Portfolio drift

A target allocation states each class as a share of the portfolio, such as 60% stocks and 40% bonds. The actual allocation is each class's value divided by the total on a given day. Drift is the difference, class by class: actual share minus target share, in points. A class whose share has grown has positive drift; the class that made room for it has negative drift, and across the portfolio the points sum to zero.

Drift is measured in percentage points, not percent. A stock share that moves from 60% to 64% has drifted 4 points, though the dollar amount in stocks grew by more than 4 percent. The points are what a threshold is set against.

Nothing has to be bought or sold for drift to appear. A portfolio left alone drifts whenever its classes earn different returns, and it drifts further the longer the returns stay unequal. Contributions and withdrawals move the mix too, when they land in one class more than another.

A portfolio of $100,000 is set to 60% stocks and 40% bonds, so it starts with $60,000 in stocks and $40,000 in bonds. Over the year stocks return 20% and bonds return 2%. Stocks are now $72,000 and bonds $40,800, a portfolio of $112,800.

Stocks are $72,000 of $112,800, which is 63.8%. Against the 60% target, that is 3.8 points of drift. Bonds are the mirror: 36.2% against 40%, or 3.8 points under. With an alert set at 5 points, neither class has crossed it.

A second year like the first, with stocks up 15% and bonds flat, takes stocks to $82,800 of $123,600, or 67.0%: 7 points from target, past a 5-point line. The mix that was written down as 60/40 is held as 67/33.

Stocks, $60,000 × 1.20

$72,000

Bonds, $40,000 × 1.02

$40,800

Portfolio

$112,800

Stock share, $72,000 ÷ $112,800

63.8%

Drift from the 60% target

+3.8 points

The target is a statement about how the portfolio is meant to be divided; drift is how far the holdings have moved from that statement. A portfolio that was set at 60/40 and now sits at 67/33 holds 67% stocks.

Because drift accrues from returns rather than from a trade, nothing marks the day it appears. A threshold in points turns the measurement into a yes or no: the class is inside the line or past it. Rebalancing is the name for the trades or contributions that bring the actual mix back toward the target.

In Taiga Finance a portfolio on Investments can carry a target: in its target dialog, one percentage per asset class under “Asset class targets”, which must add up to 100, and a field reading “Alert when any class drifts past”, in percentage points, set to 5 by default. “Match current allocation” fills the targets from the mix as it stands today.

With a target set, clicking the portfolio's pill opens a comparison strip that lists each asset class as its current share, an arrow, and its target share, under the caption “Current → Target”. The strip reads “On target” while every class sits inside the threshold and “Off target” once one class is past it, and each class's arrow and target figure are colored by how far it has drifted. The drift itself is not printed as a number, and the strip lists no trades. A current share is a share of the holdings the app could classify; value it could not classify is shown in the strip as a dollar amount unclassified and sits outside the percentages.