Rebalancing example

The Thermostat Analogy

Imagine your home thermostat:

• You set the temperature to 20°C (your target)

• You accept a margin of ±2°C (your threshold)

• Heating only turns on if it drops below 18°C

• AC only kicks in if it goes above 22°C

Between 18°C and 22°C? Nothing happens, you're in the comfort zone.

Same for your bundle: you set a target and a margin, and it only rebalance when you exit the zone.

Threshold ≠ Price Change

The threshold is NOT the same as the asset's price movement on the market.

If an asset goes +5% on the market, it does NOT mean it goes +5% in your bundle.

The threshold measures the asset's weight in your portfolio, not its price change. Because your other assets also move, the actual price change needed to trigger rebalancing is much larger.

Practical Example

Initial Setup:

• Total bundle: $1,000

• Asset A: $200 (target 20%)

• Threshold: 5%

• Rebalancing zone: 15% to 25%

If the asset rises on the market

Asset A gains +33% in value → $266

Bundle value	$266 + $800 = $1,066
Asset A weight	$266 ÷ $1,066 = 25%
Result	⚠️ Above 25% → Rebalancing triggered

If the asset drops on the market

Asset A loses -29% in value → $141

Bundle value	$141 + $800 = $941
Asset A weight	$141 ÷ $941 = 15%
Result	⚠️ Below 15% → Rebalancing triggered

In between?

Asset goes +10% or -15%? Nothing happens, you stay in the comfort zone.