What is portfolio rebalancing and why is it important?

What is portfolio rebalancing and why is it important?

Portfolio rebalancing is the process of realigning the weightings of a portfolio of assets. It’s important because it helps maintain your desired level of risk and can enhance returns over time.

How often should I rebalance my portfolio?

It depends on your investment strategy, but many investors rebalance quarterly or annually. Some prefer to rebalance when their asset allocation deviates by a certain percentage.

What are the benefits of rebalancing?

Rebalancing can help you manage risk, lock in profits, and ensure your portfolio aligns with your investment goals.

Are there any downsides to rebalancing?

Yes, potential downsides include transaction costs, tax implications, and the possibility of missing out on gains if you sell high-performing assets.

Can I automate the rebalancing process?

Absolutely! Many investment platforms offer automated rebalancing features that can help you maintain your target asset allocation without manual intervention.