What Is a Rebalancing?
Redesign is the process of buying and selling parts of your portfolio to set the weight of each asset class back to its original condition. Additionally, if an investor's investment strategy or risk tolerance has changed, they may use a re-rating to adjust the individual security measures or asset class in the portfolio to meet the newly designed asset allocation.
Consequences of Imbalance
A popular belief among many investors is that if the investment did well last year, it should do well next year. Unfortunately, past performance is not always an indicator of future performance — a fact that many financial partners share.
Many investors, however, are still investing heavily in last year’s “winning” fund and may reduce the weight of their portfolio in the “loss” of last year’s fixed income fund. But remember, equity is much more flexible than fixed income securities, so big last year’s gains could translate into a loss the following year.
