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

Adding Value through Monitoring and Rebalancing

This should go without saying, but careful monitoring of investment portfolios pays ongoing dividends. (See Chapter 20, which goes into some detail on this subject.) Note that this doesn't imply taking frequent actions in a portfolio. Indeed, the default position should also be not to act, because so many investment mistakes happen as a result of knee-jerk or emotional decision making. But thoughtful monitoring will identify areas that need to be watched carefully. Is your small-cap growth manager shooting the lights out even though the small-growth benchmark is stalled? Maybe he's a very smart guy—but maybe he's jumped aboard a tech bandwagon that's going to run off a cliff.

I mentioned rebalancing earlier, but will reiterate it here: Frequent, by-the-numbers rebalancing might work for institutional investors, but it doesn't work for families. Instead, rebalancing must be done in a thoughtful and tax-sensitive (and cost-sensitive) way. Strategic bands around target allocations should be wider for families than for institutions, and even when an allocation is out of guideline, the costs associated with rebalancing need to be assessed against the benefits. Rebalancing is important, because it is directly associated with the risk level of the portfolio. But taxable investors can also go broke rebalancing.