Asset allocation should be regularly reviewed and adjusted as needed from "summary" of All About Asset Allocation, Second Edition by Richard Ferri
Asset allocation should be regularly reviewed and adjusted as needed. This crucial concept is at the core of successful investing. The reason for this is simple: financial markets are constantly changing. What may have been an optimal asset allocation at one point in time may no longer be suitable in the future. Ignoring the need to review and adjust your asset allocation can have serious consequences for your investment portfolio. Regularly reviewing your asset allocation ensures that your investment strategy remains in line with your financial goals and risk tolerance. By evaluating your current asset mix and comparing it to your target allocation, you can identify any deviations that may have occurred due to market movements or changes in your personal circumstances. Adjusting your asset allocation as needed allows you to realign your portfolio with your long-term objectives, helping you stay on track towards achieving your financial goals. Failing to review and adjust your asset allocation can result in your portfolio becoming too heavily weighted in one asset class or sector, exposing you to unnecessary risks. For example, if you initially allocated a certain percentage of your portfolio to stocks but the stock market has experienced significant gains, your equity holdings may now represent a larger portion of your portfolio than intended. This overexposure to stocks could leave you vulnerable to market downturns and increase the volatility of your portfolio. On the other hand, if a particular asset class has underperformed relative to others, it may be time to rebalance your portfolio by increasing your allocation to that asset class. By periodically reviewing your asset allocation and making adjustments as needed, you can take advantage of opportunities to buy low and sell high, thereby enhancing the overall performance of your portfolio.- The importance of regularly reviewing and adjusting your asset allocation cannot be overstated. It is a fundamental aspect of successful investing that helps you maintain a balanced and diversified portfolio in line with your financial goals and risk tolerance. By staying proactive and responsive to changes in the market and your personal circumstances, you can optimize your investment strategy and position yourself for long-term success.
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