Mar 30
Careful Investors Rebalance
Photograph: Typical apartment in Lhasa, Tibet
Rebalancing a portfolio is a long-term policy for the careful investor.
- One first needs a portfolio policy. This requires the following.
- Establish all asset classes. We are using 14 asset classes for the AA-Mosaic Portfolio.
- Set target percentages for each asset.
- Determine what the upper and lower limits are for each asset class. With the AA-Mosaic Portfolio, we use 30% of the target percentage.
- Rebalance approximately once per year.
- When an asset class grows above the target area on the high side, sell shares of the ETF and purchase ETFs in asset classes that may be below 30% of the target. If none are this low, purchase shares in asset classes that are the greatest percentage below target.
- When possible, rebalance using cash dividends and/or infusion of new cash.
- Keep commission expenses as low as possible.