Rebalancing

Over time, assets that rise in value occupy a larger share of a portfolio than originally intended, and assets that fall occupy a smaller share. Left unattended, a portfolio designed to hold sixty percent equities might drift to seventy-five percent after a strong equity rally — quietly taking on more risk than the family ever approved. Rebalancing corrects that drift. The subject is covered in detail at Rebalancing.

For large families, rebalancing is rarely as simple as pressing a button. Trades may trigger capital gains taxes, sales of illiquid private holdings may be impossible on short notice, and transaction costs accumulate. Practical approaches include rebalancing using new cash flows first, tolerating a defined drift band before trading, and directing dividends toward underweight asset classes rather than selling overweight ones.

A hypothetical family that held a large position in a technology company might find that position swelling from fifteen percent to thirty percent of the portfolio after several strong years. Deciding when and how to trim — weighing embedded gains against the risk of continued concentration — is a real and recurring challenge. Concentrated stock positions add a layer of complexity that a simple rebalancing rule cannot fully address.

A common confusion is treating rebalancing as a return-enhancement tool. Its primary purpose is risk control: keeping the portfolio aligned with a family's approved investment policy, not timing markets.