Think rebalancing is just about mitigating risk? It also has the potential to boost your long-term returns. Unlike a static “buy-and-hold” approach, focused portfolios with automatic rebalancing combine the hands-off convenience of “set it and forget it” investing paired with the performance benefits of regular portfolio adjustments.
Rebalancing helps keep your portfolio aligned with your strategy by adjusting to maintain stability over time. It works by preventing overexposure to certain assets and helps curb emotional trading. By regularly recalibrating your portfolio, it helps you stay on track for your long-term goals.
This is where many buy-and-hold portfolios fail. Without rebalancing, their holdings can gradually become overexposed to certain sectors or individual stocks.
With automatic rebalancing, focused portfolios like Opto’s new Folios feature, help you stay diversified and maximize returns by rebalancing every quarter. Over time, these regular adjustments could enhance your portfolio’s growth potential — without adding any extra work for you.
Looking at historical data, focused portfolios with periodic rebalancing tend to outperform buy-and-hold strategies in the long run. This is especially true in volatile markets, where rebalancing helps to capture gains from market swings.
Here’s how rebalancing works to boost your returns: Say you start with a portfolio split 60/40 between growth stocks and value stocks. In a strong market, your growth stocks may increase to 70% of your portfolio. This could mean more risk and volatility than you planned. Automatic rebalancing would sell some of those high-performing growth stocks and reinvest in value stocks to even out the mix. As a result, you maintain diversification while staying aligned with your chosen approach.
Regular, periodic rebalancing through a focused portfolio specifically helps to control emotional trading and impulsive decisions driven by market volatility. When your investments are set to rebalance automatically, you take the guesswork out of when and how to adjust your portfolio. This approach gives you the “set it and forget it” convenience of a buy-and-hold strategy while capitalizing on potential returns.
With Opto’s Folios, build your custom index by choosing between three to 50 stocks, applying its professional weighting strategy and automated quarterly rebalancing. Whether you allocate your investments equally or adopt a market-cap strategy, your portfolio will remain aligned with your goals while maintaining diversification and protecting against overexposure to individual companies or sectors.
Plus, Opto’s themed Folios, like Robotics or Blockchain, let you focus on trends you believe in, automatically balancing exposure to top-performing companies in over 55 themes.
To maximize the benefits of rebalancing, consider how often you want to do it.
It’s common to rebalance every six months or once a year. Some investors may prefer to set a regular rebalancing date a few times a year or simply revisit their portfolio when it wanders too far from their initial strategy. And if you don’t want to do this manually, Opto’s Folios automatically rebalances every three months.
There’s also the 5/25 rebalancing rule that considers drifting. This rule states that if an asset allocation deviates more than 5% from your original target allocation, it’s time to rebalance. The 25 refers to the second part of the rule, suggesting that if an asset class grows or shrinks by around 25%, it’s time to rebalance. However, implementing the 5/25 rule requires watching your assets carefully and regularly.
Rebalancing your portfolio isn’t just about risk management — it’s about helping you remain aligned with your chosen strategy over time. By leveraging market cycles and simplifying the process, Opto’s Folios make rebalancing easy, automatic and cost-effective.
Ready to optimize your investments? Explore Opto’s new focused portfolios to take the next step toward achieving your financial goals with smarter, systematic investing.
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