PM2 Rebalancing

Three ETFs trade over three periods. The allocation is rebalanced between periods.

Objective

Hold the allocation you chose as prices move it. Assessed on profit and loss.

What it shows

• Rebalancing: selling what has risen and buying what has fallen to return to target.
• Drift: an allocation that moves with prices, away from the plan.
• The cost of rebalancing against the cost of drift.

Watch out for

• Rebalancing after every move and paying to stand still.
• Not rebalancing, and ending with a portfolio nobody chose.
• Three periods: few rebalancing dates to choose from.

Who takes part

• Investor — every student. Allocates 1,000,000 among EQTY, BOND and REIT, and rebalances between the three periods.

Class size

Any size. Each student rebalances their own allocation; ten or more makes a useful comparison.