4. Monitor portfolio, reevaluate goals and constraints and rebalance
a. Rank performance
b. Reevaluate goals and constraints
c. Rebalance portfolio
5. Document your results
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a. Rank performance.
The portfolio and all variables should be monitored and valued continuously but specific time periods should be chosen to evaluate the performance of a portfolio and reevaluate goals and constraints. The specific time period for evaluation must be determined by each investor. At that time you can compare your returns against your Benchmarks to determine whether your active decisions have resulted in returns better than the market. If they haven't it may be time to reevaluate your strategy. It's also a good idea to determine whether your portfolio has fluctuated more or less than you had expected and to adjust your expectations and portfolio accordingly.
b. Reevaluating goals and constraints.
Goals and constraints should also be reevaluated on a regular basis and whenever unique circumstances or events occur that may affect your investments.
c. Rebalance portfolio.
Price increases/decreases, dividends, income payments, inflows and outflows of cash as well as other events will naturally cause the asset allocation of the portfolio to fluctuate. For instance, a rising stock market can cause a portfolio's allocation in stocks to rise above predetermined ranges. Therefore its helpful to have a regular schedule for rebalancing the portfolio. See Portfolio Rebalancing in Theory and Practice from Vanguard and The Art of Rebalancing from SmithBarney
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