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Investing is more than just picking the right assets at the right time. Once you’ve built a portfolio on eToro, maintaining it is key to long-term success. One of the most critical, yet often overlooked, aspects of portfolio management is rebalancing. In this article, we’ll explore why portfolio rebalancing is essential and how you can do it effectively on eToro.

What is Portfolio Rebalancing?

Portfolio rebalancing is the process of realigning the weightings of the assets in your investment portfolio. Over time, the performance of different assets will vary, and this can cause your portfolio to drift away from its original asset allocation. Rebalancing ensures that your portfolio stays aligned with your financial goals and risk tolerance.

For example, if you started with 60% of your portfolio in stocks and 40% in bonds, but after a year the stock market has performed exceptionally well, you may find that your portfolio is now 70% stocks and 30% bonds. While that sounds great, it may also mean your portfolio now carries more risk than you originally intended.

Why Should You Rebalance Your Portfolio?

1. Maintain Your Desired Risk Level One of the primary reasons for rebalancing is to maintain your desired level of risk. Over time, certain asset classes, such as stocks, may outperform others like bonds. As this happens, the portfolio can become riskier than you initially intended. Rebalancing helps you bring your portfolio back in line with your risk tolerance by selling some of the overperforming assets and buying underperforming ones.
2. Capitalizing on Gains Rebalancing forces you to “sell high” and “buy low.” By trimming back on assets that have performed well and reinvesting in those that have underperformed, you are essentially capitalizing on market volatility. This can help to lock in profits while investing in assets that are potentially undervalued, giving you a chance for future growth.
3. Disciplined Investing Rebalancing promotes disciplined investing by encouraging you to stick to your plan, no matter what the market conditions are. It can be tempting to let winners ride, but that often leads to taking on more risk than originally intended. Regular rebalancing ensures you’re not overly dependent on any single asset class.
4. Long-Term Financial Health Over time, consistent rebalancing keeps your portfolio healthy and aligned with your long-term goals. It ensures that the portfolio reflects your financial plan, whether you’re saving for retirement, a home, or other financial milestones.

How to Rebalance Your Portfolio on eToro

eToro makes portfolio management easy by offering a user-friendly interface and a wide variety of assets, including stocks, ETFs, cryptocurrencies, and commodities. Here’s how you can rebalance your portfolio effectively on eToro:

1. Assess Your Current Allocation First, evaluate your portfolio to see how far it has drifted from your target allocation. On eToro, you can easily view the performance and weightings of each asset in your portfolio by navigating to your “Portfolio” tab.
2. Define Your Target Allocation Revisit your financial goals and risk tolerance. Your target allocation may change over time based on your financial circumstances, so make sure it’s still in line with your objectives. For example, if you’re nearing retirement, you may want to shift toward more conservative assets like bonds.
3. Decide Which Assets to Buy or Sell Once you’ve identified the assets that are over or underweighted, it’s time to act. If a particular stock or sector has performed well and is now taking up more of your portfolio than you intended, you might sell some of that stock and use the proceeds to buy assets that are underweighted. eToro makes this process simple. You can easily close positions by selecting the asset you want to reduce and using the “Close Trade” option. To buy more of an asset, simply use the search function to find it and open a new position.
4. Use eToro’s CopyTrader Feature If managing a diversified portfolio feels overwhelming, eToro’s CopyTrader feature allows you to automatically mimic the trades of experienced investors. While this won’t substitute for rebalancing your custom portfolio, it can help you maintain balance by copying investors who already practice disciplined portfolio management.
5. Set a Rebalancing Schedule Many investors rebalance on a regular schedule, such as every quarter or annually. You can set calendar reminders to review your portfolio and ensure it stays aligned with your target allocation. While eToro doesn’t offer automatic rebalancing, it does make manual rebalancing easy.
6. Monitor Transaction Costs While rebalancing is important, it’s also important to consider transaction costs. Frequent buying and selling can lead to higher fees. On eToro, transaction costs are relatively low compared to traditional brokerage platforms, but it’s still wise to consider fees when deciding how often to rebalance.

How Often Should You Rebalance?

There is no one-size-fits-all answer to how often you should rebalance. However, many experts recommend rebalancing when your portfolio deviates from your target allocation by 5% or more. You may also choose to rebalance on a fixed schedule, such as every six months or once a year, to keep your investments in check.

Conclusion

Portfolio rebalancing is a key strategy for long-term investment success on eToro. By maintaining your desired level of risk, capitalizing on market fluctuations, and sticking to your financial plan, you can ensure that your portfolio stays on track to meet your financial goals. Whether you manage your own portfolio or use eToro’s CopyTrader feature, regular rebalancing is an essential part of successful investing. So, take the time to review and rebalance your portfolio to ensure you’re set for long-term success.

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