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When is the last time you Re-balanced your Investment Portfolio?


Rebalancing your investment portfolio is the most responsible way to buy LOW and sell HIGH. Even though you are buying and hold investor, it is necessary to rebalance your portfolio on a periodic basis.

So what does this Rebalancing means?

How Investment portfolio has to be rebalanced?

What are the best strategies and time to do it?

Here’s what to know about rebalancing your portfolio of Mutual Funds.

Rebalancing of Portfolio

Rebalancing refers to the simple act of returning current asset allocation back to original asset allocation, which will generally involve buying and selling of funds.

Just as maintenance to your motor car you need to change oil and tune up your car, similar to rebalance, you need to focus on building your portfolio and allocate your fund's percentage wise.

How Investment portfolio has to be rebalanced?

To rebalance, just do appropriate trading to their target allocations. For instance, Returns about 10 funds in your portfolio, you would buy and sell appropriate funds to get back to original 20% of each allocation.

Obviously, you will sell out the funds that performed best during the year and bring them back to 20% allocation of your portfolio and vice versa, you will buy those funds, which performed poorly during the period to maintain the 20% allocation level.

How often the Investment portfolio has to be rebalanced?

It is the very rare case that market swing in the large financial market so it hardly affects the portfolio not more than 3 to 4 percentage points. Thus, excessive rebalancing of the portfolio may diminish the productivity and profitability of the portfolio.

At least once in a year, it is important to rebalance the Investment portfolio. Many people generally do it at the end of the year when other strategies like Taxation points are to be considered.

What are the best strategies to Rebalance the Investment Portfolio?

1.  Determine your Allocation Targets

It is very much important to plan asset allocation framework for your portfolio if you don’t have any such plan make sure you plan for it. There is no-size-fits asset allocation solution. 

2.  Find your current Asset Allocation

After determining what optimal allocation target is to be, it is the time to take a look for your current allocation status. To know your current asset allocation you need to gather up all your investments or can go to your online investment portfolio and make out the exact status of your allocation. Tracking your investments and allocating it may be a bit tricky since there are such funds which aren’t pure stock or not even pure bond. Here you need to know about balanced, which is the most significant allocation to debt.

3.  Formulate Rebalancing plan

When your portfolio is matching with the determined asset allocation and is lined up with current asset allocation, then no inadvertent changes are to be required for the portfolio.

The process of overhauling your portfolio is just a matter of trial and error. And when it comes to deciding type of securities to be added to your portfolio it needs to analyzed from existing portfolio situation.

Make sure that entire portfolio should not be pushed towards the single sector. In some cases, it is necessary to make alterations. When there are lot many bonds and debts in your portfolio then you can purchase some equity stocks to balance the risk of your portfolio. Getting to the bottom of this rebalancing of Risk Analysis might take certain research. Thus everything has to be formulated vitally.

4.  Consider Tax Angle

Taxation is the most important criteria for analyzing your portfolio. Thus before altering your portfolio, you need to consider the impact of the tax on the selling of Funds. Taking capital gains into consideration, ensure that you don’t sell any equity funds before holding them minimum for a year after which you can avoid short-term capital gain tax. In case of SIP
(Systematic Investment Plan) only sell the units which are purchased before one year from date of selling the funds.

5.  Make a habit to do it.

Rebalancing the portfolio should be maintained as a habit. There are two ways to rebalance, either you can rebalance as per set of schedule fixed or when portfolio gets dramatically out of targets. Schedule or set a reminder to review the portfolio at the fixed time of year which can help you to develop a habit.


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