Portfolio rebalancing is important in trading because it keeps your investment allocation aligned with your goals. It means adjusting your holdings to maintain your desired risk level and avoid overexposure to any asset. Rebalancing helps lock in profits from winning trades and reduce losses from underperforming assets. This discipline protects your portfolio from big swings and improves long-term returns.
What Does Portfolio Rebalancing Do?
Rebalancing adjusts your portfolio by buying or selling assets to restore the original allocation. It helps avoid too much risk from assets that grew too big or missing opportunities from assets that shrank. This keeps your portfolio in line with your risk comfort and investment plan.
How Does Rebalancing Manage Risk?
By rebalancing, you reduce the chance of your portfolio becoming too risky. It prevents your investments from being too heavily weighted in one area. This limits losses if one asset class falls sharply. Regular rebalancing keeps your risk at the level you planned.
When Should Traders Rebalance Their Portfolio?
Traders should rebalance when asset weights move significantly from targets, usually by 5% or more. Some rebalance on a fixed schedule like quarterly or yearly. The right time depends on your strategy and market conditions. Rebalancing too often can increase costs, while too little can increase risk.
How Does Rebalancing Improve Returns?
Rebalancing forces you to sell high and buy low by taking profits from assets that rose and buying those that fell. This disciplined approach can increase returns over time. It also helps avoid chasing trends or making emotional decisions.
Why is Rebalancing Important for Indian Traders?
Indian traders face volatile markets and sector swings. Rebalancing helps them control risk and stay focused on goals. It ensures portfolios don’t get overly exposed to sectors like banking or IT. This makes trading safer and returns more consistent.
Contact Angel One Support at 7748000080 or 7771000860 for mutual fund investments, demat account opening, or trading queries.
© 2024 by Priya Sahu. All Rights Reserved.
