My Portfolio Management Process - Part 4: Portfolio Review And Re-Balancing

by: Michael Patenaude


Every investor has their own needs, objectives and risk profile.

Sharing portfolio management approaches can improve performance by sharing knowledge and experience.

My household portfolio plan is shared for comments and improvement.

Part four in this series focuses on portfolio review and re-balancing.


This is the fourth in a four-part series on how I manage our household portfolio as my wife and I start to consider retiring from full-time employment in about five years. The first article was about our investment objectives, the second was about my risk management approach and the third was about my asset allocation approach.

If you've not read them yet, kindly do so and you will have the necessary context for this article.

As a reminder, I am trying to highlight some of the key aspects of portfolio management an investor can control, namely their objectives, risk management approach and asset allocation. These variables are all closely related to each other and thinking carefully about them can help the self-directed investor focus on some key decisions with regards to their portfolio management approach.

My Household Portfolio Management Process

Part 4: Portfolio Review and Re-balancing

I try, as part of my portfolio management process, to formally review my portfolio on a quarterly basis. Annual reviews don't seem frequent enough given market volatility and sometimes rapid changes in company fortunes. Monthly seems too often, obscuring a bit of perspective, and creating a lot of possibly unproductive effort.

I don't set out to make trades on a quarterly basis (i.e., my process does not compel me to make trades per se). But if I do make them, that's how often they occur. I resist all temptation to make trades between quarterly reviews to try to avoid emotional reactions to market events.

By using a quarterly trade window discipline, I have tried to create for myself ample opportunity to make my decisions as rational as possible (as opposed to emotional). Effectively I build in some time for sober second thought. To further impose this discipline on myself, I only trade on the 15th day of the 3rd, 6th, 9th and 12th months of the year. That's right, I make purchases and sales four times a year.

I spend my free time in the intervening weeks between my quarterly trading days researching opportunities, company fundamentals, trends, new products and services, monitoring our bond ladder, and so on, to come up with ideas for our portfolio. The goal is always to look for ways to improve the quality of our holdings and to improve its risk/reward trade off.

I keep a short watchlist of companies of interest that I monitor and assess on an ongoing basis.

Finally, I try not to add a new security without removing an existing one, to keep the number of holdings manageable and to try to concentrate on quality not quantity. This is tough sometimes but it certainly forces me to sharpen my thinking about any trades I make.

When I review my portfolio, I keep a written record, so that I have a clearer understanding of my motivations, an explanation of my thoughts and observations and an annotated list of my decisions.

I have established asset allocation guidelines, based on my target asset allocation decisions discussed in my third article, that guide me during this review process. These guidelines may lead me to re-balance or otherwise change our portfolio. I will consider re-balancing if:

  • a single security exceeds 5% of its asset class (e.g., a single stock makes up more than 5% of the equity component of my portfolio)
  • bonds or stocks vary 2.5% or more from their respective target allocation of 45%/30% of my total portfolio
  • growth or income stocks vary 2.5% or more from the 50%/50% target allocation in our portfolio's equity component
  • US/international allocations climb to more than 35% of our portfolio's stock allocation
  • a single security climbs or falls more than 20% in value in the trailing twelve months
  • cash (including short-term maturity bonds) exceeds 15% of our total portfolio
  • one industry sector varies more than 2.5% from its target allocation

When re-balancing, I use these "buy-side" guidelines:

  • generally, try to avoid buying stocks if they are excessively in the broker or media limelight (i.e., the latest hot stock is to be avoided)
  • for income stocks, favor a long dividend growth history; a stock price that is fairly valued by historical standards (based on its own valuations over time); and a dividend rate that is near or at an all-time high (as reported by Charles Carnevale's F.A.S.T. graphs TM)
  • for growth stocks, favor a P/E lower than the forecast average earnings growth in the next two years (as reported by F.A.S.T. graphs TM)

I also have some "sell-side" guidelines for selling securities based on company fundamentals. I consider selling some or all of a stock if:

  • a stock doubles rapidly (e.g., in less than one year), consider selling half
  • a dividend cut is announced
  • a change in dividend payment type is made (e.g., from cash to stock-in-kind)
  • a ratings downgrade is issued by a major ratings agency (e.g., Standard and Poors)
  • the company experiences a growing and relatively high debt load
  • there is unwanted share dilution
  • there are significant and persistent earnings or revenue misses
  • major management changes appear detrimental to the business
  • chronic negative sentiment among investors (including short-attacks) is present and shows little hope of abatement

How I Conduct a Quarterly Portfolio Review

Let's go through my typical quarterly portfolio review activities, step by step, so I can illustrate my thought process. While these specific steps may not be directly relevant to every reader, you may wish to consider what you would do similarly, or differently, based on your own situation, if you followed a process like this.

