Rebalancing Policy
The IPS clause specifying when and how to restore portfolio asset weights to their targets. Three components: (1) Trigger -- time-based (e.g., quarterly or annually), threshold-based (e.g., when any asset class drifts more than 5 percentage points OR 25% of its target weight), or hybrid. (2) Tolerance band -- how big the deviation must be before the trigger fires. (3) Tax-awareness -- prefer using new contributions and dividend reinvestment first (zero tax cost), then tax-loss harvesting, then realize taxable gains only when threshold demands. Without an explicit rebalancing clause, rebalancing becomes discretionary, and discretion under behavioral pressure is precisely what the IPS exists to override.
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Related terms
Anti-Money-Laundering (AML) · Currency Transaction Report (CTR) · Investment Policy Statement (IPS) · Know Your Client (KYC) · Onboarding Workflow · Politically Exposed Person (PEP)
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