Portfolio rebalancing

mathieu

New member
Hello everyone,

I'm going to add a sector ETF to my portfolio base, which is VT. I'm going to have a 90/10 strategy. And I'd like to know how often to rebalance the portfolio? And how does portfolio rebalancing work? Should we sell shares? Or invest more in the stock below? Thank you !
 
Hi

If you are going to rebalance your portfolio, once a year is enough in my opinion. Rebalancing works by selling shares that are above balance and buying more shares that are below balance.

However, while you are in the accumulation phase (still buying, not selling), you can generally use your investments to balance. So, when you buy more shares of ETFs, you buy based on the ETF that is most out of balance. This is what I am doing and I have not needed any rebalancing in 7 years.
 
So for example: my strategy is to put 90% VT (1000chf) and 10% NLR (115chf) each month. I've already got 2,000 on VT and 0 on NLR because I'm going to start this strategy next month. So it's better to keep 1000chf on the VT and put 115.00 on NLR and that way my portfolio will balance out over the months. Or I balance directly in 1 instalment. So in my example I would put 800 on VT and 315 on NLR? And so my portfolio is directly balanced?
 
Hi

If you are going to rebalance your portfolio, once a year is enough in my opinion. Rebalancing works by selling shares that are above balance and buying more shares that are below balance.

However, while you are in the accumulation phase (still buying, not selling), you can generally use your investments to balance. So, when you buy more shares of ETFs, you buy based on the ETF that is most out of balance. This is what I am doing and I have not needed any rebalancing in 7 years.
Personally, I think it's better if I put 1000 on VT and 115 on NLR and my portfolio takes several months to balance, because if I balance it all at once, I'll end up buying at a very high price. So for me to rebalance my portfolio at once is something of a risk. I look forward to hearing from you!
 
In your example, I would put 800 VT / 315 NLR to rebalance now and then the next month, you start again with your standard investments. Or, you keep your investment and wait until you can do a full investment in NLR (1115 at once) to save on transaction fees.

Of course, you can also wait a full year and rebalance at the end of the year. It will depend on what you are trying to optimize. If you are trying to optimize transaction fees, you should be buying a single ETF per month (always the one that needs the most). If you want to optimize for balancing, you should balance every month. And then you have all the possibilities in the middle. There is not really a wrong answer in this case.
 
In your example, I would put 800 VT / 315 NLR to rebalance now and then the next month, you start again with your standard investments. Or, you keep your investment and wait until you can do a full investment in NLR (1115 at once) to save on transaction fees.

Of course, you can also wait a full year and rebalance at the end of the year. It will depend on what you are trying to optimize. If you are trying to optimize transaction fees, you should be buying a single ETF per month (always the one that needs the most). If you want to optimize for balancing, you should balance every month. And then you have all the possibilities in the middle. There is not really a wrong answer in this case.
So the strategy I'm telling you is the right one? So from now on, I put 90% on VT and 10% on NLR? And as the months go by, my portfolio will automatically balance out while minimizing risk.
 
How will it automatically balance out if you always invest the same amounts? If VT performs 10% better than NLR, you will have an imbalance, no?
Let me take a concrete example. I put 1000chf per month. At the moment I have 2000chf on VT and 0 on NLR. So the next time I invest, I put 700chf on VT and 300 on NLR. And so my portfolio is balanced (90/10), 2700chf VT and 300chf NLR. And then the next month, I start again with my standard investments (900chf VT/ 100chf NLR). And I look if one stock has outperformed the other, and if so, I invest a little more in the stock that's below my strategy, so that my portfolio is always balanced, right? And so I look every month to balance my portfolio?
 
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