A common trigger for rebalancing is when asset class weights drift by more than a predetermined percentage.

A common trigger for rebalancing is when asset class weights drift by more than a predetermined percentage.

• A. More than a pre-determined percentage
• B. At least 50% in one day
• C. When all assets rise simultaneously
• D. After every new contribution

Answer: (A)

Rebalancing aims to keep your actual asset weights close to the target by correcting drift caused by market movements. The most practical trigger is a predefined drift threshold: you rebalance when the weights diverge from the targets by more than a set percentage. This directly addresses deviations from your plan, helping manage risk over time without overreacting to small fluctuations or every contribution. The other scenarios aren’t reliable triggers. A rule based on a 50% one-day move is extreme and would cause excessive trading only in unusual events. If all assets rise together, relative weights often remain similar, so drift may not occur. Rebalancing after every new contribution isn’t necessary and could incur unnecessary costs; many strategies instead rebalance when the drift threshold is reached or on a scheduled basis.

Rebalancing aims to keep your actual asset weights close to the target by correcting drift caused by market movements. The most practical trigger is a predefined drift threshold: you rebalance when the weights diverge from the targets by more than a set percentage. This directly addresses deviations from your plan, helping manage risk over time without overreacting to small fluctuations or every contribution.

The other scenarios aren’t reliable triggers. A rule based on a 50% one-day move is extreme and would cause excessive trading only in unusual events. If all assets rise together, relative weights often remain similar, so drift may not occur. Rebalancing after every new contribution isn’t necessary and could incur unnecessary costs; many strategies instead rebalance when the drift threshold is reached or on a scheduled basis.