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Portfolio Rebalancing

Rebalancing is the process of adjusting the weighting of your portfolio’s asset classes to reflect your target Investor Profile.

Carefully building an investment portfolio is only part of the process. Periodic rebalancing keeps your portfolio in line with your selected model portfolio. The hypothetical portfolio below begins in Period 1 with a target asset allocation model that divides the portfolio into four asset classes – each representing 25% of the total. Over time, the difference in investment performance of the four asset classes may shift the asset allocation away from original guidelines, resulting in risk characteristics that are out of line with the Investor Profile. Rebalancing is the solution.

Target Allocation

Period 1

Period 2

Period 3

Rebalance

Problem: Unbalanced Portfolio

A properly weighted portfolio may become unbalanced over time, creating a portfolio mix that no longer reflects your target Investor Profile.

Solution: Rebalance

Rebalancing restores the targeted asset allocation mix by adding new assets or selling part of the appreciating asset classes, then shifting the proceeds to the other asset classes.