High-performing assets may not necessarily decline in value, and low-performing investments may not always surge. Dependent on market momentum: The primary strategy behind rebalancing relies on market momentum, which is not always predictable.Dynamic allocation: Rebalancing enables you to actively change allocations based on fundamental analysis, allowing you to capture interim gains, even if your primary focus is long-term investment.If an asset consistently fails to generate profits, it’s easier to make the rational decision to divest. Emotion-free investing: Regular rebalancing ensures that emotional attachments to particular assets don’t sway your investment decisions.Diversification: Rebalancing allows you to spread your capital across a broader range of assets, reducing risk exposure and potentially resulting in more stable returns over time.Risk mitigation: Continuous monitoring and adjustment of your portfolio limit potential losses, preventing any single asset from causing significant capital damage.Here are the pros and cons of portfolio rebalancing to help you make informed investment decisions: Advantages Advantages and disadvantages of portfolio rebalancing Notably, rebalancing a 50/50 portfolio leads to an incremental gain of 6.29% compared to the non-rebalanced counterpart. Although this strategy slightly increases the maximum drawdown to -56.83%, it maintains a moderate volatility level of 6.14%. With the same $7,100 investment, its value surges to $14,104.48, resulting in a total return of 98.65%. This strategy strikes a balance between return and risk.īut the real standout is the rebalanced 50/50 portfolio. Without rebalancing, your portfolio would be valued at $13,657.40, with a total return of 92.36%.

Now, let’s focus on a balanced approach, the 50/50 portfolio allocation. However, this high return is accompanied by heightened risk, with a significant drawdown of -61.02% and a volatility percentage of 6.44%. On the other hand, an all-in investment in ETH yields the highest return at 116.79%, increasing your portfolio value to $15,392.11. However, this approach comes with higher risk, as evidenced by a maximum drawdown of -52.41% and a portfolio volatility of 6.45%. If you had invested solely in BTC with an initial investment of $7,100, your portfolio would now be worth $11,922.70, resulting in a total return of 67.93%. Let’s examine the impact of different portfolio strategies and their returns and volatilities between January 2018 and September 2020: PortfolioīTC and ETH gains and volatility breakdown | Source: Reddit This rebalancing act resets your portfolio’s balance at the beginning of each investment period, effectively mitigating excessive risk. But what happens when the market undergoes substantial shifts, causing your assets’ values to drift?įor instance, if your portfolio includes Bitcoin (BTC) valued at $200 and Ethereum (ETH) at $500, rebalancing would involve selling $150 worth of ETH and buying $150 of BTC. This way, you maintain a 50/50 balance, with each asset totaling $50.

If you decide to invest an additional $30, a wise move would be to allocate $10 to DOGE and $20 to MATIC. Imagine your portfolio is nearly evenly balanced, with Dogecoin ( DOGE) valued at $40 and Polygon (MATIC) at $30. It’s not about haphazard buying instead, it’s a calculated approach to ensure your initial asset allocation strategy remains intact, even when the market experiences significant fluctuations. What is crypto portfolio rebalancing?Īt its core, rebalancing is the practice of consistently adjusting the assets in your cryptocurrency portfolio to maintain your original allocation criteria. Let’s get to grips with crypto portfolio rebalancing, breaking down its mechanics, analyzing its pros and cons, and strategies. So, what’s the solution?Ī crypto rebalancing strategy could assist you in preserving the original balance of your asset allocations and creating opportunities for modest gains. These are all part and parcel of the exciting yet somewhat unpredictable landscape. Discover the practice of crypto rebalancing to maintain your initial asset allocation even amidst market fluctuations.ĭuring your journey into the world of cryptocurrency investments, you’ve likely encountered stomach-churning volatility and sudden market dips.

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