CapitalTime
Articles on investing and capital management, with a quantitative focus.
Rebalancing the Model Portfolio
2022-01-02
I record daily values of a "model portfolio" for my PRP allocation. My actual investments are very similar, but not identical, to the model portfolio.
To maintain my asset allocation target, I must periodically rebalance the model portfolio.
| Asset class | Current weight | Target weight |
|---|---|---|
| TSX 60 stock index | 17.8% | 15% |
| S&P 500 stock index | 18.1% | 15% |
| Canadian bond index | 46.1% | 50% |
| Gold bullion | 18.0% | 20% |
Notice that the stocks are far above the target weight due to very strong recent performance. At the end of the year, stocks made up 36% of the portfolio, versus the 30% target weight.
The following virtual trades were performed on the model portfolio:
- Sell TSX stocks
- Sell S&P 500 stocks
- Buy bonds
- Buy gold
Rebalancing my actual portfolio is a bit more tricky. To do this in a tax efficient way, I will add new money to the underweight assets, and also rebalance inside tax-sheltered accounts.
— Jem Berkes