Secret to Great Investing Stay focused and rebalanced Having implemented an asset mix you are comfortable with, movements on sharemarkets will change your portfolio over time even if you never make another transaction. In a long bull market, the relative value of your funds in shares might grow to dwarf your holdings in bonds and cash. As a result, you may be taking significantly more risk than you originally intended, or need to. It is wise to periodically rebalance the portfolio to prevent it drifting too far from your asset allocation targets. Maintaining an asset allocation requires the discipline to rebalance regularly, something that is easier said than done when it comes to selling off winning investments and rebalancing the portfolio by investing in the (typically) underperforming asset class. And it can come with a tax bill, so advice is important to understand the full picture. One thing to think about when rebalancing your portfolio is the concept of refining, as distinct from reinventing. When conducting an ongoing strategic asset allocation review, do not seek to rework your initial allocation unless there is a good reason. Moving into retirement is an example of a life transition where reweighting may be entirely appropriate. In general, knee-jerk responses to short-term market moves can lead to bad investment outcomes. The focus in reviewing the strategic asset allocation is long-term stability and robustness of actual allocations. In addition, the process aims to balance this objective with evolving structural change in financial markets. charterhousefp.au/blog/
Posted on: Thu, 13 Jun 2013 06:10:01 +0000
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