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Have You Rebalanced Yet? ⚖️

Updated: Dec 14, 2022

As much as we’d like it to be true, portfolios don’t have a one-size-fits-all formula that works for every situation and for every person. And, as time passes, even the finance bros will have to stop and reevaluate their moves.


Depending on factors like risk tolerance, time horizon, asset allocation and other big words, one might want to make changes to their portfolio on a timely basis, and this is essentially what Rebalancing is all about!


Rebalancing may sound like a cumbersome task, but if done right, can amp up your returns!


Why Should I Rebalance?

Drift in Allocation

  • An investor might begin their journey with a predetermined allocation among asset classes like equity, debt, gold, real estate or even crypto

  • Over time, the money invested in these will grow out of those predetermined allocations based on how each asset class performs

  • Since the investor must’ve chosen that split based on their risk profile and goals, a rebalance will help to bring it back to that original split

Don’t Concentrate

  • Contrary to parental belief, concentration in this situation is a bad thing

  • Despite allocating 50% of the portfolio to equity, chances are that with time, that portion can grow to 90%

  • Unless a rebalance is done in time, the investor is exposed to the possibility that if the market crashes, the portfolio will also suffer the same fate

New Goals

  • The goals with which an investor begins their investment journey might change with time, and rebalancing can help align their portfolio with those adjusted goals

  • For example, if the goal is to buy a car within the next 5 years, one might wish to increase their allocation in short-term debt funds as equity is a longer-term game and might put the budget at risk of reduction

Strategy

  • Markets often provide opportunities to make profits, if we slightly tweak our portfolios in a particular direction

  • For example, in our post about Should You Stick to Mid Caps During Tough Times, we inferred that in 2020, investing in mid-caps would’ve yielded more returns than large-caps

  • If an investor had rebalanced and allocated more to mid-caps, they’d enjoy the fruits of this tactical move

How Do I Rebalance My Portfolio?

We established the “why” - but the “how” is where it can get tricky.


Although one might be able to figure out how to change asset allocations based on their own goals and risk-taking capabilities, being able to make those strategic calls about the market and capitalising on trends is something that requires expertise and experience.


Since we’re looking out for you, we’ve made a list of ways for you to achieve optimum allocation without wracking your brains too much:


Dynamic Asset Allocation Funds or Balanced Advantage Funds

  • These funds are made by managers who keep the strategy flexible

  • They run on fancy quantitative models that alter the asset allocation based on the market, and at times use derivatives to hedge equity positions so the investor is secure

Hire a Professional

  • Although Indians dread paying people to do things, this is an expense that might just save your savings

  • Hiring a wealth manager, financial planner, investment adviser or mutual fund distributor, who has the necessary knowledge and expertise required to conduct timely rebalances, can protect your capital from the lack of oversight

All-Weather Portfolios

  • As the name suggests, these portfolios can withstand any storm that the markets throw their way

  • These are usually based on risk levels that you are comfortable with and they rebalance on a regular interval to ensure that it maintains that level of risk, come rain, hail or shine!

  • We have our very own All-Weather Portfolios that have been doing quite well, if we say so ourselves (self-pat on the back), that you can check out! (PS: They are super affordable!)


Rebalancing and asset allocation aren't cut and dry; it has various methods, based on who the fund manager is, what the time horizon is, what your goals are and how much risk you’re willing to take.


Take help, and reap the rebalanced rewards!

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