WHAT IS PORTFOLIO REBALANCING AND DOES IT HELP TO GROW IT FASTER
A "balanced" portfolio exposes you to a certain combination of asset classes. Some asset classes are likely to grow fast, but they're also riskier. Others are likely to grow more slowly, but they tend to preserve their value and help you to reach the goals.
The proper balance for your portfolio depends on your age, time horizon and risk appetite.
The longer your time horizon (i.e. expected retirement date), the more risks you can take with the reassurance that you will recover from temporary losses.
So when you apply a certain theory of balance to your portfolio, you'll want a certain percent of your assets to be in equities, and a certain percent to be in bonds and other asset classes. Balance is about creating a ratio of risk to reward.
Let's say you create an initial portfolio with the right proportions. Then the markets shift. Equities decline in value. All of a sudden, you have a smaller proportion of your assets in equities relative to other asset classes.
Theoretically, your age, time horizon and risk appetite haven't changed (in practice, many people find that their risk appetite is much lower when markets fall than when they rise).
At that moment, to maintain a balanced portfolio you would buy more equities.
That means you'd be purchasing potentially higher-growth securities at a time when their price is lower. Which sounds like a smart move.
Over time, that sort of rebalancing can make your portfolio grow faster.
Want my help in organising and rebalancing your portfolio.... call me.
Rajiv Kapoor
FCS
9839034761
A "balanced" portfolio exposes you to a certain combination of asset classes. Some asset classes are likely to grow fast, but they're also riskier. Others are likely to grow more slowly, but they tend to preserve their value and help you to reach the goals.
The proper balance for your portfolio depends on your age, time horizon and risk appetite.
The longer your time horizon (i.e. expected retirement date), the more risks you can take with the reassurance that you will recover from temporary losses.
So when you apply a certain theory of balance to your portfolio, you'll want a certain percent of your assets to be in equities, and a certain percent to be in bonds and other asset classes. Balance is about creating a ratio of risk to reward.
Let's say you create an initial portfolio with the right proportions. Then the markets shift. Equities decline in value. All of a sudden, you have a smaller proportion of your assets in equities relative to other asset classes.
Theoretically, your age, time horizon and risk appetite haven't changed (in practice, many people find that their risk appetite is much lower when markets fall than when they rise).
At that moment, to maintain a balanced portfolio you would buy more equities.
That means you'd be purchasing potentially higher-growth securities at a time when their price is lower. Which sounds like a smart move.
Over time, that sort of rebalancing can make your portfolio grow faster.
Want my help in organising and rebalancing your portfolio.... call me.
Rajiv Kapoor
FCS
9839034761
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