset allocation profile.

Our Portfolio Advisory Group has produced a short piece that delves into the process in more detail.