Portfolio Rebalancing

Portfolio rebalancing is a critical process that involves periodically adjusting the asset allocation to maintain the desired risk and return objectives. This section will explore the importance of portfolio rebalancing, strategies for effective rebalancing, and the benefits of maintaining an optimal asset allocation.

Understanding Portfolio Rebalancing

  • Definition and Objectives of Portfolio rebalancing
  • Why asset allocation drifts over time
  • The impact of rebalancing on risk and return

Determining Rebalancing Triggers

  • Time-based rebalancing vs. threshold-based rebalancing
  • Setting target asset allocation percentages
  • Identifying triggers for rebalancing: deviation thresholds, market conditions, etc.

Portfolio Rebalancing Strategies

  • Buy and sell approach: selling overperforming assets, buying underperforming assets
  • Cash flow rebalancing: directing new investments to underweight asset classes
  • Rebalancing bands and tolerances

Frequency and Implementation of Rebalancing

  • Determining the optimal rebalancing frequency
  • Practical considerations for rebalancing: costs, taxes, and transaction fees
  • Tools and technology for simplifying the rebalancing process