This help article is meant to serve both as an introduction to Rebalancing as well as a synopsis of how Rebalancing works within Shrimpy Advisory.
What is Rebalancing?
At a high level, Rebalancing involves maintaining a portfolio with predetermined cryptocurrency selection and allocation over time via trading.
To get a bit deeper, as a cryptocurrency gains value and said cryptocurrency represents a percentage of your portfolio that is larger than your desired allocation, excess value will be sold and that value will be moved to cryptocurrencies that had their allocation pushed down - which is a natural byproduct of an increase in price of one of the cryptocurrencies included within your portfolio.
The opposing scenario is true as well, as a cryptocurrency falls in price and said cryptocurrency represents a smaller percentage of your overall portfolio, it will be purchased to bring it back to your desired allocation. The value used to purchase this cryptocurrency will come from cryptocurrencies with an allocation that exceeds your desired allocation, which again, is the natural opposing movement caused by a change in the price of a cryptocurrency within a portfolio.
So it's "buy low, sell high"?
No, but also - in a way - yes. Rebalancing is price agnostic, and by design sells cryptocurrencies that perform well, relative to the rest of your portfolio, to purchase cryptocurrencies that have performed poorly relative to the rest of your portfolio. This means, for example, that BTC can be the best performing cryptocurrency within your portfolio while also still losing value, and in such a case it would be sold to correct allocations in the bottom half of your portfolio regardless of your BTC purchase price. In this way, rebalancing does not strictly follow "buy low, sell high" exclusively.
The idea behind this is that when the cryptocurrencies within your portfolio drift in allocation, this changes the risk profile and exposure of the portfolio. In order to maintain the desired risk levels and exposure to specific cryptocurrencies, the allocations of the portfolio must be maintained. As the price of cryptocurrencies change over time, it is natural that a portfolio will hold too much or too little of a cryptocurrency and need to be corrected.
So... what's the benefit of Rebalancing?
Rebalancing promotes long term portfolio management by maintaining a set level of exposure and risk to the desired cryptocurrency class and specific allocations. Rebalancing is meant to be used in Bearish and Bullish conditions alike which increases its attractiveness as a long-term investment strategy and Shrimpy Advisory provides periodic rebalancing to your cryptocurrency investment portfolio.
When will my Shrimpy Advisory Account Rebalance?
Shrimpy Advisory will rebalance every account on a quarterly basis.
Along with the scheduled quarterly rebalances, Shrimpy Advisory triggers a rebalance in certain situations, including:
- Choosing a new strategy by retaking the Risk Questionnaire
- Choosing new custom allocations
- Accepting a new version of a strategy (not on autopilot)
- Having a new version of a persona pushed to the account (on autopilot).
During a rebalance, the account will move into a Trades Are Processing state, during which time users cannot perform certain actions, such as depositing crypto, withdrawing crypto, changing strategies or allocations, or linking a wallet address.
As soon as the rebalance is complete, changes can be made to the account again.
Have questions, comments, or concerns? Feel free to send an email to AdvisorySupport@Shrimpy.io and one of our Support Agents will get back to you as soon as we're able.