QUESTION: Rebalancing: rebalance by time or by thresholds?

The choice between time-based rebalancing and threshold-based rebalancing is a key point in capital management. The calendar rebalancing method involves adjusting the portfolio on strictly scheduled dates, for example, once a year or every quarter, regardless of the market situation.

Threshold rebalancing triggers only when the share of a specific asset deviates from its target value by a fixed amount, say, five or ten percent. This approach allows for prompt responses to actual market movements, but requires closer daily or weekly monitoring.

For maximum efficiency, it is useful to calculate in advance the baseline scenario and a potential stress scenario in the event of a sharp drop in quotations. Be sure to include a financial cushion of ten to twenty percent and decide in advance which expenses or regular contributions you will cut first.