Identifier: C5T4L4 · Revision: 2026-10-26 · Classification: domestic

Decision and objectives

The practical task is to set rebalancing and residual-risk rules linked to an objective. Make the decision reproducible: name the exposure, time horizon, cash requirement and comparison baseline before selecting a product.

Objectives: Set rebalancing and residual-risk rules linked to an objective; Calculate a post-cost target transaction; Plan collateral and exit triggers without promising execution.

Prerequisite: C5T4L3; completed Classes 1–4 and the Stock Market School foundation or Forex School foundation. Every example is hypothetical. Prices, dates, rates, fees, contract factors, policies and tax schedules are supplied teaching inputs, not current offers or legal parameters. No live account is needed.

Mechanics

A portfolio rule should say what is measured, when, which threshold triggers review and who acts. Rebalancing can target weights, exposures or cash requirements; these are different denominators. A drift band reduces unnecessary turnover but must not override an essential spending or collateral deadline. Hedge quantity should be based on the actual remaining asset exposure after a sale.

Define acceptable residual, cash floor, counterparty limit and an executable exit process before stress. A trigger is a decision instruction, not a guaranteed transaction price. A halt or gap can prevent immediate compliance, so document the contingency rather than promise automatic safety.

Price and return drivers

Target post-cost asset value = target fraction × (pretrade total wealth − fixed transaction cost). Sale = current asset value − target post-cost asset value. If fees depend on trade amount, solve using that actual schedule; the fixed-fee example below isolates the denominator issue. Treat pledged collateral as separate from free cash.

Worked case

Hypothetical initial equity TRY 600,000 and cash TRY 400,000, target 60%, review band 55–65%. A 20% equity rise makes equity TRY 720,000 and wealth TRY 1,120,000: weight 64.2857%, inside band. A larger 50% rise from the initial state makes equity TRY 900,000 and wealth TRY 1,300,000: 69.2308%, outside. With fixed rebalance cost TRY 300, post-cost wealth TRY 1,299,700; target equity TRY 779,820, so sell TRY 120,180. Cash becomes 400,000 + 120,180 − 300 = TRY 519,880; equity weight exactly 60%. A subsequent −20% equity shock loses TRY 155,964, below a supplied TRY 160,000 single-driver limit.

Adverse case

Without rebalance, the same −20% shock on TRY 900,000 loses TRY 180,000. If TRY 100,000 of the post-trade cash is pledged to a hedge, free cash is TRY 419,880, not TRY 519,880. A cash-floor trigger must use that free amount and the expected settlement date of the equity sale. If price gaps before execution, the target sale amount and stress loss need recalculation; a pending order is not a completed rebalance.

Practical use

Choose review frequency and bands from the actual mandate, costs, tax consequences and liquidity. Obtain actual settlement and collateral requirements from the member and current product documents. Record filled quantities, fees and updated hedge ratios. Compare a band-triggered trade with an urgent cash need separately; not trading can be justified when within limits and expected improvement is smaller than costs.

Use permitted domestic access routes and the actual instrument documents. Verify intermediary authority, investor eligibility, order/redemption terms, settlement, custody and executable size before implementation. Reconcile spread and commissions, funding, collateral, custody, product expenses, conversion and exit charges; an amount already embedded in a fill or fund unit price is not deducted again. A published mark or product description does not promise an executable price or liquidity.

Tax is excluded unless a numerical schedule is expressly supplied as hypothetical. For actual rules record income year, residence and individual/corporate status, instrument and acquisition/contract dates, taxable event and rule effective date. The GIB investment-income guide, checked 2026-10-26, covers 2025 individual income; its 2026 publication date alone cannot settle a 2026 liability.

Decision boundaries

Use a rule to constrain behavior and preserve the objective, with exceptions documented by evidence. It does not remove market, basis, funding or operational risk. Decline a rebalance that depends on unsettled cash being available before its deadline; consider reducing other liquid exposure earlier.

Practice and references

Exercise: hypothetical risky asset TRY 350,000, cash TRY 150,000, target 60%, fixed fee TRY 500. Solution: post-cost wealth TRY 499,500, target risky TRY 299,700, sell TRY 50,300; ending cash TRY 199,800. If TRY 40,000 is pledged, free cash is TRY 159,800. A sale of only TRY 50,000 would miss the exact post-cost target.

Takeaway: Plan collateral and exit triggers without promising execution with the cash dates, costs and remaining risks stated.

Product card: portfolio-decision-record. Formula: Post-cost target rebalance. Glossary: Rebalancing band, Residual limit. Next lesson: C5T5L1. Topic test.

Sources checked 2026-10-26:

Shared reference guide | Class examination