eToro Post – How Strategic Rebalancing Helped Avoid a -35% Loss in Long Treasury Bonds
Since I joined eToro in April last year, I have been sharing insights and observations about investing with risk balanced strategies such as the All Seasons Portfolio (“ASP”) strategy I run here. As eToro is a social trading platform, I from time to time share content in my eToro feed, which I then share on the blog in posts like this.
As part of my All Seasons Portfolio, the asset classes have a set aimed allocation, which is based on their historical volatility and correlations and biases to different economic regimes. For rebalancing the portfolio, I apply rebalancing spans that allow assets to deviate from the aimed allocation with +/- 20%, unless it is in a trend.
Such rebalancing trigger occurred in March 2022 for Long-Term Treasury Bonds, as its weight had fallen by more than 20%, but as it was in a clear negative trend, rebalancing was postponed until May 2022.
By waiting with the rebalancing, I managed to avoid a loss of more than 35% on the position I would have taken in March (or -2.5% on a portfolio level).
In this post, we describe in a bit more detail the benefits of applying such strategic rebalancing rules.