Nothing ever stays the same, not even in business. Trends and protocols may change anytime, pushing you to adjust your strategies. Otherwise, you might lag behind and not be able to adapt to the market. Have you ever been in this situation before? For sure, it was not a good experience. That’s why for experts, rebalancing your portfolio is recommended as your asset allocation needs to be modified depending on the progression of your investment. This means you don’t have to get stuck somewhere and simply observe the rising and falling of assets without doing anything.
Such a scenario is characteristic of what often happens in the crypto market. There are investors and traders who don’t have a flexible approach. Yes, they have their own portfolio, but it seems that there’s no ongoing effort on adjusting the sails while the storm is hauling. As a result? Yeah, that’s obvious – they fail to predict price trajectory and spread their assets across promising crypto platforms. Would you ever let that happen to you? If not, learn how to rebalance your crypto portfolio and why it’s so important.
Among the crypto trading platforms today, BitiQ is one that provides helpful information about this business. You can get updates from the site to guide your investment decisions.
Portfolio Rebalancing in a Nutshell
It’s basically the process of changing the weightings of assets in your investment portfolio. You will have to buy and sell portions of your portfolio to set the weight of each asset class back to its original state. In the event that your investment strategy or risk tolerance has changed, you can use rebalancing to readjust the asset allocation in the portfolio to have a newly devised approach. How often you have to rebalance your portfolio is a personal matter, depending on a variety of factors, such as risk tolerance and age. But generally, it is best to perform it at least once a year, especially if you’re investing long-term.
Rebalancing Your Portfolio in Easy Steps
As you consider rebalancing your portfolio, you have to bear in mind that the schedule and frequency of this process depend on your personal preferences, transaction costs, and tax considerations. Other relative factors may include the type of account you’re selling from and whether the capital gains and losses will be taxed at a short-term or long-term rate. Doing it annually is the most common, but if your assets haven’t increased in value within a year, you may need longer time periods. For your guide, the following are the steps to follow when rebalancing your portfolio:
- Record Cost of Assets
More likely, you have your own asset allocation strategy already. This is your toolkit for purchasing the right asset classes, but along with this is keeping a record of the total cost of each asset and the total cost of your portfolio. This data is your reference for historical figures in your portfolio so that you can evaluate them with current values whenever needed.
- Compare Previous and Current Figures
Sometime in the future, you need to review the current value of your portfolio and of each asset class. To do this, you have to calculate the weightings of each asset by dividing the present value by the total value of the current portfolio. Then you have to compare the figure to the original values. If there’s no significant change at all, you may likely just get passive.
- Adjust Your Asset Allocation
In case a portfolio’s exposure to risk has substantially changed as a result of adjustments in asset class weightings, you need to take the present value and multiply it by each of the weightings originally designated to each asset class. The figures from this calculation will be the amounts that should be invested in each asset class to maintain your original asset allocation.
Why Portfolio Rebalancing is Important
Trends and protocols in the crypto market can change anytime. If you are not adjusting your portfolio accordingly, you might be at a losing end. That’s why rebalancing a portfolio should be an ongoing process. You’ll be in a better position if your strategies suit the needs and demands of the market.