Building a portfolio
Rebalancing band
Also called Tolerance band
How far a holding is allowed to drift from its target before you act.
How it works
A band converts rebalancing from a calendar habit into a rule about materiality. With a ±5% band, a 20% target is left alone anywhere between 15% and 25%.
Bands cut trading substantially compared with rebalancing on every deviation, while still preventing the portfolio quietly becoming something else.
Where it misleads people
Bands set too wide stop being risk control. A ±15% band around a 20% target permits a holding to reach 35%, which is a different portfolio.
Related terms
- RebalancingSelling what has grown and buying what has lagged, to return the portfolio to its target mix.
- DriftHow far your actual weights have moved away from the weights you intended to hold.
- Asset allocationHow you divide money between asset classes — the decision that drives most of your long-run experience.
- WeightHow much of your portfolio one holding represents, as a percentage of the total value.
Mentioned in
More in Building a portfolio
- Risk tolerance
- Safe withdrawal rate
- Modern portfolio theory
- Sequence-of-returns risk
- Strategic asset allocation
- Home bias
- Tactical asset allocation
- Glide path
All 20 Building a portfolio terms · The full glossary, 433 terms
Educational reference only. Nothing here is investment advice or a recommendation to buy or sell anything, and tax treatment depends on your own circumstances and the country you are in.