Portfolio Rebalancing (Intro)
Portfolio Rebalancing is the process of rebalancing the weightings of a portfolio of investments. Rebalancing involves periodically buying or selling assets in a portfolio to maintain an original desired level of asset allocation; typically a 50/50 allocation, but it can also be anything else (example: 70/30 or 40/60 allocation).
Often, portfolio rebalancing is used to limit risk. Typically, as equities (aka stocks) will vary more dramatically in comparison to fixed income assets (aka bonds); the percentage of assets in relation to equities will change frequently with market conditions. Portfolio rebalancing is a great tool for more risk averse individuals.
Surprisingly, portfolio rebalancing is quite easy! Knowing how to rebalance a portfolio is a great life skill as it empowers the students with the ability to do this themselves! Being able to rebalance a portfolio can save an individual thousands a year in fees.