Systematic rebalancing strategies refer to a set of rules or algorithms used by investors to maintain a target asset allocation in their portfolio over time. The goal of systematic rebalancing is to adjust the portfolio’s holdings periodically to ensure that the portfolio remains aligned with the investor’s long-term investment objectives and risk tolerance.
Systematic rebalancing strategies typically involve periodically reviewing the portfolio’s asset allocation, comparing it to the investor’s target allocation, and making adjustments as necessary. For example, if the portfolio’s target allocation is 60% stocks and 40% bonds, and the value of the stock holdings increases, the investor may need to sell some of the stocks and purchase more bonds to bring the portfolio back into balance.
There are different methods of implementing systematic rebalancing strategies, including calendar-based, threshold-based, and risk-based approaches.
