Rebalancing Your Portfolio | Index One

In this edition of Index One Insights by Index One, we discuss rebalancing and how to rebalance your portfolio with Index One.

?? Subscribe to our bi-weekly newsletter to stay updated with current news in the index industry, insightful articles and new Index One features.

Rebalancing Your Portfolio | Index One

What is rebalancing?

Rebalancing is a financial strategy employed by investors to bring their investment portfolios back to their desired or target asset allocation. It involves adjusting the mix of assets within a portfolio to maintain a predefined balance between different asset classes, such as stocks, bonds, and cash. The primary goal of rebalancing is to manage risk and ensure that a portfolio remains aligned with an investor's long-term financial objectives.

What is portfolio rebalancing?

Portfolio rebalancing specifically refers to the process of realigning the asset allocation of an investment portfolio. This can be done by buying or selling assets within the portfolio to return it to the desired target allocation. The frequency of portfolio rebalancing varies from one investor to another, but it is typically done on a periodic basis, such as quarterly or annually.

Important issues to consider in portfolio rebalancing

Portfolio rebalancing is an essential aspect of investment management, but it comes with its set of challenges and issues that investors need to address. Here are some key issues in portfolio rebalancing.

• Transaction Costs: Buying and selling assets within a portfolio can lead to transaction costs, including brokerage fees and taxes. Frequent rebalancing can eat into returns, so investors must be mindful of these costs and try to minimize them.
• Tax Implications: Selling assets in a taxable account can trigger capital gains taxes. Investors should consider tax-efficient strategies, such as using tax-advantaged accounts like IRAs or taking advantage of tax-loss harvesting to offset gains.
• Market Timing: Deciding when to rebalance can be challenging. Investors may struggle with the timing of their trades, potentially buying high and selling low. Setting predetermined thresholds or using a calendar-based approach can help mitigate this issue.
• Over-Rebalancing: Some investors may be too aggressive in their rebalancing efforts, making frequent adjustments based on short-term market movements. This can lead to excessive trading and unnecessary costs. It's important to strike a balance between maintaining the target allocation and overreacting to market fluctuations.

How to rebalance a portfolio?

Unlock the power of data-driven investing with Index One.

Our proprietary indexing tools are designed to help you make informed decisions, manage risk, and achieve your financial objectives.

Custom indexing

Create your own custom index with Index One's fully flexible and customizable indexing platform, with the ability to define universes, weightings, and more.

Flexible rebalancing

Leverage Index One's fully automated rebalancing capabilities based on predefined rules at any frequency and schedule, supporting a wide range of methodologies.

Easy accessibility

Deliver investment solutions seamlessly by utilizing Index One's multiple integration and dissemination options.

Low-cost

Save up to 90% on indexing costs by switching over to Index One, a trusted index provider amongst financial professionals.

Learn More

Customization is not expensive.

Access Index One’s Index Builder ?to build your custom index today.

Learn more

Discover a new way to build indices, with Index One.

www.indexone.io