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What is rebalancing and why is it important?
  • Don’t lose your balance
  • How rebalancing works
  • Why is rebalancing useful?
  • Your portfolio's risk level can change over time.
  • When your token mix has changed, you’ll need to bring it back into balance.
  • Rebalancing your portfolio allows you to maintain your desired risk over time.
Don’t lose your balance

It might seem surprising that your portfolio’s risk level could change, even when your HODL strategy is paying off. But when one token in your portfolio is doing better than others, your asset mix could become “overweight” and dependent on the performance of a single token.

For example, let’s say you choose a token allocation of 50% Solana (SOL) and 50% Bitcoin (BTC). If four months pass with your Solana growing by 20% per month and your Bitcoin growing by 5%, your new asset mix will be more like 63% SOL and 37% BTC.

It’s important to check your portfolio at least once a month. Market conditions can cause well-balanced portfolios to fall out of balance. If your asset mix is off by at least 5 percentage points, it may be time to rebalance.

How rebalancing works

Rebalancing is the process of selling a token and then using the proceeds to buy another token or stablecoin. This is done to ensure that your portfolio remains diversified, and less prone to volatility.

In the example above, you have too much in SOL and not enough in BTC. So you could sell some of your SOL profits to bring your portfolio back into balance. This will restore your portfolio to its original 50/50 allocation. In other words, the initial level of risk you were comfortable with.

Why is rebalancing useful?

Having a larger-than-planned allocation in one token may seem harmless when prices are up. But no rally lasts forever, and when the tables turn, you’ll be overexposed to the drop. A common reaction is panic-selling, which makes losses permanent. It may be hard to convince yourself to rebalance. Selling a winning token probably goes against your natural instincts. But it follows one of the guiding principles of trading: “Buy low, sell high.”

Taking the time to rebalance can help you avoid relying too much on emotion when making important trading decisions. It allows you to line up your portfolio with your original goals, regardless of what the market does.

If rebalancing sounds like too much work, a crypto index can help you stay on track automatically. The FNDZ Crypto Index tracks the market and adjusts your portfolio on a weekly basis. It’s a hassle-free and automated way to trade crypto.

See how FNDZ stands out from the rest.

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