What is portfolio rebalancing?

Rebalancing seeks to reduce massive swings (falls) in your portfolio. It works by checking and correcting deviations in current asset allocation compared to the intended allocation, to prevent a single asset class from having too great an influence on your portfolio. Portfolio rebalancing can help book profits and redeploy in the under-valued asset class. Checking your portfolio on whether it needs rebalancing can be an annual affair.

Why is portfolio rebalancing important?

• One, it can help ensure that you keep your portfolio asset allocation in line with what you need. Thereby, it keeps your portfolio risk even
• Second, it helps to be periodically booking profits in an inflated asset (overvalued asset class) and redeploying in a deflated one (undervalued one). Indirectly, you will be selling high and buying low, without having to watch the market level every time.
• Third, it can help prevent a single asset class from taking over your portfolio.