In tactical portfolios, the dynamic nature of the market is harnessed to take advantage of lucrative opportunities and prevent substantial drawdowns. The pivotal moment when the assets within a portfolio are reallocated to align with the changing market conditions is called 'rebalancing.'
Rebalancing is a proactive process to ensure your investments stay in line with the rules of your chosen portfolio. It is governed by a well-defined algorithm - a set of pre-determined rules coded in software. As market dynamics evolve, the algorithm continually evaluates the portfolio's composition and calculates a new target allocation of the assets based on prevailing market conditions. To align the portfolio with this updated allocation, the holdings in your account need to be adjusted. This essential adjustment process is precisely what rebalancing entails. It allows your portfolio to remain agile and responsive, optimizing its performance and maintaining a strategic alignment with your investment goals.