Over time, portfolio positions vary in weight and must be rebalanced. Select a mode that best represent how the portfolio is managed.
Weights are adjusted back to their target on a regular basis. Rebalancing frequencies are shown below. Rebalancing is done on the last day of the frequency specified:
The portfolio is rebalanced when one or more of the positions weight drifts by more than a tolerance value, which is relative to the position weight. For example, a 40% position with 10% tolerance can drift by no more than 4% and will be rebalanced when it reaches 36% or 44%. You can select from:
- 100% tolerance
- 50% tolerance
- 25% tolerance
- 20% tolerance
- 10% tolerance
Note: in previous versions of the application, 'absolute' rebalancing was available, where the tolerance was calculated at the portfolio level. For example, a 40% position with 10% tolerance would be rebalanced when it reaches 30% or 50%. This approach is impractical because the smaller weight positions in the porfolio never get rebalanced.
Buy and hold
Positions are not adjusted during simulation.
If the portfolio is described with shares, there are two options for the initial makeup of the portfolio: Buy weights and hold (simulation starts with the target weights) or Buy shares and hold (simulation starts with the number of shares specified; weights are ignored) [explanation].
If none of the options above are satisfactory, you can import a portfolio history. Learn more.
Viewing the rebalancing transactions
To view the details of rebalancing operations, you may either:
- select the Value chart and click on 'rebal' to show the rebalancing dates
- select the Log view to display the details of dates and transactions
Rebalancing does not take into account transaction costs. In reality, transaction costs include brokerage fees, taxable capital gains and front-end/back-end loads for mutual funds, which may negatively affect the performance.