Rebalance your portfolio regularly from "summary" of The Simple Path to Wealth by Jl Collins
Rebalancing your portfolio regularly means periodically adjusting your asset allocation to maintain your desired risk level. Let's say you have decided on a mix of stocks and bonds that you are comfortable with, based on your risk tolerance and investment goals. Over time, the value of your investments will fluctuate, causing your asset allocation to drift away from your target. If stocks perform well and increase in value, they will make up a larger percentage of your portfolio than you originally intended. On the other hand, if bonds perform poorly, their percentage in your portfolio will decrease. Rebalancing involves selling some of the asset class that has outperformed and buying more of the underperforming asset class to bring your portfolio back in line with your target allocation. By rebalancing regularly, you are essentially buying low and selling high. You are selling off some of the assets that have done well and buying more of the assets that have not performed as well, which is in line with the basic principle of investing. Rebalancing also helps to control risk. If you let your portfolio drift too far from your target allocation, you may end up with a risk level that is higher or lower than what you are comfortable with. For example, if you have too much in stocks and the market takes a downturn, you could suffer significant losses. On the other hand, if you have too much in bonds and miss out on stock market gains, you may not achieve the returns you need to reach your financial goals. Regularly rebalancing your portfolio helps to keep your risk level in check and ensures that you are on track to meet your investment objectives.
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