3 ms·

Can you explain what you mean by rebalancing in the context of index funds?

• hn_throwaway_99 3y ago
  Suppose you have an asset allocation strategy that is 25% US stocks, 25% international stocks, 25% real estate (REITs), 25% commodities (I'm not suggesting you do this, but this was the allocation in Roger Gibson's famous multi-asset allocation strategy paper - google it). To implement this you would want to: 1. Choose 4 different funds to represent each of those classes (e.g. an S&P 500 index fund, an MSCI EAFE fund, etc.). You want to be sure to reinvest dividends. 2. On a specific time period (i.e. once a quarter) you rebalance your portfolio - if anything has gone above 25%, you sell it so that you can buy anything that has fallen below 25%. Many investment platforms let you essentially do this automatically these days.
• Workaccount2 3y ago
  You chose a portfolio distribution, 75% NASDAQ 25% S&P. After 1 year, you look at your portfolio, and because of market movements, your portfolio is now 81% NASDAQ and 19% S&P. So you sell some NASDAQ and buy some S&P to rebalance to 75% / 25%. Rebalancing can be any mix of securities or assets (or both). You decide how you want your wealth distributed, and you rebalance to stay within those levels.
• hiq 3y ago
  https://www.bogleheads.org/wiki/Rebalancing https://www.bogleheads.org/wiki/Rebalancing
• andruby 3y ago
  Not OP. They probably invest in more than one fund, and want to keep the ratio balanced. Eg: 60% MSCI World, 20% Emerging Markets, 10% Tbonds and 10% Gold. Every few months they would check the ratio and “rebalance”