[00:02] a portfolio rebalancing is, when to do it, and how to do it, including index funds, ETFs, equities, and fixed income.  I have it prepared for you with this presentation.  Here's the thing .  At first you have your portfolio with different assets, but
[00:15] time passes, the stock market goes up and down, therefore, your portfolio, your investments, also change.  First of all, why rebalance?  for these two reasons which are actually the same thing.  On one hand, risk level control.  If you
[00:28] initially wanted 70% equities and 30% fixed income to be more or less aggressive or conservative, depending on your plans, as time goes by, that may change and you may have a more aggressive portfolio than you intended.  Therefore, we will
[00:43] control that level of risk with a portfolio rebalancing.  That's what keeping your plan with the same percentage would also mean, but it could also be that you currently have a very aggressive portfolio and over the years
[00:56] you want to balance it because you no longer want to invest so long-term or you plan to make withdrawals.  Therefore, you can change your plan, and you can do so with rebalancing.  Okay, so first of all, when should you
[01:08] rebalance your portfolio?  There are two methods you can choose from.  One is the calendar method, where every so often you review the weight of your investments to put it back as it was, as you wanted.  This isn't done
[01:24] every month, I'd even say not every six months, but rather annually or even every two years.  Unless the other method is the percentage method, where you also look at the weights of your investments when you want to enter and
[01:40] if they have changed then you rebalance, but not if it has changed by 1%.  Now I'll show you some examples, but if your equity relative to fixed income has moved, it's often said, and I agree, by 5%, then you
[01:55] rebalance regardless of when, simply when this happens.  These are the two methods.  It is also true that you can do a mixed model, which is in fact what I do.  I check it every 6 months or every year.  If it hasn't moved
[02:09] much, if it hasn't moved more than 5%, I do n't do anything.  If it has moved more than 5%, then I will adjust it.  Later I'll show you more concrete examples, even using my own account, but to make it clear, a
[02:22] simple exercise is this: you start with your portfolio and say, "I want 80% equities and 20% fixed income." But a year has passed.
[02:34] Equities tend to move more and grow more in the long run, but imagine that in a year they've moved so much that instead of 80%, you now have 90% in equities and 10% in fixed income, and you don't want to be like that;
[02:50] you want an 80/20 split. So you simply have to transfer a portion of your equities to your fixed income to get back to an 80/20 split. And it's that easy. I'm in my Republic account, and I have these five
[03:04] investment funds. Four are equity funds focused on the S&P 500, Europe, emerging markets, and Japan, and I have one fixed income fund that's perfect for showing examples like this. And I can transfer any of these funds to one or the other, creating a
[03:18] new one.  And I can transfer the entire amount, the full amount in euros, or just a portion. Let me give you an example. I'm going to move the equity fund, specifically the S&P 500 fund, to the fixed income fund, which is for bonds. I click on
[03:32] the S&P 500 fund and select "Transfer." Since this is an index fund, the transfer button appears. For example, I click on the three dots to specify the exact amount, and then I'll give you a numerical example: I want to
[03:46] a numerical example: I want to transfer €280. Next. Where do I want to transfer it to? To a new investment fund that suits me, or to an existing fund in my portfolio, like this fixed income fund? I click, and I see that the
[04:00] fees are free, so there aren't any, which you should check just in case. Normally, transfers within the public TIRE system, if you're moving from an index fund to a capital fund to an investor fund, don't usually have many fees, or any at all, but double-check it just in case
[04:13] . And if we're talking about a fund in a traditional bank, like BBVA, La Casha, etc., then it might be different.  There is one, so take a look just in case, and if it works out for you—which it probably will if you're not doing it
[04:25] every month, but rather once a year or every two years—then it's fine . I click OK and then the transfer button, and that's it. I'm not going to do it because it's not relevant to my portfolio right now, but you've seen it only takes a few
[04:37] clicks. Okay, let's continue. You've seen I did it with an index fund, but if you had an ETF, then you'd have to sell it first to buy the other, which isn't ideal because, since it's a sale and you
