What is Rebalancing?
Rebalancing is the process of adjusting your basket’s asset allocation to maintain your target strategy. Over time, asset values change, which can shift your portfolio away from its intended composition. Rebalancing brings it back in line.Why Rebalancing Matters
Maintain Strategy Intent
Your basket is designed with specific allocations for a reason. As some assets grow faster than others, rebalancing ensures you stay aligned with your strategy’s goals.Risk Management
Rebalancing helps manage risk by:- Preventing over-concentration in single assets
- Maintaining diversification across protocols
- Keeping risk levels consistent with your strategy
Optimize Returns
Regular rebalancing can help capture gains and reinvest in underperforming assets, potentially improving overall returns over time.How Rebalancing Works
When Rebalancing Triggers
Rebalancing can happen in several scenarios:Automatic Rebalancing
Some baskets include automatic rebalancing that triggers when:- Asset allocations drift beyond set thresholds (e.g., ±5% from target)
- Market conditions change significantly
- Protocol yields shift substantially
Manual Rebalancing
You can manually rebalance when:- You want to adjust your strategy
- Market conditions suggest a change
- You’re reallocating based on new information
Suggested Rebalancing
Lomen’s AI may suggest rebalancing when:- Analysis indicates your allocation has drifted significantly
- Better opportunities emerge in other assets or protocols
- Risk levels have changed beyond acceptable thresholds
How to Rebalance
Step 1: Review Your Current Allocation
Check your dashboard to see:- Current asset distribution
- Target allocations
- How far allocations have drifted
Step 2: Understand the Rebalancing Action
Before rebalancing, review:- What changes will be made
- Which assets will be bought/sold
- Estimated gas costs
- Expected outcome
Step 3: Execute Rebalancing
One-Click Rebalance
For simple rebalancing, use the one-click option to automatically adjust
allocations to target.
Custom Rebalance
For more control, manually adjust allocations to your preferred targets.
Step 4: Confirm Transaction
Review the transaction details:- Assets being swapped
- Amounts involved
- Gas costs
- Expected final allocation
Rebalancing Best Practices
Frequency Considerations
- Too frequent: May incur unnecessary gas costs and tax implications
- Too infrequent: May drift too far from strategy and increase risk
- Sweet spot: Rebalance when allocations drift meaningfully (typically 5-10% from target)
Cost-Benefit Analysis
Consider:- Gas costs: Rebalancing requires transactions, which cost gas
- Tax implications: Selling assets may trigger taxable events
- Benefits: Maintaining strategy alignment and risk management
Market Conditions
Consider market conditions when rebalancing:- Volatile markets: May want to rebalance more frequently
- Stable markets: Can rebalance less often
- Trending markets: May want to let winners run before rebalancing
Rebalancing Strategies
Threshold-Based
Rebalance when allocations drift beyond a threshold (e.g., ±5% from target). This is systematic and removes emotion from decisions.Time-Based
Rebalance on a schedule (e.g., monthly, quarterly). Simple but may not respond to market changes quickly.Opportunity-Based
Rebalance when better opportunities emerge or when market conditions change significantly. Requires more active management.Monitoring After Rebalancing
After rebalancing:- Verify allocation: Confirm allocations match your targets
- Monitor performance: Track how the rebalanced portfolio performs
- Check for issues: Ensure all positions are active and earning as expected
- Adjust if needed: Fine-tune based on results
Common Rebalancing Questions
”How often should I rebalance?”
It depends on your strategy and market conditions. Most users find monthly or threshold-based rebalancing works well. Avoid over-trading.”Will rebalancing trigger taxes?”
Rebalancing involves selling assets, which may trigger taxable events depending on your jurisdiction. Consult a tax professional for advice.”Can I automate rebalancing?”
Some baskets include automatic rebalancing. Check basket details to see if this feature is included.”What if I don’t rebalance?”
Your portfolio will drift from its target allocation, which may:- Increase concentration risk
- Shift your risk profile
- Potentially reduce returns
Getting Started
- Review your current basket allocations
- Check if rebalancing is suggested or needed
- Understand what changes will be made
- Execute rebalancing with one click
- Monitor results and adjust as needed