In the latest GrayIssue, Allan Gray outlines the importance of rebalancing your portfolio over time to match your long term investment strategy. The article is available on our website. For your convenience, we have summarised it below:
A balancing act
- Have a long term investment objective, backed by a clear plan that guards against emotionally driven behaviour.
- Ask your financial advisor what asset allocation is best for your objectives and your ability to tolerate risk.
- Over time, as one asset class outperforms or underperforms, so the weightings in your portfolio will adjust.
- Check periodically whether market movements have caused your portfolio weightings to change and rebalance accordingly.
- For example, a 60% equity exposure could rise to 80% after five years (with no portfolio rebalancing) morphing the investment into something completely different than originally intended.
- This would leave the investor overexposed, should there be a market crash.
- Rebalancing has the convenient effect of selling asset classes that get more expensive and buying those that get cheaper.
- The alternative is to use an asset allocation fund (balanced fund) and let the fund manager do the work.
- Rebalancing is an important discipline in maintaining a consistent approach to investing.
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