Articles on investing and capital management, with a quantitative focus.

#prp - Permanent Risk Parity (how I invest)

Rebalancing the Model Portfolio


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:

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