Do you know what you could be missing out on if you're not regularly rebalancing your portfolio? Make sure you don't make this mistake and watch this week's Arista Advice to get the full details.
Hello, welcome to Arista Advice.
Question of the week is: "Paul, should I be rebalancing my portfolio?"
Rebalancing involves periodically buying or selling assets in a portfolio to maintain a desired level of asset allocation and risk over time. Portfolio rebalancing safeguards investors from being overly exposed to undesirable risk. The long-term return on stocks is about 10% a year. While the long-term return on bonds is only 5% or less.
A portfolio that has allocated 50/50 to each and buys and holds these asset classes for the long-run will have the percentage of the portfolio allocated to equities become larger and larger over time. After 7 years your portfolio would be 60/40. After 23 years your portfolio would be 75% equities, 25% fixed-income.
It is possible to go without rebalancing a portfolio, but this would generally be ill-advised. Rebalancing gives investors the opportunity to sell high and buy low, taking the gains from high-performing investments and reinvesting them in areas that have not yet experienced such notable growth.
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