Rebalancing
Categories: Investing, Mutual Funds
Rebalancing usually refers to the process of tweaking an index fund so that it conforms to the goals of the investors.
Let's say a fund specifically cited that it seeks to maintain 20% of the fund in energy-related investments. But in a given quarter, energy might have done horribly—say it dropped 25%, so now the fund's energy holdings are only 15% of the whole fund.
The managers must "rebalance" the fund by buying a lot more energy stocks so that the fund "re-conforms" to its stated goal of having 20% of the fund in energy stocks.
If you don't rebalance, the whole fund will tip over and spill everywhere. And for the last time, we're not going to pick up your stocks off the floor.