Sharp jump is the situation where a single asset in your portfolio quickly increases in value until it reaches a new baseline value.

This graph illustrates a pump and then stabalization. The white line is the price of a single asset in a portfolio. The orange line is the value of the portfolio if the HODL strategy is used from beginning the end. The blue line is the value of the portfolio if a rebalance was performed at the white dot. Result: rebalancing and HODL produce similar results for this type of sharp jump.

HODL

HODL of an asset which has a sharp rise simply results in the increase of portfolio value directly proportional to its own value increase over time.

Rebalance

The results for this situation are the same as those of HODL. While the single asset pump resulted in a net increase for the portfolio, a rebalance at the dot does not introduce any additional gain in funds. Rebalancing anywhere along the increasing line before the dot would result in under performing when compared to HODL (See “Slow Take Off”).

Conclusion

Both rebalancing and HODL perform the same in this instance when looking at the complete portfolio value. Rebalancing at the dot will redistribute some of the gains observed during the sharp incline, however, the stabilizing price afterwards means no additional gain in portfolio value is observed.

Did this answer your question?