Over time, portfolio holdings drift in value. Rebalancing aligns the portfolio holdings back to the target weights.
The target weights used are the ones shown in the 'Weight' column of the portfolio positions table.
Portfolio Lab simulates two kinds of rebalancing: by calendar (rebalancing at fixed dates) and by trigger (rebalancing occurs weights drift beyond a user specified tolerance). Click on the choice box next to "Rebalance:" to choose a rebalancing strategy.
The rebalancing option is set independently for each portfolio, and it is saved/restored with the portfolio.
In these strategies, Portfolio Lab rebalances the portfolio at fixed time intervals:
Rebalancing is done on the last day of each period. For example, quarterly rebalancing is done on the last day of the quarter.
In these strategies, Portfolio Lab rebalances the portfolio as soon as one or more of the positions weight drifts away from its target value:
- 5% trigger
- 10% trigger
In this mode, the rebalancing may occur at any day in the simulated period.
Viewing the rebalancing transactions
There are two ways to display information about the rebalancing transactions:
- click on "show rebal" in the return or value chart to show the rebalancing dates on these charts
- select the Log view to display the details of dates and transactions. This inforrmation may also be exported to Excel.
In the current version of Portfolio Lab, the 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.