FY17Q2:
Your stakes grew by $5,000, with
- bonds equating to $7,000 and constituting 54% of your portfolio, which is within the 45–55% you have decided to accept;
- an increase in local US stocks of $5,000, equating to 33% of your portfolio, which is within the acceptable 25–35%; and
- depreciation, and a consequential drop from $20,000 to $13,000, in the last category, meaning that this slice is only 12% rather than the acceptable threshold of not less than 15% and not more than 15%.
The above means that you need to sell either part of your bonds or part of your local stocks and buy additional shares of international companies.
To decide which category to reduce—bonds, local stocks, or some of each—you can weigh the options using the method described in the
Portfolio construction and rebalancing basics
section of this article.
Bottom line
We have just described the ABCs of rebalancing. However, there are other factors to take into account when adjusting a portfolio. These include:
- the fact of securities being recently traded,
- allocating more assets to the portfolio or distributing funds systematically (credit of dividends at the end of the year),
- tax consequences.
Vasyl Soloshchuk, CEO and co-owner at INSART, FinTech & Java engineering company. Vasyl is also author of the WealthTech Club blog, which conducts research into Fortune and Startup Robo-advisor and Wealth Management companies in terms of the technology ecosystem.