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We all need the investment in our lives. Cliff's present investment idea tells us that he has never evaluated the performance of his portfolio. It can be said that approach adopted by Cliff was an ad-hoc which faced many consequences like given below

  • He could not achieve his financial objectives
  • Due to inconsistency in portfolio strategy the financial conditions and market situation has been changed
  • The tactics to revise the portfolio could not yield the desired results

It is seen that an investor cannot achieve an adequate returns because there is no statutory amount. The evaluation of the portfolio is necessary and investor must analyze and manage his active portfolio. Individual security of investment always faces the risk of saving. Thus portfolio management may help us to analyze the objectives of investment and portfolio rebalancing must ensure that strategy is consistent. Financial instruments describe the various concepts used in investment likely equities, bonds, mutual funds, cash equivalents and others. Equity based investments depend upon the two different streams of revenue generations. Firstly the dividends are the periodic payments which are made out of the company's profit.

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Secondly the growth determines the stock appreciation posted by the resulting capital appreciation of company. Bonds are the fixed income amounts released for the period of more than one year to raise the capital. Actually bonds are promises to give back the principal amount along with the fixed amount of interest on the specified date. Investment companies operate the open and closed funds to raise the money from the public and investment in group assets. It is an alternative for those who cannot invest directly due to several constraints as resources, time and knowledge. Cash equivalents are very safe and can be easily converted into treasury bills, cash and money market funds. Real state, gold, commodities, antiques and foreign currencies are other saving vehicles.

According to the cliff he has very moderate risk-tolerance level. As Cliff was a young and unmarried he needed to have investment and wanted to protect his earnings in case of disability which might be resulted from sickness or injury. He wished to have a short terms marriage and planned for long term saving for the retirement period. His portfolio will be moderate level of risks.

Government bond funds 30% = $ 30,000

Equity Funds 30% = $ 27,000

Index funds 10% = $9000

Income funds & growth 20% = $18,000

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Growth funds 10 % = $6000

Tax consideration, personal performance and transaction costs are the factors which determine the optimal frequency of portfolio rebalancing. An asset allocation strategy can be changed due to changes in investor's lifestyle. Following steps can rebalance his portfolio.

Record:  Keep the record of every security found in each asset and also total cost of the portfolio. This data can prove helpful to you for the future.

Compare: In future the value of portfolio and each asset can be measured by weighing each fund in portfolio dividing by its current value. Then compare it with the actual value. It will be better not liquidating the portfolio for short term.

Adjust: When weighting of asset class is changed and portfolio's exposure is at the risk; then fund in portfolio can be multiplied by the original weighting of each asset class.

When you decide to sell the securities with high weights and want to purchase the additional securities whose weights are declined. However this selling of high weight assets can rebalance portfolio and you can consider the tax implications to readjust the portfolio.

Portfolio balancing is done through the following steps:

  • The market is overvalued due to historic and fundamental valuations
  • Attaining the objectives and require the money for that purpose for which he has been investing

Best example on his marriage

  • Setting the new goals
  • Changing the financial conditions

It is adequate to say that portfolio rebalancing is must to ensure the strategy consistency with current needs, market conditions and financial situation.


In this paper we have found that portfolio rebalancing will assist him to set the original asset-allocation approach. This will also stick him to his investing plans despite of the market changing conditions.

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