[04:51] 're making a profit, the tax authorities will come along and tell you to pay some taxes. It's money that isn't in your portfolio benefiting from compound interest, so it's not a disaster, not a huge mistake, but if you have
[05:04] index funds in Spain, all the better. There's an alternative for both index funds and ETFs, but this way you don't have to sell one to buy the other, which is that if your portfolio isn't very large at the beginning , you can compensate with...  Your
[05:18] own contributions. If these contributions—the typical monthly investment of contributions—the typical monthly investment of €200 or whatever it may be in your case—are considerably large relative to your total portfolio, then they do make a
[05:30] difference. Following this example, instead of transferring a portion of your equities to fixed income, what you can do is, for the next two or three months, contribute only to your fixed income portfolio so that it automatically balances out. That's why
[05:44] I say that initially it can work with relatively small total portfolio amounts compared to your contributions, because once you have a large amount, your €200 contributions probably won't be enough if
[05:58] your portfolio is already worth €200,000 because a few years have passed. But anyway, going back to the fees we 've already discussed, let's look at a more concrete numerical example, which is this one I have here. For example, I
[06:12] want to have 100% of my portfolio— imagine, out of €10,000— in equities, and specifically I have these funds, which are, in fact, the ones you 've seen in my account.  I have a T Republic account and I want to allocate 20% to fixed income, which I have in
[06:28] a fixed income fund. So far, so good, but time passes and it turns out my portfolio has grown. It's no longer just €10,000 , but the portfolio has grown, and I have it all calculated and organized here. After a few years, your
[06:43] €10,000 has increased by 35%. Specifically, equities have increased by 44% because your different funds have grown by these amounts, and fixed income has also grown, but not as much,
[06:56] which is likely to happen. Fixed income doesn't usually grow as much as equities in the long term. Now, what you would do is run some numbers, a few simple divisions, and say, "Wow, my total equities represent 85% of
[07:11] my total portfolio, while my fixed income is only 15% of it."  Therefore, I'm going to rebalance it.  What can you do?  Take your funds and start looking.  In the LSP500 there are a total of 7150.
[07:27] This represents 52.7%. In Europe.  17 4.1 10.5 and here 15% because I only have one to then calculate
[07:39] then calculate exactly how much more there is compared to your target to maintain that 8020 and not 8515. If I calculate it, if I want to 8515. If I calculate it, if I want to maintain 50% in my ST500 fund, it
[07:53] turns out that now if I have this amount in my portfolio, 50% is in my portfolio, 50% is €6,780. But currently I have €7150, €6,780. But currently I have €7150, therefore, I have to subtract €370 so
[08:08] that it is not 52.7%, but 50%. And the same for everyone, where it turns out that they have all grown, but the one from Japan has grown, but not as much.  Therefore, I have to add €128 to this one, and just like with the
[08:22] fixed income one, if I wanted this to represent 20% of my total portfolio, if my portfolio has now grown, it turns out that 20% should be €2,712
[08:36] but I have €2,030, therefore, I have to add €682 to this one.  So, how do I rebalance?  There are different options.  What I would do is, if I have to take from these three and add these two, an example would be, I take €128 from
[08:54] this one to add to the one in Japan, making a transfer as I showed you making a transfer as I showed you before, and the rest of the 370 - 128 I before, and the rest of the 370 - 128 I put into my fixed income fund.  And then
[09:08] the following ones, I also put in all 366 euros that I want to remove, I add them to my fixed income fund.  And I'm adding these 74 as well.  And if you do the calculations, you'll see that I'm taking exactly €682 from here to add to
[09:25] taking exactly €682 from here to add to these.  This way I will again have my fixed income at 20%, which is what I wanted, while the variable income will be 80%, which is what I wanted.  This also applies to me if you want to
[09:39] change it, because now I want a 5050, so you also do the math, recalculate it and make the transfer.  It's no mystery, it's not complicated.  There are people in overwhelmed thinking they had to rebalance every month, but you've already seen
[09:53] that you can do it every year or even less often, and when you do have to do it, it's just a moment, it's not that big of a deal. Smash that like button if you enjoyed this video.  Leave any comments below, and I'll see you in the
[10:05] comments below, and I'll see you in the next one.  Thanks a lot.  M.