There are three main reasons why rebalancing generates long-term added value:
- Risk management:
The financial markets fluctuate and regularly show price exaggerations. Without rebalancing, the proportion of high-risk investments increases in such phases, which means that portfolio risk as a whole no longer corresponds to the client’s risk profile. Automatic rebalancing guarantees that price fluctuations will result in only minor deviations from the defined target strategy.
- Anticyclical behavior:
Automatic rebalancing tends to lead to countercyclical action. During continuous high phases, more risky investments tend to be dismantled and, conversely, rather built up in continuous low phases. Over a longer period of time, this improves the ratio of return to risk.
- Rule-based creation:
The average investor is unable to correctly time the market. Rule-based investment in the form of automatic rebalancing helps to avoid hasty and emotional investment decisions.