Cliff Swatner also needs to rebalance his portfolio periodically depending on the various causes and effects of portfolio rebalancing such as cost of buying and selling, level of risk tolerance, tax implications on short term and long term gain and loss on investment. Most analysts consider one year as being a favorable time to rebalance portfolios but if the components of a portfolio provide gains on a constant basis and value of these securities or assets does not increase significantly then a portfolio can be rebalanced after a longer period of time. The rebalancing of a portfolio is also highly dependent on the investor’s penchant of lifestyle.
In order to rebalance a portfolio within a year or after a longer period of time Cliff should follow a basic guideline which includes recording, comparison and adjustment of portfolio components. The cost of individual securities purchased and included in a portfolio and the overall cost of the portfolio should be recorded properly and when assets or securities are bought and sold these changes should also be properly documented to keep track of overall cost of the portfolio and the individual components included in the portfolio. The individual values of components and overall portfolio value after a certain period of time should be compared with actual costs to check for any significant changes. If major changes are found Cliff should consider rebalancing the portfolio but if major changes are not found then Cliff can leave the portfolio structure intact. The third and last point to consider is the adjustment or actual rebalancing of the portfolio if values have changed significantly. Cliff should replace assets and securities whose values have changed significantly with securities which have similar values to initial values of the portfolio.
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