Summary
In this chapter, we added the last major capability to our Robo-advisor – rebalancing. Rebalancing is the process of adjusting the allocation of assets in a portfolio to maintain the desired level of risk and return, and can be done on a regular basis or when the portfolio deviates from its target allocation. We established two main strategies for rebalancing – time-based and threshold-based.
We started off by looking at portfolio drift. This is the gradual change in the allocation of assets in a portfolio over time and can be addressed through regular rebalancing. Then, we added an implementation for time-based rebalancing, which gave us the reusable methods needed to generate orders for any portfolio. Finally, we added some tweaks that allowed us to set a threshold-based trigger to decide which portfolios should be rebalanced.
The only thing left for us now is to consider the impact of dividends and fees. We’ll discuss them in the next chapter.
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