Rebalancing

Rebalancing refers to restoring the original balance of a portfolio. In other words, it is the rule-based reallocation of the various securities in a portfolio. In technical jargon, this process is also known as «reallocation.»

Price changes on the stock markets cause the original composition of a portfolio to change. This also changes the portfolio risk. Without rebalancing, the portfolio would no longer correspond to the personal risk tolerance over time.

In addition, rebalancing automatically leads to countercyclical behavior, which in turn can improve long-term risk-adjusted returns. For example, after a bull market, equities tend to be reduced in order to bring their share back into a healthy balance with bonds. In a bear market, on the other hand, more stocks are bought than bonds in order to restore the balance.

Rebalancing does not incur any additional costs at True Wealth and is carried out when there is a deviation of approximately 2 percent between the target and actual status. All commissions incurred in securities trading are included in our management fee of 0.25 to 0.50 percent.