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Portfolio Rebalancing - A Short Introduction
The article "Importance of Investment Portfolio Rebalancing and its Impact on Performance" discusses why portfolio rebalancing is important and how portfolio rebalancing can affect portfolio performance. Using examples, we demonstrate what portfolio rebalancing means and how to rebalance your portfolio without triggering profit tax. Finally, you will find clear recommendations for which rebalancing strategy is best.
For investors who use robo advisors, rebalancing is done at the chosen time interval for a fixed fee. DIY investors must determine how many units to sell and buy from positions held in their portfolio to restore the desired target weighting. Implementing the tax neutral rebalancing method is significantly more difficult. To avoid triggering profit tax on the sale of some shares or ETF units for cashflow generation, the minimum amount must be set to restore the preferred target weighting for all portfolio positions.
Functionality of Portfolio Rebalancing Tool
Our Portfolio Rebalancing Tool automatically performs the following adjustment calculations:
Initial Investment - shows allocation of an initial investment amount based on desired target weighting.
How to Rebalance Your Portfolio without Paying Taxes
Rebalancing without Selling - automatically calculates the minimum amount needed to restore the desired target weighting WITHOUT selling existing positions and allocates the necessary amounts to each position in your portfolio.
Rebalancing by Selling / Buying - automatically determines the size of sell and buy orders to restore the desired target weighting.
How Does It Work?
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Download the MS Excel file and open the portfolio rebalancing tool.
Depending on which of the above-described transaction you want to do, click on the corresponding worksheet of the portfolio rebalancing tool.
Enter the desired target weighting for each portfolio position - total must always be 100%.
Add the actual value for each portfolio position.
Everything else is done completely automatically by the portfolio rebalancing tool.
If you are happy with the result, go to your brokers order mask and enter the amounts shown by the portfolio rebalancing tool. That's all.
In case of questions or suggestions for improvement, please do not hesitate to send a message via our contact form here.
If you want to learn more about how often to rebalance, which criteria to use for rebalancing, and how to reduce transaction costs from rebalancing, see our detailed article on portfolio rebalancing here.
Disclaimer: The scenarios or investment products presented above should not be construed as investment advice. All investments involve some level of risk, and past performance is never a guarantee of future returns. As always, do your own research in order to validate and better understand the underlying risks.
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