The Stewardship of Wealth: Successful Private Wealth Management for Investors and Their Advisors, + Website

Conclusion: Monitoring and Rebalancing Are Stewardship Issues

Monitoring the performance of investment portfolios and rebalancing them in a disciplined fashion are not exactly the most exciting aspects of wealth management, but they are crucial to successful outcomes. We can do everything else right, fail here, and find that we have discharged our stewardship responsibilities poorly.

The phrase “in a disciplined fashion” was not an accident. There are two reasons why families fail to monitor portfolios appropriately and to rebalance them properly. The first is the boredom factor, and the answer to that is the same answer we would give to any boring-but-important job: discipline. It's simply part of the job we have to do, and we have to take the good with the bad. Otherwise, we are not intelligent investors carrying out serious stewardship responsibilities, we are simply dilettantes.

The second obstacle is overenthusiasm or overpessimism. If the markets are in a bull phase, we will be sorely tempted to let our gains run. Some of that is acceptable—markets do tend to be characterized by momentum. But there are limits. We originally set those limits (I hope) in calm moments, before we were faced with temptation. Then, no matter how strong the markets appear to be, and no matter how certain we are that they will continue to rise, once our maximum exposure has been reached we must—must—rebalance. Taking money off the table during strong markets is the way wealth is preserved.

Similarly, ...