What is light weighting in investment?

Definition and Example of Underweight in Investing

The term “underweight” refers to a fund or portfolio that has a lower percentage of a particular stock or sector compared to the benchmark it is measured against. Brokers and fund managers use the term “underweight” to indicate their expectations for a particular stock or market, often when it is advisable to reduce those investments.

How Does Underweight Work in Investing?

Being underweight carries significant importance. An investment can be considered either underweight or overweight. Typically, brokers and fund managers use terms such as “underweight” and “overweight” to denote their expectations for a specific investment compared to its performance against a particular index.

What Does Underweight Mean for Investors?

The term “underweight” is important to understand if you are investing, regardless of whether you have a broker or fund manager helping you manage your investments. You can use this weighting system to determine how to better balance your portfolio. Having a balanced portfolio means you are investing in a mix of bonds and stocks to reduce your exposure to potential volatility. If your portfolio is underweight in one area and overweight in another, it might relate to your risk level, or it may be time to rebalance your portfolio.

Sources:
– Nasdaq. “Underweight.”
– Charles Schwab. “The Benefits of Diversification: Asset Classes Included in Schwab Intelligent Portfolios.”
– Charles Schwab. “Ways To Help Reduce Risk in Your Portfolio.”

Source: https://www.thebalancemoney.com/what-does-underweight-mean-in-investing-5220512