Portfolio Rebalancing

Portfolio Rebalancing

Simply put, rebalancing is buying or selling asset classes that fall below or rise above a predefined long-term asset class target.  Rebalancing assists in fostering the discipline of “buy low and sell high.”  In theory, buying low and selling high seems simple but, in practice, emotions often tend to dictate an investor’s actions.  Opportunities to buy (when an asset class falls below its target) are sometimes created when bad news or negative market predictions depress prices.  Conversely, opportunities to sell (when an asset class rises above its target) may be created by good news and positive predictions of the future for that asset class.

In our experience, without adequate education, many investors will buy their best-performing asset classes and sell their worst-performing asset classes typically at the wrong time.  If this pattern is repeated, over time the portfolio value and subsequent spending available will be less than desired.  A rebalancing policy should have several components including:

1. Specific targets for each asset class.
2. A high-end and low-end tolerance band.
3. A predetermined review frequency.
4. A plan of action if an asset class is outside its band.

Our research has shown that with a disciplined rebalancing policy, you may be able to improve your performance and lower your volatility.

Click below for more information about Mason’s approach to asset allocation.

Click below to request more information about Mason’s approach to portfolio rebalancing.