Key takeaways
- Drift is the gap between the mix you chose and the mix you now hold, measured in percentage points.
- Drift is not a mistake. It is what happens automatically when one part of the portfolio grows faster.
- Left alone, drift quietly raises your risk after the best runs, which is exactly when it is least welcome.
- Rebalancing bands are easier to follow than calendars, because they act when something has actually changed.
What drift is
You chose 70 percent stocks and 30 percent bonds. Stocks had a strong three years. You did not touch anything. You are now at 78 and 22.
Nobody decided that. It happened because the faster growing asset became a larger share of the total. The gap is 8 percentage points, and percentage points is the right unit here. Saying stocks rose 11 percent as a share of the portfolio is technically true and useless.
Why it matters more than it looks
A portfolio that has drifted toward equities is riskier than the one you signed up for, and it got that way at the worst moment. Drift toward stocks happens after stocks have run, which is when the next drawdown is being priced in.
The person holding 78 percent equities did not choose 78 percent equities. They inherited it from a good year.
Bands beat calendars
Two ways to fix drift. Rebalance on a schedule, or rebalance when a holding moves more than a set distance from target.
Bands are better in practice. A calendar makes you trade when nothing has changed and ignores a large move that arrives in month two. A band of five percentage points does nothing during quiet periods and acts precisely when the portfolio has genuinely shifted.
Rebalancing without selling
You do not have to sell anything. If you are still contributing, direct new money to whatever is underweight until the gap closes. This is slower, and it avoids realising gains in a taxable account.
In a tax sheltered account selling costs nothing but a few minutes, so the calculus is simpler there.
Sources
- Drift figures above are an illustrative arithmetic example, not a market forecast.
- Percentage points are used throughout because they are the only unit in which a target and an actual can be compared directly.
Open the Portfolio tracker. Set targets per class and the drift math, points and dollars, runs continuously on your entries.
Open in Capital Allocation →