What Is Rebalancing and How Does It Help Saving for Your Pension in Germany?
When you invest in ETFs and stocks, it's important to keep rebalancing your portfolio. We'll explain why it matters and how best to do it.
Dr. Chris Mulder
Published on Mar 14, 2023 . Updated 2 months ago
When you're driving, even on the straightest highway, you have to turn the wheel occasionally to keep your car in the right lane. When investing and managing your portfolio, it's also important to make sure it doesn't stray too far from your investment goals. You can do this by rebalancing. When you rebalance, you bring the weightings within your portfolio back in line with your original plan.
The key points
Rebalancing ensures that the weighting of the positions in your portfolio is restored to what you originally intended.
A good rebalancing strategy can earn you a small additional return after cost.
Contrary to popular methods, rebalancing your portfolio on a regular calendar basis is not the best option. It’s better to only do it when it is too much out of balance.
Rebalancing may incur costs due to the taxation of your gains. You can avoid this by not investing directly, but through a private pension plan with a tax shield function.
