It is that time of the year when many of us reflect back on the year and start thinking about how we would re-balance our portfolios. We always read about re-balancing our portfolio on various blogs or investment wisdom. Almost all of these sources show us that we should have diversified asset allocation. Now, when it comes to actually doing re balancing, that’s where, I find such resources fall short of a methodology. If I am reading any literature from investment advisory houses or brokerage firms, then I find a fixed template, which ironically remains same for everybody (albeit with some minor tweaks). I have asked few certified financial planners or advisers and almost everybody just repeats the same tape of diversification but misses on how it should be done. There is a school of thought that says sell good ones that have increased value, and buy ones that have reduced in value. Now, why should I sell something when it is consistently giving me returns (and I expect it to continue), or why should I buy something that has reduced in value. The reduced value should be an indication that something is not working, right?
In my view, the process of re-balancing is an ongoing effort. It should be always be part of investor’s ongoing buy and sell decision making process. Depending upon your investment goals and risk profile, individuals should have a set of predetermined criteria which should guide them in making buy/sell decision. This way they are proactively managing their asset allocation. continue reading rest of the article….
S&P500 is market cap based index. The top 28 companies have 40% contribution to the index, while top 45 companies provide 50% contribution, and top 180 companies provide 80% contribution. As an investor it really does not help to invest in index hoping to have exposure to US economy. In last couple of years, Exchange traded funds (ETFs) as an investment vehicle has gained momentum among individual investors. In addition, we can also see never ending queue of new ETF based funds either being launched or waiting in the wings. There are few key aspects such as low expenses, trading ability during normal market hours, and relative transparency. Let us take an example of S&P500. We expect that buying S&P500 based ETF fund will provide us exposure to US economy. continue reading rest of the article….
In order to become good in your art and succeed, one needs to keep an open mind, commit to continuous learning, and reflect back to check your tracks and direction. In investing and individual portfolio management, while it is important to understand PE ratios, correlations, book values, etc., it is also equally important to focus of our behavioral characteristics. Discussed below are three characteristics that I have learnt play big role in our investment success.
(1) Need to have well defined strategy
Individual investors who want to manage their own portfolio must have their own strategy. This should include investing style, time period, and diversified asset allocation. In addition, you also need to determine how you are going to manage it. If is based on sound investing principles, you will get good results. The well defined strategy will allow you to keep your emotions out of the picture.