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How to Measure and Maintain Your Asset Allocation

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Scott McNeil / 26-10-2025

How to Measure and Maintain Your Asset Allocation

We’ve written before about asset allocation strategies and the differences between popular asset allocations: dynamic and strategic. But how do you navigate measuring and maintaining your asset allocations? 

Asset allocation is a core principle of modern investing, focusing on distributing your investments across various asset classes, such as stocks, bonds, and cash. It’s not about picking individual winning stocks but about creating a diversified portfolio that aligns with your financial goals, risk tolerance, and time horizon. The main goal is to balance risk and reward by diversifying your portfolio so that a poor performance in one asset class can be offset by a good performance in another.

Why is Measuring and Maintaining Your Asset Allocation Important?

You can’t just set your asset allocation and forget about it. Over time, the value of your investments will fluctuate. For instance, if your stocks perform exceptionally well, they’ll grow to represent a larger percentage of your total portfolio than you originally intended. This shift can expose you to more risk than you’re comfortable with. This is where investment analytics comes in. 

By regularly measuring your asset allocation, you can identify these drifts and take action to bring your portfolio back in line with your target. This process is known as rebalancing. 

Rebalancing helps you to:

  • Keep your risk level in check: It prevents your portfolio from becoming over-exposed to a single, high-performing, and potentially volatile, asset class.
  • Buy low and sell high: When you rebalance, you typically sell a portion of the asset class that has done well and buy more of the one that has underperformed. This is a disciplined approach to investing and can help you enhance your returns over the long term.

How to Measure Your Asset Allocation

Measuring your asset allocation is a straightforward process, but you’ll need to use some basic financial ratios and have a clear understanding of your investments. At Clann we can help you understand your finances and give you clarity and expert advice on what to do with measurement, maintenance, and any fluctuations that may arise.

How to Maintain Your Asset Allocation Carousel

1. Identify Your Target Allocation

First, you need to know what your ideal asset allocation is. A common starting point is a simple ’60/40′ portfolio: 60% stocks and 40% bonds. However, your ideal mix will depend on your personal circumstances.

2. Categorise Your Investments

Review all your investment accounts and list them by asset class. This includes stocks, bonds, mutual funds, ETFs, property, and cash. It’s crucial to look through the holdings of any funds you own.

3. Calculate Your Current Allocation

Once you have your list, calculate the total value of your portfolio. Then, for each asset class, divide its total value by the total value of your portfolio. This will give you the current percentage for each asset class.

4. Utilise Valuation Ratios

While not directly part of your asset allocation calculation, understanding valuation ratios is a vital part of how to invest well. Ratios like the price-to-earnings (P/E) ratio help you understand if an individual stock or the market as a whole is cheap or expensive. A high P/E ratio, for example, might suggest that a stock is overvalued. While you shouldn’t rely solely on these ratios for individual stock picking, being aware of them can provide valuable context when you decide how to invest.

If you find that your stock allocation has grown significantly, and the market's P/E ratio is historically high, it may be a good time to re-balance.

How to Maintain Your Asset Allocation (Re-balancing)

Re-balancing is the process of bringing your portfolio back to its target asset allocation. There are two main ways to do this:

Re-balancing Comparison

Calendar-Based Re-balancing

This involves re-balancing on a fixed schedule, such as once every six or twelve months. It is simple and disciplined, as it removes emotion from the decision. On your chosen date, you check your portfolio and make trades to restore your target allocation.

  • Pros: Discipline, predictable, fewer emotional trades
  • Cons: May trade when not strictly necessary

Threshold-Based Re-balancing

With this method, you only re-balance when an asset class drifts by a certain percentage from its target. For example, if your target is 60% stocks with a 5% threshold, you re-balance only if stocks rise above 65% or fall below 55%.

  • Pros: Saves on unnecessary trades, efficient
  • Cons: Requires monitoring, allows temporary drift

Another way to re-balance is to direct any new money you are investing into the asset classes that have underperformed and are now below their target allocation. This is a great way to re-balance without selling anything and can be an easy way to get your portfolio back on track.

Clann’s Perspective

To ensure you know how to invest, keep this simple checklist in mind:

  1. Define Your Target Allocation: Based on your goals and risk tolerance.
  2. Review Your Portfolio: At least annually, or based on your chosen threshold.
  3. Calculate Current Percentages: Use a spreadsheet or an online tool to get a clear picture.
  4. Identify Discrepancies: See which asset classes have grown too large or shrunk.
  5. Re-balance: Sell from the over-weighted asset and buy the under-weighted one to get back to your target.

By regularly measuring and maintaining your asset allocation, you'll be on the right path to how to invest well and achieve your financial goals. It's a simple yet powerful strategy that puts you in control of your financial future.

In addition, you should keep Clann Investments top of mind to ensure an optimum plan of action in regard to your allocations.