Portfolio rebalancing is realigning your portfolio’s asset allocation.
Your asset allocation can consist of equities, fixed income or cash.
The allocation to each asset class is according to your target asset allocation.
Your target asset allocation is in accordance with your investment goals and investment profile.
The goal of rebalancing your portfolio is to minimize risk relative to any deviation from your target asset allocation.
With regards to rebalancing, it’s important to address two major areas:
- Frequency: how often the portfolio will be monitored and evaluated for rebalancing
- Deviation: how far an asset allocation will be allowed to deviate from its target asset allocation
Rebalancing is key since it ensures that your current asset allocation aligns with your target asset allocation.