Monitor and Rebalance

While passive investing implies that little action is taken—investors are passive rather than active—there is a need for steady monitoring and occasionally a need for adjustments.

Monitoring

Passive investing is appealing for many people precisely because it doesn’t require a large time commitment. This does not, however, mean that the investor should ignore the portfolio for long periods of time. While a passive portfolio does not require attention on a daily or even weekly basis, it is useful for the investor to get in the habit of monitoring the portfolio periodically.

Since the passive investor by definition does not attempt to time the markets, this monitoring is not about making frequent decisions to buy or sell. Rather, the monitoring should focus on ensuring that everything within the investor’s account is proceeding as it should: asset allocation is still within acceptable parameters, fees are as low as they can be, there are no unauthorized trades, funds are properly tracking their major indices, automatic deposits are successfully being added to the portfolio and are invested as intended, withdrawals (for retirees) are according to agreed-upon guidelines, etc.

Any anomalies uncovered during monitoring should be attended to. This is especially critical if unauthorized activity is identified. In such cases you should contact the trading account service provider immediately and report any suspicious or unexplained activity. It is often advisable to change the password on your account. In some cases the provider may suggest transferring your holdings from the compromised account into a new account with a new account number.

Other, more routine, monitoring outcomes include identifying the need to make adjustments to the investment portfolio. For our purposes I categorize the adjustment types in three activity types: adjusting asset allocation weights, rebalancing to abide by the allocation weight plan, and substituting investments.

Click on these headings for additional details:

Adjusting Asset Allocation Weights

Rebalancing

Substituting Investments

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