Glossary

Rebalancing is the process of adjusting the composition of an investment portfolio to maintain a desired risk level or asset allocation.

This typically involves periodically buying or selling assets, like stocks or bonds, to bring the portfolio back to its original target allocation. Rebalancing helps investors keep their portfolios aligned with their investment objectives and risk tolerance. ⚖️🔄

For example, if an investor in the UK has a target allocation of 60% stocks and 40% bonds, but due to market fluctuations, the allocation becomes 70% stocks and 30% bonds, they may sell some stocks and buy bonds to return to their original target allocation.

Fun fact: Many financial experts recommend rebalancing a portfolio at least once a year, but the optimal frequency of rebalancing depends on factors like transaction costs and tax implications. Some investors even use a rule-based approach, rebalancing only when the asset allocation deviates by a certain percentage from the target. 🗓️🎯