Portfolio Drift

Category: business

The phenomenon where asset classes grow at different rates, causing the portfolio to move away from the original target allocation.

If you start with 60% stocks and 40% bonds, but stocks rally, you may end up with 75% stocks and 25% bonds. This "drift" shifts the risk profile of the entire portfolio, making it more aggressive than intended, necessitating a rebalancing operation to reset the target weightings.

Common Examples

• The automated rebalancing engine triggered a sell-order for the over-performing sector, effectively resetting our drift back to the target allocation.
• Ignoring portfolio drift for several years can accidentally transform a conservative retirement account into a highly speculative, high-volatility vehicle.