Maybe you have your own process you'd like to share in the comments below?

Note that I have developed a customized Excel workbook for my portfolio that I use as the primary tool in my reviews.

So, here goes….

Step 1: Update the broader market's performance data

First, I update some key values I track showing the latest year-to-date market performance. In particular, I record two of the leading stock indexes: at home (in Canada) the S&P/TSX Composite and abroad the S&P 500. To this I add data points on currency exchange rates between Canada and the US, and bullion prices (gold and silver) in US and Canadian dollars.

I also use a modified Canadian Couch Potato portfolio as a benchmark. It is based on the balanced portfolio consisting of Vanguard ETFs VAB, VCN and VXC. When I say "modified" I mean I adjust the weighting of these three ETFs as provided on the Couch Potato site to reflect our own portfolio's relative weightings in Canadian, US and foreign securities (equities and bonds) at the beginning of the year. I further add to the modified portfolio allocations of cash and bullion to account for the fact that we hold significant amounts of both of these asset types. This makes the benchmark comparison more "apples to apples."

I already have a record of all these values at the beginning of the year in my spreadsheet so I am able to automatically calculate the direction they are trending. This provides me with some context about how major markets are moving and their potential impacts on our holdings.

Step 2: Update our own portfolio's performance data

To update our own portfolio's results, I first download the most recent values from our brokerage accounts and add them to my spreadsheet. My wife and I each have a Canadian and US dollar cash account, two Canadian and one US dollar registered retirement accounts, and we each have a Canadian tax free savings account. These 12 accounts span two different financial institutions due to historical practice and to help, once again, diversify our holdings across more than one brokerage house.

I combine data from all of our brokerage accounts to create one view of our total portfolio and to singularly manage our funds across these accounts. I manage our portfolio in Canadian dollar terms, so all US dollar amounts are converted to Canadian dollars in my spreadsheet.

Step 3: Analyze the performance of our own portfolio

To analyze our own portfolio's performance, I first compare our actual portfolio performance to our own target portfolio performance. In my first article in this series I presented our portfolio objectives and mentioned we have a 7% annual compounded total return objective. This is the single most important performance metric I track. It is derived from our overall investment portfolio return requirements needed to support a target portfolio value at retirement.

To calculate the comparison between our portfolio's performance against our portfolio total return goal, I first prorate the target return figure depending on what quarter we're in (e.g., for the end of quarter 2, I divide 7% by four and multiply by two to get 3.5%).

My spreadsheet calculates our total portfolio return automatically once the account downloads are added. I can easily see if we are "on track" or not. I also calculate being on track as a percentage of the target. For instance, after quarter 2, if we have achieved a 3% return, we would be at 80% of our 3.5% goal; if we have achieved a 4% return, would be at 114% of our goal.

I also extrapolate our current performance to the end of the year (only during the first three quarterly reviews) to see where we might stand if present rates of return persist. This allows me to try to predict our potential annual performance based on performance year-to-date. I admit this is a bit less rigorous but it does serve to illustrate where we may be headed.

Then, to broaden my analysis, I simply compare our portfolio's performance against the key values I gathered in step 1 (namely the modified Couch Potato portfolio and the two main stock indexes).

For fun, I also created one other benchmark, which is a weighted blend of the S&P/TSX Composite and the S&P 500, based on our actual percentage holdings in Canadian and US dollars. This helps level out the benchmark equity performance of these indices if Canadian and US markets are not acting in strong correlation to each other (which can often be the case).

I can easily see if we are "ahead" or "behind" all these benchmarks, recognizing the broad market indices are not as directly relevant given our portfolio composition includes high percentages of bonds, cash and bullion (as mentioned in my third article). These comparisons are still useful to garner a general sense of how we are doing in a broader context.

