1. An asset allocation portfolio is based on its goal, tenure and priority.
2. Rebalancing means modifying this portfolio based on a review.
3. Ideally, a portfolio rebalancing review is done once in 12-18 months.
4. If done more frequently, it amounts to "timing" the market through the avoidable practice of "churning", defeating its whole purpose.
5. Asset rebalancing ensures:
a) Realignment of overall portfolio composition to changing needs and risk preferences,
b) Right response to situations where equity prospects are dubious but fixed income investing looks attractive,
c) Viewing equity vs. debt question not as a black and white binary choice, but as a shade of grey, and
d) Avoiding overemphasis on safety and income in early years of retirement which may be poorly aligned to the need in later years.
6. When equity investments are growing faster than fixed income instruments, the balance is restored by periodically selling some equity investments and depositing the money in fixed income instruments.
7. When equity investments start lagging, fixed income instruments are periodically sold and the money is moved into equity instruments.
8. Regular rebalancing—and not complete switching—is the right response to fluctuating fortunes of equity and fixed income investments, because restoring the portfolio's original asset mix not only reduces risk but also enables long-term wealth creation.
9. One's desired asset allocation also changes over the years, depending on long-term goals and retirement needs, and this would also require portfolio rebalancing.
10. Asset rebalancing requires careful awareness of 3 cost aspects too:
a) Cost of monitoring required,
b) Cost of exit loads and charges, and
c) Tax implications, changes in government policies, and laws in force.
2. Rebalancing means modifying this portfolio based on a review.
3. Ideally, a portfolio rebalancing review is done once in 12-18 months.
4. If done more frequently, it amounts to "timing" the market through the avoidable practice of "churning", defeating its whole purpose.
5. Asset rebalancing ensures:
a) Realignment of overall portfolio composition to changing needs and risk preferences,
b) Right response to situations where equity prospects are dubious but fixed income investing looks attractive,
c) Viewing equity vs. debt question not as a black and white binary choice, but as a shade of grey, and
d) Avoiding overemphasis on safety and income in early years of retirement which may be poorly aligned to the need in later years.
6. When equity investments are growing faster than fixed income instruments, the balance is restored by periodically selling some equity investments and depositing the money in fixed income instruments.
7. When equity investments start lagging, fixed income instruments are periodically sold and the money is moved into equity instruments.
8. Regular rebalancing—and not complete switching—is the right response to fluctuating fortunes of equity and fixed income investments, because restoring the portfolio's original asset mix not only reduces risk but also enables long-term wealth creation.
9. One's desired asset allocation also changes over the years, depending on long-term goals and retirement needs, and this would also require portfolio rebalancing.
10. Asset rebalancing requires careful awareness of 3 cost aspects too:
a) Cost of monitoring required,
b) Cost of exit loads and charges, and
c) Tax implications, changes in government policies, and laws in force.