Aug 11 2021 (Wed)
Portfolio balancing (or portfolio rebalancing) is moving your money between investments so you can maintain the perfectly balanced portfolio to help you achieve your financial goals. It is the process of realigning the weighting of a portfolio of assets, and it involves periodically buying or selling assets to maintain the desired level of asset allocation. It is a form of creating your own model ETF portfolio. Balancing is something that should be done on a regular basis throughout an investor’s lifetime; it is necessary to ensure that the target allocation set earlier is maintained.
Primarily, portfolio rebalancing safeguards the investor from being overly exposed to undesirable risks. It helps keep risk under control, which is important because maintaining a level of risk itself can take some action. Since stock performance is more volatile than bond performance, the percentage of assets allocated to stocks will change with market circumstances. Investors can adjust the overall risk of their portfolios to match changing financial needs.
Let's imagine the initial asset allocation goal was 50% stocks and 50% bonds. If the stocks had performed well at that time, the portfolio's stock weighting could have been boosted to 70%. The investor will then decide to sell some stocks and buy more bonds, which would return the portfolio to its original target allocation of 50/50. This is essentially what portfolio balancing is.
As stocks appreciate, your investment portfolio is no longer in sync with your target asset allocation. This can increase your investment risk since it leaves you overexposed to a particular asset class or stock. Rebalancing your portfolio means selling off those investments that expose you to risk and buying others to restore an investment portfolio that matches your initial target asset allocation.
Although there is no set timeline for rebalancing a portfolio, most experts recommend doing it at least once a year. It is possible to go a long time without rebalancing a portfolio, but this is generally not a good idea. Rebalancing allows investors to sell high and buy cheap, allowing them to reinvest gains from high-performing assets in areas that have not yet seen significant growth.
While this is a personal choice based on experience, skills, and time, 20 to 30 stocks are an ideal range for most portfolios. It is important to maintain the balance between investing in a diverse array of assets while simultaneously managing those investments.
Rebalancing your portfolio isn't without flaws. To begin with, calculating percentages and then modifying balances to reflect those percentages won’t be too fun for investors who hate math. If this describes you, then Utradea has just the tool you need!
Utradea offers a portfolio balancing tool in which all you need to do is enter your investment products, the number of purchased units for each of these, and the target allocation percentage you desire. Enter the total amount of money you have available to invest with, and our algorithms will automatically calculate the amount you need to buy or sell to reach your allocation target!
Our portfolio balancer calculates this with the live market price of the investment product you enter. Simply enter in your portfolio and we take the hardest part out of portfolio rebalancing and do it for you.
Join our Utradea community to test this portfolio balancer out for yourself!