Balance is an essential part of a healthy life. If we lose balance in our diet, it leads to health problems. When we lose balance in our financial portfolio, it can mean unhealthy finances and unnecessary stress. Rebalancing your portfolio is a great way to bring order back into your finances and give yourself the feeling of more control.
Rebalancing is the act of periodically buying or selling assets within your investment portfolio to keep it within your desired risk level or asset allocation. Rebalancing is more about managing risk than it is about improving returns.
Let’s look at an example. Say you’re the kind of person who likes to play it safe. You have your portfolio with 50% bonds, 10% Canadian stocks, 10% international stocks, 10% US stocks, and 20% in alternative investments. If the US stock market performs well over the years, these percentages change. Your portfolio starts to have closer to 40% bonds, making your overall portfolio riskier as it has less fixed income than in the beginning. This is why we rebalance our portfolios.
Now that you know what rebalancing is, you may be wondering when you need to rebalance your portfolio. This will depend on your risk level, investment strategy, and personal knowledge and schedule.
How often you rebalance your portfolio will depend on your risk level and how much time and energy you plan on putting into your investment portfolio. These are considerations that you need to take into account at the very beginning, when you initially start investing as well. There are a few different kinds of rebalancing:
Ultimately, rebalancing will depend on you. Do you have the time for continuous rebalancing, or do you want a more set-it-and-forget-it style portfolio? Rebalancing is essential for any investment portfolio. It means that an investor is staying well-informed and aware of how their investment portfolio performs and how things are diversified. It is essential to rebalance your portfolio when you are involved in alternative investments or riskier stock trading. Portfolio rebalancing means protecting your assets by maintaining the right balance to match your goals and risk tolerance.
Part of portfolio management and rebalancing is looking for investments to add to the portfolio to help you grow your assets while remaining in the desired risk tolerance for your strategy. If you’re looking for an alternative investment type to help your portfolio grow while keeping your risks relatively low, a mortgage pooled investment could be the perfect answer. Get in touch with Jordan on our team today to learn more.