Comment by yorwba
12 hours ago
If you pick stocks with the correct weight to track the index, you're effectively running an index fund. And so you don't have to rebalance to keep tracking the index.
12 hours ago
If you pick stocks with the correct weight to track the index, you're effectively running an index fund. And so you don't have to rebalance to keep tracking the index.
1 If you never rebalance, you're never adding new stocks to the index, nor removing stocks that do not belong to it anymore.
2 You need to rebalance to take corporate events into account: new stocks, buybacks, dividends, etc...
You can add stocks whenever you put money in. Whether that's because you got your paycheck or a dividend or some other income is kind of irrelevant. And you can remove stocks when you take money out. But you probably shouldn't start selling one stock to buy another just because their prices moved, unless you have information that lets you time the market.
But then you wind up with a portfolio that isn't balanced and isn't tracking like an index fund. An index fund doesn't simply buy a flat amount of stock and hold it, they buy stock in proportion to the relative weight of the exchange. Which is always moving
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Indexes rebalance frequently. The "correct weight" today, won't be the correct weight in a year.
What are you talking about? Those index fund are constantly rebalancing. This is why you buy an index fund, so you don’t have to constantly rebalance your portfolio.