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How to Rebalance your Portfolio

Rebalancing is the action of buying and/or selling assets to maintain the target allocation that you’ve set in your portfolio. Rebalancing regularly is crucial for your investment strategy:

  • It maintains your desired level of risk in your portfolio. For example, if your target allocation is 70% in equities and 30% in bonds and your equity stocks rise, your allocation in riskier assets would increase. To maintain the risk tolerance associated with your portfolio allocation, you would need to purchase bonds and/or sell some equities.
  • It gives you an opportunity to purchase discounted assets. If your portfolio drifts from your target allocation, it could be because one of your assets dropped in value significantly and with it, its relative importance in your portfolio. In this case, you may want to buy more of this asset at a discounted price.
  • It provides an occasion to review your assets, reassess your priorities and risk tolerance.

Investors can either rebalance their portfolio on a regular basis, monthly, quarterly or annually, or rebalance when their portfolio allocation drifts by a given percentage (most investors consider 5% is a good rule of thumb).

With Passiv, you don’t need to check on your investments every day to figure out when you need to rebalance. Once you set your portfolio allocation and your drift tolerance, Passiv will notify you via email when your portfolio needs attention.

By default, Passiv is set to only allocate new cash to your underweight targets, not sell overweight assets. This means that Passiv will only show BUY orders in the trade calculations.

We use this default because most Passiv users are in the contribution phase of their investing, and allocating new cash to underweight assets is usually sufficient to stay on target. By avoiding SELL orders, users save on frivolous trade commissions and minimize the number of orders they need to place.

However, there may be situations where you would like to sell an asset. For example, a change in market conditions could cause a major drop in your portfolio accuracy, where you would have to perform a full rebalance to correct.

Here is how you can enable SELL orders in Passiv and perform a full rebalance. If you want to use the default settings and BUY only, you can go directly to Step 3.

Step 1: Change your Group Settings

Go to the Portfolio that you want to edit, then click on Group Settings.

Then, click the “Allow selling to rebalance” toggle switch. Now, Passiv’s calculations will factor in selling as an option. You will see your calculated Buy and Sell trades in the Trades box.

Now, you may want to change your Target Portfolio so Passiv knows which asset you’d like to Sell.

Step 2: Edit your Targets

Go back to the Overview page. Scroll down and click Edit Targets -- then adjust the percentages of your assets.

When you are done click “Save”.

Step 3: Make your trades

The recommended trades will appear in the Overview page of your portfolio.

If you are using the free version of Passiv, you will need to log into your brokerage account and make those trades yourself.

If you are a Passiv Elite subscriber, just click Prepare Orders, then Confirm and Passiv will execute the trades for you.

After rebalancing, you can turn the “buy-only” setting back on.