Rebalancing is the action of bringing a portfolio of investments to its original asset allocation, after the portfolio has increased or decreased due to the price movement. This is done by selling your better selling fund to moving the money to the other fund/s. If the original allocation is 60% equity funds and 40% bond funds, after a price appreciation of the equity funds, the allocation may be tilted towards equity funds (eg. 80%). By rebalancing, the risk associated with equity fund, is reduced while at the same time taking profit from the apprecation of the equity funds. In this manner, the risk-return of the portfolio is also systematically reduced to the original level.Rebalancing can be done on a systematic manner over a specific period or (eg. every quarter) or when the funds have exceeded by a certain percentage. 
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Sunday, January 9, 2011
Rebalancing your portfolio
Rebalancing is the action of bringing a portfolio of investments to its original asset allocation, after the portfolio has increased or decreased due to the price movement. This is done by selling your better selling fund to moving the money to the other fund/s. If the original allocation is 60% equity funds and 40% bond funds, after a price appreciation of the equity funds, the allocation may be tilted towards equity funds (eg. 80%). By rebalancing, the risk associated with equity fund, is reduced while at the same time taking profit from the apprecation of the equity funds. In this manner, the risk-return of the portfolio is also systematically reduced to the original level.Rebalancing can be done on a systematic manner over a specific period or (eg. every quarter) or when the funds have exceeded by a certain percentage. 
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