Step 4: Check our asset allocations

Based on my downloaded and recorded information from steps 1 and 2, my spreadsheet is able to automatically calculate asset allocations by asset class (equities, bonds, cash and bullion); industry sector allocations for the equity portion; and geographic allocations for both our equities and our total portfolio.

I look at these allocations to see if any of my asset allocation guidelines have been breached. If so I make note for further consideration.

Step 5: Check if any "buy" or "sell" guidelines should be invoked

This step involves drawing on my day-to-day or week-to-week monitoring of our portfolio to determine if any security's circumstances have changed enough to warrant either buying or selling. It normally applies to our stocks, but could conceivably include a specific bond holding.

When monitoring my portfolio, I will usually note in my spreadsheet any ideas that come up over the quarter and track those until my quarterly trading day. This is an ongoing activity so does not all happen on the date of the quarterly review.

Step 6: Summarize the quarterly analysis of our portfolio

After looking at all the information generated in the preceding steps, I then follow a template I've created to more or less methodically record key attributes of our portfolio at the time of the review. My template (which is still evolving) calls for me to make the following notes:

  • how our portfolio is doing vs. our own total return objective (e.g., we're meeting 85% of our total return objective so far, year-to-date; and how we might do over the course of the year based on our forecast)
  • how our portfolio is doing vs. our primary and secondary benchmarks (i.e., the modified Couch Potato portfolio, the leading stock indexes, and the blended leading stock indexes)
  • which portions of the portfolio are strongest and those which are weakest (e.g., gold bullion is doing well; US equities in Canadian dollar terms are facing headwinds from the relative strength of the Canadian dollar)
  • whether we are over or underweight in any asset allocations (e.g., we are at 46.5% equities vs. 45% planned; we are underweight in cash [8.5% vs. 10%] due to new purchases of equities being made prior to some new savings being deposited or some bonds maturing)
  • any general observations about how our portfolio is doing (for instance, I have noticed that our portfolio is very defensive and tends to outperform broad market indices in "down" markets, but likely will underperform in "up" markets)
  • if we are at year end, I generally make notes about this year's performance vs. last year's performance
  • all the trades I made for the quarter under categories such as: bond ladder replenishment, clean-up trades, top-up trades, new additions, exit trades as well as any trades I had previously considered making but deferred in the present quarter
  • if we're on track with our planned savings (e.g., did we make the planned deposits to our retirement portfolio we intended to at the beginning of the year?)
  • our portfolio turnover metric (so I can track the frequency of our stock trades specifically)
  • forward-looking thoughts I have about stocks, bonds or trades of potential interest requiring further research, monitoring and consideration along with any interesting trends I am noticing

This may sound like a lot of work, but since I have my spreadsheet set up already and my template for writing out my review is mostly stable, it takes about 4 hours every quarter to do the review. In my opinion that is not overly onerous. The insights I gain from this discipline far outweigh the relatively minimal amount of time it takes to do.


This concludes my four-part series on how I manage our household portfolio. I have presented our objectives, risk management approach, asset allocations and lastly, how I review and manage our portfolio over time.

I have learned that by going to this level of effort, I have much more comfort, and to some degree confidence, in being a self-directed investor. I have attempted to balance my need for control and flexibility in our portfolio management decisions with a defined structure that hopefully prevents too many irrational decisions.

I expect my strategy, plans and process, along with our portfolio, to evolve over time as conditions warrant and as I learn more as a student of personal finance.

It remains to be seen how our retirement plans will unfold, and whether or not we will be able to live at the standard of living we'd like for the long run. At least, based on the thinking I've done, I feel we have a decent shot at it.

I look forward to any additional comments from Seeking Alpha members.

I'd like to add, if you would like to see an example of my most recent quarterly review, and see our actual portfolio holdings, please sign up on my website at (no charge) where I document this information. As an added bonus you will also find information from the Ottawa Share Club, along with its fantasy growth (pre-retirement) and income (in retirement) portfolios, which I facilitate.

Lastly, I'd like to express my deep appreciation to Bob Wells, a Seeking Alpha contributor, who's own comprehensive reporting on his portfolio management process and knowledge-sharing inspired me to write about mine.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: To see all of our portfolio holdings please visit