Portfolio rebalancing

Rebalancing is an important step in your investment portfolio management. It is the process of evaluating the allocation of the assets inside of it.

To understand better the concept of rebalancing, imagine you have an investment portfolio with two ETFs in it - ETF 1 and ETF 2.

Your desired percent allocation is 80% for ETF 1, while you have reserved 20% for the ETF 2. With this allocation setup, you need to keep in mind that the stock share will soon increase. This happens because the ETF 1 tend to generate a higher return rate than the ETF 2. As a result, in time your portfolio ETF 1 allocation can change from 80% to 90%, resulting in ETF 2 allocation decreasing from 20% to only 10%. As a result, the volatility of your portfolio increases compared to the initial risk calculation.

At this stage, your best decision will be to turn to rebalancing, to decrease your portfolio’s volatility. Regular rebalancing of your portfolio assists at keeping the stable balance of your asset allocation. Use a rebalancing tool, such as Portfolio rebalancer, to have a better control of your portfolio management and asset allocation.

More about rebalancing strategies in this short article.