Yusra3
VIP Contributor
Automatic rebalancing is an investing strategy that takes your money and invests it in a diversified portfolio.
Automatic rebalancing works by automatically buying and selling investments based on your target asset allocation. When you invest, you create a target asset allocation. That target allocation is the percentage of your assets that should be invested in stocks, bonds, and cash. For example, if you have $100,000 and want to keep 100% of it invested in stocks and bonds, then your target asset allocation would be 100%.
The goal of automatic rebalancing is to make sure that after every transaction (buying or selling) your target asset allocation stays at the same percentage as before. If you sell some stocks for $5000 and buy some more shares for $5000, then when you check back in six months later your goal is that the new balance of shares purchased should be $5000 + 5500 = 5900 shares out of 5900 total shares owned before starting this exercise).
Automatic rebalancing works by automatically buying and selling investments based on your target asset allocation. When you invest, you create a target asset allocation. That target allocation is the percentage of your assets that should be invested in stocks, bonds, and cash. For example, if you have $100,000 and want to keep 100% of it invested in stocks and bonds, then your target asset allocation would be 100%.
The goal of automatic rebalancing is to make sure that after every transaction (buying or selling) your target asset allocation stays at the same percentage as before. If you sell some stocks for $5000 and buy some more shares for $5000, then when you check back in six months later your goal is that the new balance of shares purchased should be $5000 + 5500 = 5900 shares out of 5900 total shares owned before starting this exercise).