What is rebalancing?

Rebalancing is the process of restoring the original balance of a portfolio. It is therefore the rule-based reallocation of the various securities in a portfolio.

Price changes in the capital markets cause the original composition of a portfolio to change. However, this also changes the portfolio risk and without rebalancing, the portfolio would no longer correspond to the personal risk tolerance over time.

In addition, rebalancing automatically leads to anti-cyclical behavior, which in turn strengthens long-term performance: for example, equities that achieve high price gains compared to bonds in one phase tend to be reduced again in such high phases. Conversely, in weak equity market phases, more equities are bought than bonds in order to restore the balance.

Rebalancing is free of charge with True Wealth and is carried out if there is a deviation of around 2% between target and actual. All necessary transaction costs are included in the management fee of 0.25 to 0.50%.

In the following blog «Rebalancing: An Extra Half Percent» we explain the advantages of rebalancing in more detail.