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….