Portfolio a alokace
Rebalancing: When, How Often, and Based on What
Key takeaways
- Rebalancing is the regular restoration of target allocation after market movements have disrupted it.
- There are two basic methods: calendar rebalancing once a year, and threshold rebalancing when allocation drifts by a set percentage.
- The cheapest approach is to rebalance with new contributions — no need to sell and incur taxes.
- Rebalancing too frequently unnecessarily increases costs and tax burden.
- Rebalancing is a disciplining tool: it forces you to buy low and sell high.
Rebalancing is the process of restoring a portfolio's target allocation after market movements have changed it. Did equities grow faster than bonds? Their share exceeded the target of 70%. By rebalancing, you sell some equities and buy bonds to return to the plan.
Why Rebalance
Without rebalancing, a portfolio spontaneously "grows" toward riskier assets: equities make up an ever-larger share, and when a correction hits, your drawdown is larger than you intended. Rebalancing is therefore risk management, not an attempt at market timing. It also has a pleasant side effect: it systematically makes you buy low and sell high.
How to Rebalance Without Unnecessary Costs
The cheapest strategy is to rebalance with new contributions: every month, direct new money into whichever asset class is below its target weight. This defers or entirely avoids selling — and therefore tax obligations. The tax context of ETF taxation in the Czech Republic is crucial here: the sale of a security held for less than three years is subject to income tax.
When to Rebalance by Selling
If contributions are insufficient or if the allocation has drifted significantly, selling becomes necessary. Consider:
- Selling first those securities that satisfy the three-year time test or the CZK 100,000 value test
- Avoiding sales in December if the test conditions will be met in January
- Using tax losses to offset gains from the same year
Rebalancing a Lazy Portfolio
For a lazy portfolio, an annual check and top-up via contributions is sufficient. If you hold just two funds — equity and bond — you can manage it in twenty minutes. A detailed comparison of the threshold and calendar approaches is in the dedicated article.
FAQ
What is portfolio rebalancing?
Restoring the target asset allocation after market movements have disrupted it. For example, if equities have risen and their share exceeds the target, you sell some equities and buy underweighted assets.
How do you rebalance without paying taxes?
Primarily rebalance with new contributions — buy the underweighted component without selling. If you must sell, prioritize securities meeting the three-year time test or the CZK 100,000 value test.
How often should you rebalance?
Once a year is sufficient for most investors. An alternative is threshold rebalancing — act only when the allocation drifts more than five percentage points from the target.