Investing term

What is Rebalancing premium?

The small return boost a disciplined rebalancer earns over a buy-and-drift portfolio, by systematically selling high and buying low.

The rebalancing premium is the small return edge a disciplined rebalancer can earn over a portfolio left to drift, by systematically selling assets that have risen and buying those that have fallen. It's not guaranteed and depends on assets that swing around without permanently diverging — but it's a tidy bonus that comes from the discipline of resetting to target.

For example

Across volatile years, regularly trimming the hot asset and topping up the cold one can quietly add a fraction of a percent a year versus never rebalancing.

Rebalancing premium is taught hands-on in Stage 18 — Rebalancing & Maintenance.

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Related terms

5/25 ruleRebalance any sleeve that has drifted more than 5 percentage points absolute, or 25% relative, from its target weight.Calendar ruleRebalance on a fixed schedule (e.g. annually) regardless of how far the portfolio has drifted.New-money rebalancingBringing the portfolio back to target by directing new contributions into underweight sleeves, rather than selling overweight ones.Target allocationThe intended weights of each asset class, sector, or position in your portfolio — the shape you set on a calm day.
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