Rebalance portfolio periodically from "summary" of Let's Talk Mutual Funds by Monika Halan
Periodically rebalancing your portfolio is like giving your investment a reality check. It is natural for some investments to perform better than others over time. When this happens, your original asset allocation might get skewed. Let's say you started with a 60-40 allocation between equity and debt. Over time, your equity investments do well, while debt lags. This could mean that your equity allocation is now 70% and debt is down to 30%. Rebalancing means selling some of the outperforming equity and buying more of the underperforming debt to get back to your original 60-40 allocation. Rebalancing helps you take profits off the table when an asset class does well and buy more when it is not performing. It is a way to keep your risk under control. If you don't rebalance, your portfolio could become riskier than you originally intended. Rebalancing also helps you stick to your original investment plan. Emotions can often cloud investment decisions. When a particular asset class does well, you might be tempted to put more money into it. But this might expose you to more risk than you can handle. By rebalancing periodically, you are essentially forcing yourself to buy low and sell high. It keeps your portfolio aligned with your financial goals and risk tolerance. And it can also help you take advantage of opportunities in the market. So, make sure to review your portfolio regularly and rebalance when necessary. It is a simple yet effective way to ensure that your investments are on track to meet your financial objectives.
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