Rebalancing a Portfolio

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Since 2008, foundations have experienced a unique set of challenges in managing their investment portfolios. The credit crisis wiped out years of equity returns when distributions were needed most. This was a difficult time to remain confident in the virtues of investing in a diversified portfolio.

For those foundations that stuck to their investment policies, decisions around rebalancing presented another test. The financial crisis presented a rare opportunity in which rebalancing from bonds to stocks resulted in a huge payoff for organizations with a firm, rule-based rebalancing policy, especially one that either was codified in their investment policy statement and/or clearly defined by their investment manager.

Today, most foundations and their fiduciaries agree that establishing an adequately diversified strategic target asset allocation is one of the most important determinants of their investment success and is a key to meeting fiduciary responsibilities. Left largely unanswered is how foundations should think about the pros and cons of different rebalancing policies today.

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