Rebalancing

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Summary

What is Rebalancing?

Rebalancing is the investing process of realigning the weightings of a portfolio of assets to a target asset portfolio composition. Under-weighted securities can be bought and added with cash; alternatively, over-weighted securities can be sold and decreased to purchase under-weighted securities.

Institutional investors often have a long-term investment strategy which is based on holding a certain mix of stocks, bonds, options, futures, other investments and cash. Suppose that due to a price increase of the bonds, its size in the total portfolio increase. This would then require to rebalance the portfolio in order to restore the equilibrium.

The time interval for a rebalance could be anything between a year for private investors to quarterly or even daily for large institutional investors. Alternatively it can occur when the portfolio is more than a certain percentage off target. A simple way to decrease the need for rebalancing is by using index funds or mutual funds.

Special Interest Group

Rebalancing Special Interest Group.

Special Interest Group (1 members)

Forum

Forum about Rebalancing.

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