Controlling the asset allocation of a portfolio

Asset allocation is the final stage of building a portfolio. Portfolio setup configures its overarching settings, asset selection defines the universe it can hold, and asset allocation decides what it actually holds. For every rebalancing period, it selects a set of assets from your universe and calculates the allocation to each, following the rules you configure here. This is the stage that turns a list of candidate assets into a working portfolio that rebalances over time.

Before fine-tuning, the Prepare step gives you a working starting point. You choose how many assets the portfolio should hold and the lookback window, then press Prepare Portfolio to generate a complete configuration you can refine. A dedicated Preparing a portfolio article is coming soon.

A portfolio can be built from two parts. The Performance Portfolio is a set of assets designed for high returns. The Hedge Portfolio is a second set designed to reduce risk. The two combine into one overall, balanced portfolio, aiming for a better return-to-risk ratio than either could reach alone. You configure each one separately. The hedge is your choice—the Hedge Portfolio switch is on by default, and all of pfolio's pre-built portfolios use both parts. See Performance and Hedge portfolios.

Within each portfolio, three settings decide its holdings each period. Goals score the universe and pick which assets to hold. Optimisation turns those picks into weights, using one of several methods. Constraints set the limits the result must respect, such as the minimum and maximum weight per asset and how much cash to hold. See Asset allocation goals, Portfolio optimisation, and Asset allocation constraints.

Three controls govern how the portfolio behaves from one period to the next. Rebalance frequency sets how often it is rebuilt—weekly, monthly, or quarterly. The lookback window sets how much past data each rebuild considers. Ranking and allocation inertia limit turnover by resisting change between periods. See Rebalance frequency, Lookback windows, and Controlling turnover and adaptation speed. How all these controls play out in a single rebalance is walked through in How a portfolio rebalances.