we know that when we distribute our asset portfolio among unrelated assets, we can increase income and reduce risks. For example, 5% stocks +5% bonds. After a year, we found that the ratio of stocks to bonds in our account is no longer 1:1. That is, we sell much higher stocks and buy more bonds, but the ratio of stocks to bonds remains at 1:1. This process is rebalancing.

why should we rebalance? The significance of rebalancing lies in:

1. Rebalancing can increase the yield of long-term portfolio and reduce the risk of portfolio.

2, if there is no rebalancing process, it is likely to lead to a portfolio of all stocks in the long run.

3. The habit of rebalancing can cultivate the habit and criterion of buying low and selling high.

rebalancing can be understood more than that. We can also understand rebalancing more deeply.

Deep understanding of rebalancing:

1. Rebalancing can bring excess returns. Because the most important operations in the process of rebalancing are buying low and selling high, it will bring excess returns. It can also be said that rebalancing can be considered as the only sustainable and effective method for market timing.

2. What is the maximum rebalancing reward (excess return) during the rebalancing period?

when the return performance of asset classes is above average or below average, there is a tendency to continue, and it has been going on for some time, so it can be rebalanced.

3, rebalance once a year or every two years, and you may not fail too much. Too many times of rebalancing will not only increase the handling fee, but also be unfavorable for us to obtain more excess income.

4. after rebalancing, you decide to increase or decrease the proportion of an asset in the portfolio. please refer to the following opinions: only when the price of the asset is cheaper and the price has passed the market test can you increase the proportion of an asset in the portfolio. Don't increase the proportion of certain assets because of economic events or political factors or because you have heard other people's suggestions. Only when the value evaluation of the asset has been very high after a major increase can the proportion of an asset in the portfolio be reduced.

5, a more powerful rebalancing-"excessive balance". When you rebalance to maintain your target portfolio, you buy more assets with falling prices, which makes the portfolio cheaper. When the price of an asset falls and becomes cheaper, you increase the proportion of this asset in the target portfolio, and you adopt a more powerful rebalancing method-"over-balancing". A simple way to over-balance is to increase the proportion of an asset in the target portfolio very slightly. For example, when the price of an asset drops by 1%, it will increase its proportion in the portfolio by .1%, and vice versa.