Investing is not one-size-fits-all. Your financial situation, goals, and risk tolerance are unique, so your portfolio should be too. When interviewing a financial advisor, a critical question is:

“How would you build and rebalance a portfolio for someone like me?”

This guide explains what you should expect in terms of portfolio construction, risk management, rebalancing strategies, and how to evaluate if an advisor’s approach aligns with your objectives.

Why Portfolio Construction and Rebalancing Matter

Understanding Portfolio Construction

Portfolio construction is the process of selecting the right combination of assets—stocks, bonds, real estate, ETFs, and alternative investments—to meet your goals while managing risk. Key principles include:

• Diversification: Spreading investments across asset classes, industries, and geographies to reduce risk.
• Risk Alignment: Matching your portfolio to your risk tolerance and investment horizon.
• Return Expectations: Choosing assets to meet your growth, income, or preservation goals.

A well-constructed portfolio is tailored, not generic. An advisor should ask about your goals, income, debt, tax situation, and retirement plans before recommending a structure.

The Importance of Rebalancing

Markets move, and your portfolio weights shift over time. Rebalancing ensures:

• Risk remains consistent: Prevents your portfolio from becoming too aggressive or too conservative.
• Disciplined investing: Selling overperforming assets and buying underperforming ones can enhance returns.
• Alignment with goals: Keeps your investment strategy aligned with your evolving financial situation.

Rebalancing is typically done quarterly, semi-annually, or annually, but the frequency depends on your portfolio size, volatility, and tax considerations.

Key Questions to Ask Financial Advisors About Portfolio Management

When evaluating an advisor, you need to dig deeper than “Do you manage investments?” Here are essential questions:

1. How would you tailor a portfolio for my goals and risk tolerance?
   • Look for advisors who conduct a thorough financial assessment, including retirement planning, cash flow needs, and tax planning.
2. Which investment philosophy do you follow?
   • Passive, active, value-oriented, growth-oriented, or a hybrid?
   • Ensure it aligns with your comfort level and expectations.
3. How often do you rebalance portfolios, and why?
   • Advisors should explain how market movements, asset drift, and changes in your goals trigger rebalancing.
4. Do you use tax-loss harvesting or other tax strategies?
   • Tax efficiency can significantly improve net returns over time.
5. How do you manage risk during market volatility?
   • Ask how they adjust allocations during bear markets, inflation, or interest rate changes.

Building a Portfolio: What You Should Expect

A personalized portfolio usually involves these steps:

• Assessment: Income, expenses, debt, risk tolerance, goals, and timeline.
• Allocation: Choosing the proportion of stocks, bonds, cash, and alternatives.
• Selection: Picking individual securities or funds within each asset class.
• Implementation: Executing trades, opening accounts, and funding the portfolio.
• Monitoring: Regularly reviewing performance, market conditions, and goal alignment.

For example, a Fort Lauderdale professional in their 30s with a moderate risk tolerance may have:

• 60% equities (domestic and international ETFs)
• 30% fixed income (bonds, TIPS)
• 10% alternatives or real estate
• Quarterly review for rebalancing

Rebalancing Strategies Explained

Advisors may use different rebalancing methods:

1. Calendar-based: Adjusting allocations at set intervals (quarterly, annually).
2. Threshold-based: Rebalancing only when an asset class drifts beyond a predefined percentage.
3. Hybrid: Combines scheduled reviews with threshold triggers.

The advisor should explain why their approach fits your portfolio and goals.

Evaluating an Advisor’s Process

When an advisor explains portfolio construction and rebalancing, evaluate:

• Transparency: Do they clearly explain decisions and trade-offs?
• Customization: Is the portfolio aligned with your life stage, risk tolerance, and financial goals?
• Consistency: Do they follow a disciplined approach rather than reacting to market noise?
• Technology: Do they use portfolio management tools, dashboards, and reporting for clarity?

Red Flags to Watch Out For

• No clear strategy: Vague answers or generic portfolios.
• Excessive trading: Frequent buying and selling without rationale.
• Opaque fees: Not explaining transaction, advisory, or fund costs.
• Ignoring your goals: Using a one-size-fits-all allocation or ignoring tax implications.

How to Prepare for Your Portfolio Discussion

1. Gather documents: Statements, tax returns, retirement accounts.
2. Define goals: Short-term and long-term financial objectives.
3. Identify risk comfort: Conservative, moderate, or aggressive.
4. Prepare questions: Include topics like tax efficiency, rebalancing frequency, and alternative investments.

Conclusion: Ensuring Your Portfolio Works for You

The way an advisor builds and rebalances a portfolio directly impacts your financial future. Asking the right questions ensures your investments:

• Align with your goals and risk tolerance
• Are diversified and tax-efficient
• Are monitored and rebalanced appropriately

Schedule a consultation with one of our world-class certified financial planners to analyze your portfolio free of charge: [email protected] or call 954-218-4327