How to re-balance your eToro portfolio: Strategies for 2023

Want to maintain your eToro portfolio’s performance in 2023? It’s time to level up your rebalancing game! 💪

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 Why Rebalancing Matters

Portfolio rebalancing ensures your investments align with your desired risk levels and return objectives. Periodically reviewing and adjusting your eToro portfolio helps you avoid excessive risk and underperformance. Don’t let your investments gather dust! 🌬️

🎯 eToro Portfolio Overview: Allocation, Risk, and Exposure

eToro offers a comprehensive overview of your portfolio, displaying your allocations across asset classes, markets, and traders you’ve copied. Check the “Portfolio” section to view pie charts and tables of your investments. 🥧📊

🕵️‍♂️ Keep an Eye on Your Portfolio Exposure

Understand how much you’ve invested in each asset type or market. Monitor your portfolio exposure to ensure it aligns with your investment strategy and risk tolerance. 🔍

🧰 Top Rebalancing Strategies for eToro Investors

Choose the best rebalancing strategy for your investment goals and preferences. Here are some popular methods:

⏰ Rebalancing at Specific Times (Calendar Rebalancing)

Review your investments at regular intervals (e.g., monthly or quarterly) and adjust your holdings accordingly. This simple strategy is easy to follow but lacks technical guidance for reallocation. 🗓️

This is perhaps the most simple approach, also referred to as calendar re-balancing, and involves reconsidering your investments at specific time intervals to achieve the target asset allocation. For example, you may choose to check on your holdings every month or every quarter to buy or sell several assets. Beware however, that frequent adjustments (like every week) of your holdings may become costly due to transactions costs. The amount of transaction expenses depends on the type of assets, for example investing or opening long positions in stocks (equity) do not involve a charge, however spreads may be charged on other assets like cryptocoins, CFD contracts and so on. It is probably a good idea to consider a balance between the benefits of re-balancing and these transaction costs as well as time constraints. The significant advantage of calendar re-balancing is its simplicity, however it does not provide any technical guidelines on how to actually re-allocate your assets.

📊 Percentage-of-Portfolio Rebalancing

Maintain a constant original allocation of assets, adjusting the proportion as some assets appreciate more than others. This strategy focuses on risk management but may limit success potential. 📈📉

This is another simple type of a relatively simple re-balancing strategy that focuses on keeping a constant original allocation of assets you invested into that aims at managing risk levels. The deviation from original proportion may come from some assets appreciating more than the others and consequently representing a larger portion of the entire holdings. For example, if you have a 60/40 ratio of risky stocks or cryptoassets to indices in a portfolio and the riskier part keeps raising in value over time, it is going to represent a larger portion of your total holdings and lead to a more aggressive and risky allocation.

eToro allows you also to see the percentage of your holdings each asset class represents under the ‘Portfolio’ exposure overview, like shown on the image below.

Past performance is not an indication of future results.Some investors may decide on a certain range the original allocation may deviate to, for example +/- 3%, after which the portfolio is re-balanced, with some assets sold and additional purchased. The range may depend on the type of asset in question, for example a more volatile asset is likely to require a narrow range spread to ensure they do not represent too much or too little of the total portfolio. The allocation does not necessarily have to be expressed in terms of asset type but also geographical origin of the market (e.g. 30% emerging market, 30% developed economies and 30% domestic assets). It is likewise relatively simple yet this simplicity may also turn out to be a short-coming and make you miss out on potential profit opportunities; this approach is also not indicative of the frequency of re-balancing.

Both the calendar and percentage-of-portfolio rebalancing techniques focus on a constant proportion of assets within a portfolio because its constituent assets’ weights do not change.

💰 Constant-Proportion Portfolio Insurance (CCPI)

Adjust your risk tolerance based on your portfolio’s value. As your wealth increases, you may be willing to invest in riskier assets. Combine CCPI with other techniques for a comprehensive approach. 💼

🚀 eToro Simplified Portfolio Management: CopyTrading and CopyPortfolios

For those seeking a hands-off investment experience, eToro offers CopyTrading and CopyPortfolios. These solutions automatically manage and rebalance your portfolio according to pre-defined strategies or expert traders. 🧑‍💼🔄

📊 Pros and Cons of Rebalancing Strategies

🔧 Crafting Your Rebalancing Strategy for eToro

There’s no one-size-fits-all rebalancing strategy. Consider your investment goals, risk tolerance, and preferences when selecting a method. Weigh the pros and cons of each approach, and don’t forget to factor in transaction costs! 💰💹

Remember, investing involves capital loss risks, and past performance does not guarantee future results. Always conduct thorough research and consult a financial advisor if necessary. Good luck, and happy rebalancing! 🍀🎉

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Be warned!

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Author & Expert Trader - Financial Analyst :

My name is Bart Bregman and I am a full-time professional trader with nine years of experience. I specialize in shorter-term trading using technical analysis, and I have extensive experience with Stocks, CFDs, Options, and Crypto trading. I believe that there is no such thing as a bad trade. I'm currently traveling the world as a digital nomad trader. You can follow my journey on Instagram at https://www.instagram.com/bart_bregman/