Portfolio Monitoring and Rebalancing Strategy for a High-Net-Worth Individual

Imagine you are a portfolio manager for a high-net-worth individual with an investment horizon of 10 years. The client has specific liquidity needs, annual spending requirements, and a target return of inflation plus 5%. The portfolio is currently allocated as follows: 60% equities, 30% fixed income, and 10% alternative investments. Due to recent market volatility, the equities have significantly outperformed, leading to an allocation shift where equities now make up 75% of the portfolio.

Your client is concerned about the heightened risk and potential for a market correction. They have requested a meeting to discuss the current portfolio allocation and a strategy for monitoring and rebalancing the portfolio over the next year. Specifically, address how you would approach monitoring the portfolio to ensure it aligns with the client’s risk profile, investment objectives, and liquidity needs.

In your response, consider key performance indicators you would use, how frequently you would reassess the portfolio, and the methods you would employ to rebalance the assets efficiently. Furthermore, outline how you would communicate the investment strategy to your client and manage their expectations during this monitoring period.