Portfolio Drift
When your actual asset allocation strays from the target mix because some investments outperform others.
What You Need to Know
Portfolio drift is inevitable because markets move unevenly. If stocks surge while bonds stay flat, your stock percentage grows and the bond percentage shrinks—whether you make trades or not.
Why Drift Matters:
- Increases portfolio risk during bull markets
- Can make conservative investors unintentionally aggressive
- Distorts diversification benefits if left unchecked
How to Monitor Drift:
- Track actual vs. target allocation monthly or quarterly
- Use rebalancing bands (e.g., 5% for stocks, 2% for bonds)
- Automate alerts in your brokerage or a spreadsheet
Example: Target 60% stocks / 40% bonds. After a strong year, stocks become 68% and bonds 32%—an 8% drift that often triggers a rebalance.
Sources & References
This information is sourced from authoritative government and academic institutions:
- investor.gov
https://www.investor.gov/introduction-investing/investing-basics/glossary/rebalancing
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Related Terms in Investment Analysis
Appreciation
The increase in an asset's value over time, whether it's real estate, stocks, or other investments.
Asset Class
A group of investments with similar behavior, risk, and regulatory profiles (e.g., stocks, bonds, cash).
Bond
A fixed-income investment where you loan money to a government or corporation in exchange for regular interest payments.
Bond Yield
The return an investor earns on a bond, expressed as a percentage, which can be calculated as current yield (annual interest ÷ current price) or yield to maturity (total return if held until maturity).
Capital Gains Tax
Tax on profits from selling investments like stocks, bonds, or real estate.
Capital Loss
A loss realized when you sell an investment for less than you paid for it, which can offset capital gains for tax purposes.