My son is using the portfolio I described in an earlier blog and he immediately raised the question about what to do with additions to the portfolio in the future when the different parts of the portfolio grow at different rates. How do you add more? Do you apportion the new funds based on the initial starting position or do you make an adjustment?
Much thinking, some research and a few phone calls to experts resulted in this conclusion: Annually the ratios in the portfolio should be recalculated if any are off by 5 points or more. For example, if the non-Asian part of the portfolio went from 15% to 20%, the whole portfolio should be adjusted. New additions to the portfolio are made on the current year's percentage distribution.
The logic of this approach is based on trying to keep the portfolio balanced in proportion to the growth rates of various parts of the commercial world. It is a "go with the winners" tactic that will conform the portfolio to economic growth over the long run.
We also considered the wide range of ways that index funds are weighted and the changes that occur over time. The conclusion is that all successful debates on index weighting will be reflected in the indexes that are already in the portfolio.