Knowlopedia
Valued Contributor
Rebalancing your portfolio is an important part of managing risk. It involves periodically adjusting the mix of investments in your portfolio to maintain a desired level of risk and return. This process helps you stay on track with your long-term financial goals, while also helping to reduce the volatility associated with investing.
When rebalancing, it’s important to consider both the asset allocation and individual security selection within each asset class. Asset allocation refers to how much money you have invested in different types of assets such as stocks, bonds, cash equivalents and other investments. Security selection refers to which specific securities are held within each asset class.
Rebalancing should be done at least once a year or whenever there has been a significant change in market conditions or when any one investment has become too large relative to others in the portfolio. For example, if one stock has increased significantly more than other stocks in your portfolio over time, it may be necessary to sell some shares and reinvest them into other holdings that have not performed as well but still meet your overall investment objectives for that particular asset class.
It’s also important to keep an eye on fees when rebalancing since they can add up quickly over time and eat away at returns if not managed properly. Be sure you understand all costs associated with buying or selling investments before making any changes so that you don’t end up paying more than necessary for transactions or trading commissions.
By regularly monitoring and rebalancing your portfolio according to predetermined criteria based on market conditions and personal goals, you can help ensure that it remains aligned with those goals while minimizing potential losses due to excessive volatility from any single holding or sector within the overall mix of investments held by the investor
When rebalancing, it’s important to consider both the asset allocation and individual security selection within each asset class. Asset allocation refers to how much money you have invested in different types of assets such as stocks, bonds, cash equivalents and other investments. Security selection refers to which specific securities are held within each asset class.
Rebalancing should be done at least once a year or whenever there has been a significant change in market conditions or when any one investment has become too large relative to others in the portfolio. For example, if one stock has increased significantly more than other stocks in your portfolio over time, it may be necessary to sell some shares and reinvest them into other holdings that have not performed as well but still meet your overall investment objectives for that particular asset class.
It’s also important to keep an eye on fees when rebalancing since they can add up quickly over time and eat away at returns if not managed properly. Be sure you understand all costs associated with buying or selling investments before making any changes so that you don’t end up paying more than necessary for transactions or trading commissions.
By regularly monitoring and rebalancing your portfolio according to predetermined criteria based on market conditions and personal goals, you can help ensure that it remains aligned with those goals while minimizing potential losses due to excessive volatility from any single holding or sector within the overall mix of investments held by the investor
