Portfolio Rebalancing
Contact: WhatsApp Portfolio Rebalancing since the different assets may not move together in the same direction and may not move equally, even when the direction is the same. In such a case, it is quite possible that the current asset allocation may be different from the target allocation. What should one do in such a scenario? Well, the portfolio should be rebalanced to restore the target asset allocation. The asset allocation was decided by an analysis of the needs and risk appetite of the investor. We need to reduce the allocation to the risky asset if that has gone up. On the other hand, if the allocation has gone down in the asset that has the potential to generate higher returns, we need to correct that as well. Such a rebalancing offers a huge benefit – it makes the investor buy low and sell high. Let us... Understand this through an example : Assume that the target asset allocation for an investor is 50:50 between asset categories A and B. A year...