The Basics of Portfolio Rebalancing for Businesses


Portfolio rebalancing might seem overly complex, especially for businesses, but it can be broken down fairly easily. Rebalancing is an investment strategy best practice that can revamp your investment portfolio. By buying and selling assets through a rebalancing tool, you can maintain your asset allocation within a specific asset class.

Using a rebalancing feature can assist you with asset allocation without the need for a financial advisor or the reliance on personal capital. Understanding some of the basics of rebalancing and your asset classes can help you navigate your investment accounts more effectively.

How Rebalancing Works

Say you run a local pawn shop and have set up investment accounts for yourself and your business. You often trade on the stock market and have a taxable account in your name. You also have a brokerage account for your pawnshop, a traditional IRA, and mutual fund and index fund investments. While you have a fairly diverse portfolio, you know that some of your asset allocations are at a higher risk. Naturally, you want to mitigate that risk as best as you can.

If you’re working with an advisor, portfolio rebalancing can help the risk level stay within their area of expertise. Often asset allocation is done in a 50/50 split between stocks and bonds. If some of your stocks performed quite well and raised their allocation to 70%, you may consider selling off some stocks to return to that 50/50 level. Since stocks vary more wildly than bonds based on market conditions, adjusting the overall spread may help you meet your financial needs.

It’s important to know that, with your investment collateral, there’s no definitive rebalancing schedule that you have to follow. However, many advisors recommend reviewing your asset classes and asset allocation at least once a year. Of course, rebalancing assumes that you’re not working with a single asset class or that you haven’t invested a great deal of collateral into one asset class over the other. Even if you are working with an advisor to manage your index fund and traditional IRA, your advisor may still advise that you look into a rebalancing tool to help smooth out the process.

Using Rebalancing Tools

portfolio rebalancing tool can help you and your business regardless of your chosen industry. Whether you operate different pawn shops, are investing in real estate, or sell merchandise and jewelry as a retailer, a rebalancing tool can turn investment management from a headache into something closer to a good time. Plus, using a tool can help you avoid issues like inadvertent wire fraud and aggravated identity theft that can occur with less secure platforms.

An advisor may suggest you use that calendar rebalancing method. However, some advisors also advocate for a constant-mix strategy. The constant-mix strategy gives each asset class a target allocation and a tolerance range. When any holdings fluctuate outside of their chosen levels, the entire portfolio is then rebalanced. This helps you maintain the original target composition.

Especially in the pawnshop industry where pawn loans, stolen goods, and stolen merchandise can have an impact on your finances, it’s important to have investment holdings that can protect your financial situation, your index funds, and your portfolio. An advisor may also provide strategies for managing your personal capital more effectively and may suggest holdings with TD Ameritrade or a Fidelity clearing solution.

Whether you run a pawn business or a real estate service, knowing how to manage a business portfolio is paramount to your success. Using a rebalancing tool can make a world of difference, as can working with an advisor. If you don’t have existing investment accounts, reach out to a financial advisor to speak about setting up a quality business portfolio.