Rebalancing

Rebalancing keeps your portfolio at its target allocation. Index Balance automatically calculates how much to contribute to each fund or what transfers to make.

Definition

Rebalancing is the process of adjusting the weights of assets in a portfolio to return them to their originally defined targets. Over time, assets that rise the most represent a higher percentage than planned, unintentionally increasing risk. Rebalancing corrects this by selling what has risen and buying what has fallen.

There are two main methods: calendar rebalancing (for example, once a year in January) and threshold rebalancing (only when an asset deviates beyond a set limit, such as 5%). In many European countries, transfers between UCITS funds within the same platform are tax-deferred, making rebalancing more tax-efficient than with ETFs.

Index Balance has a rebalancing calculator that shows exactly how much to contribute to each fund, or what transfers to make, to restore the target allocation.

Practical example

Your target portfolio is 80% iShares MSCI World and 20% iShares Emerging Markets. After one year, MSCI World has risen more and now represents 87%. To rebalance with a new €500 contribution: the system calculates you should put €427 into Emerging Markets and €73 into MSCI World to restore the 80/20 split.