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Rebalance portfolio regularly from "summary" of A Random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing (Twelfth Edition) by Burton G. Malkiel
Regularly rebalancing your portfolio is crucial to maintain your desired asset allocation over time. As market conditions fluctuate, the value of your investments will change accordingly. This can lead to a situation where certain asset classes become over or underrepresented in your portfolio. Rebalancing ensures that you realign your investments to match your original asset allocation targets. By rebalancing your portfolio regularly, you are effectively selling high and buying low. This disciplined approach helps you to capitalize on market fluctuations and avoid the pitfalls of emotional decision-making. It forces you to stick to your long-term investment strategy, rather than succumbing to short-term market trends. Rebalancing also helps to manage risk in your portfolio. By diversifying your investments across different asset classes, you can spread out risk and reduce the impact of market volatility. Regular rebalancing ensures that you maintain this diversification and stay within your risk tolerance levels. Furthermore, rebalancing can enhance your overall returns. Studies have shown that portfolios that are rebalanced regularly tend to outperform those that are left untouched. This is because rebalancing forces you to buy low and sell high, which can lead to improved performance over the long term. While the frequency of rebalancing can vary depending on your individual circumstances, it is generally recommended to rebalance at least once a year. This allows you to stay on track with your investment goals and make any necessary adjustments to your portfolio. Remember, the key is to stick to your predetermined asset allocation targets and not let short-term market movements sway your decisions.
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