by The Investor
on May 14, 2009
I have previously discussed why rebalancing your portfolio is a good idea. In short, by reducing or adding to your holdings in different asset classes, you can smooth your returns and keep risk within a level you can tolerate.
How do you actually do it? Well, rebalancing is definitely an art more than a science.
We’ve talked before about how there are no rules for constructing the perfectly diversified portfolio – unless you believe in utterly efficient markets AND you know yourself better than a Zen master and so can anticipate your reaction to any kind of market conditions!
Equally, there’s no perfect method of rebalancing. But there are definitely factors you should keep in mind.
Hence this series on how to go about rebalancing your portfolio.
Make sure you’ve read that first post on why you should rebalance, and please do subscribe or bookmark this site to get the rest of the series.
For the rest of this article, we’ll discuss the crucial decision you must make before rebalancing.
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by The Investor
on May 12, 2009
Most of the benefits of investing are obvious. Many would say they amount to zero – or rather all the zeros you hope to see at the end of your bank balance!
More thoughtful souls ask what successful investing could translate into, whether it be the sports cars and fancy holidays you imagine as a young investor to the early retirement, freedom, or even health care opportunities you’ll probably find are as important when you’ve actually made it.
What about living for longer? That’s not a benefit of investing you hear about often, but perhaps we should, since most of the great investors lived long lives.
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by The Investor
on May 9, 2009
Every week I read a large number of personal finance and investing articles. Here’s my latest weekly shortcut to the best.
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by The Investor
on May 8, 2009
Very few private investors give much thought to asset allocation, even though it’s far more important than picking stocks or funds in determining your investment returns.
Even worse, those who do set up a nicely diversified portfolio often forget all about their ideal asset mix once they’ve made their initial decisions!
This is foolish, and potentially bad for your wealth, since like this you’re leaving asset allocation to the whims of the market.
Often the only time people wonder whether they should have rebalanced is when a big bear market slices more money off their net wealth in six months than they’d ever imagined possible.
If you’ve diversified your portfolio into different assets to reduce its volatility and improve its risk/return characteristics, it makes no sense to abandon that just because one asset class has boomed and another slumped.
Instead, periodically rebalancing your portfolio by selling down winning assets to buy more of under-performing assets can boost your returns, help keep volatility closer to your own tolerance levels, and reduce the risk of your portfolio being exposed to bubble markets.
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