Diversification and Rebalancing strategies are two essential, time-tested portfolio tools. They improve your chances of achieving better consistency of long-term returns. Tasty free lunches are still being served in your investing patch.
Diversification spreads your risks among a variety of investments. Rebalancing makes periodic adjustments to bring allocations back in line with targets set within your road map. I assume that your road map is in place.
Experience shows that asset mix decisions have the greatest impact on your portfolio returns than any other factor. The foundation of investing your nest egg requires patience, discipline and clear investment policies.
Diversification is one necessary safeguard. You don’t want problems arising in any asset class to ruin your well designed portfolio. Diversification increases the odds of you being right more often. If some selections are suffering, others can help cushion the rest.
Initial allocations and weights of your portfolio selections will drift over time as markets rise and retreat. When drift becomes significant, it affects your investment profile and typically requires some re-balancing.
Periodic rebalancing strategies sell some assets and buy others within your asset mix. My preferred time to rebalance is when you inject new money into the portfolio or withdraw some. Use rebalancing techniques as portfolio tweaks, not for wholesale changes.
I highlight 10 ways to achieve portfolio changes: Continue Reading…