Considerations for Rebalancing a High-Net-Worth Portfolio

As a portfolio manager for a high-net-worth client, you are tasked with monitoring a diversified investment portfolio that includes equities, fixed income, and alternative investments. The client has a target allocation of 60% equities, 30% fixed income, and 10% alternative investments. Over the past quarter, the capital markets experienced significant fluctuations, leading to various allocations deviating from the target. Specifically, the equity allocation increased to 68%, fixed income decreased to 25%, and alternative investments remained at 7%.

Using your knowledge of portfolio monitoring, discuss the key considerations you must take into account when deciding whether to rebalance the portfolio. Address the implications of each allocation on risk and return, the costs associated with rebalancing, and the potential impact on the overall investment strategy. Incorporate aspects of the client’s investment objectives and tax implications as part of your answer.