How To Get Your Portfolio In Balance?

If you haven't taken a peek at your portfolio for several years, chances are it's taken on a shape you don't even recognize! There could be various reasons why you might have ignored your portfolio balancing. Perhaps it's because you have become frustrated after seeing your portfolio not performing or you are just too busy. Whatever the reasons, not to scare you, but that's a risky situation. If one of your largest asset classes should take a sudden fall, such as the way emerging markets plunged nearly 60 percent between 1997 and 1998, or the recent global stockmarket collapse in Feb and March this year, your returns will go into a tailspin along with it! Most people tend to turn very brave or gung-ho during bull market, they may have exposed themselves beyond the set tolerable risk!

The easiest way to avoid such unexpected surprises is to rebalance it. That means selling off your best performing assets and buying more of the laggards so that the percentage of your portfolio devoted to say stocks and bonds, as well as different subclasses of stocks, such as big caps, small caps, growth stocks, defensive stocks, can be set to an appropriate position to reflect your investment risk profile and the state of the current investment climate. e.g, if you are anticipating a weaker market, it is then wiser to allocate some money from more aggressive stocks to defensive stocks (that give decent dividends) or bonds. When you are rebalancing, what you should be doing is taking gains among your overperformers and putting more money into underperformers, enabling you to profit from a bounce back. You must at the same time determine whether your underperformers will have the potential to bounce back. You should cut losses if the answer is no and move on to other potential assets.

Review your portfolio at least once a year, if not every 6 months. Remember, events can take place so quickly nowadays that you should get yourself tuned to latest business and economic development. In some mutual funds or unit trusts, it is common to find mutual fund companies that allow switching between different category of funds free of charge once or twice a year. as such, you should take advantage of this to rebalance your portfolio the smart way. However, you should not change your portfolio too often either, as switching too regularly will incur unnecessary moving or transaction costs. One way is to keep your portfolio unchanged if the scale of change is less than 5%.