Smart Portfolio Rebalancing Tips to Resort To
According to statistics released by the Indian Brand Equity Fund, a whopping 2.2 million investors entered the mutual funds market in 2015 and the number is slated to increase in 2016. If you are among those who already have a robust portfolio, rebalancing it every now and then would be a prime requirement. And when you are attempting to do it on your own, the following tips may come in handy.
Some Tips to Rebalance your Portfolio
Portfolio rebalancing has become simple these days with mutual fund companies providing a host of flexible options, such as medium term plans with shorter portfolio durations. Needless to say, options are aplenty. However, here are some of the basic guidelines to abide by while performing the rebalancing act.
· Setting Asset Allocation Targets: Consider referring to your holistic financial plan or your written investment policy from time to time for fine tuning your asset allocation. This target should always be kept in perspective when you perform the permutations and combinations.
· Set a Specific Time Frame for Rebalancing: Most investors do review their investments and portfolio from time to time. Similarly, schedule an asset allocation exercise at regular time intervals as well. You could consider doing it twice every year or even once a year or quarterly.
· Always Rebalance with a Holistic Point of View: While you rebalance, take a complete view of your portfolio, including the taxable accounts as well as the accounts meant for retirement benefits. This is important for making tax friendly as well as strategic moves when performing the rebalancing. Your risks are also evenly spread out when you take a holistic perspective of your accounts before rearranging asset allocations.
· Pump in Fresh Cash: If you have the money to invest afresh, take a look at your allocations and use this money to improve upon the chances of assets that are below their target allocation points. It is a good idea to include some medium term plans in your core portfolio that utilize various derivatives for portfolio balancing as well as hedging risks from time to time. The flexible nature of such plans helps in protecting the value of your portfolio by making suitable changes from time to time.
Remember, reviewing and reallocating assets is characteristic of disciplined investment behavior. Although allowing your winners an undisputed run could be tempting, it could eventually enhance your downside risks. Therefore, balancing is always important.
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