Threshold Rebalancing

Core idea

Threshold rebalancing triggers a trade only when an allocation moves outside a predefined band. It responds to meaningful drift without requiring action on every review date.

Implementation

Band width should reflect asset volatility, portfolio importance, taxes, and trading costs.

Primary risk

Bands that are too narrow create turnover; bands that are too wide allow unintended concentration.

Frequently asked questions

What is threshold rebalancing?

Threshold rebalancing triggers a trade only when an allocation moves outside a predefined band. It responds to meaningful drift without requiring action on every review date.

What is the main risk of threshold rebalancing?

Bands that are too narrow create turnover; bands that are too wide allow unintended concentration.