Rebalancing Your Portfolio Is The Key To Your Investing Success
It’s a new year… It’s time for resolutions and fresh starts. It’s also time to take a hard look at your investment portfolio.
How did your investments do in 2010?
Good? Bad? Great? Awful?
If you’re having a hard time answering this question, you probably didn’t take the time to write down your investing goals and objectives. It’s awfully hard to grade your performance without knowing the answers… Heck, you could have the world’s best portfolio and not even know it!
If you’re in this boat, it’s not the end of the world. But don’t get complacent. Start 2011 off on the right foot. Take the time to write down your goals and objectives.
Morningstar.com has some great resources if you need a helping hand. Check out their Investment Policy Worksheet. Committing to a disciplined investment plan in writing will get you started. It also gives you something to come back to next year when it’s time to grade your investment performance in 2011.
Now comes the fun part… putting your plan into action.
Depending on your goals, the mix of investments in your portfolio will vary from one person to the next. And even if you’re a buy and hold investor, you still need to take a look at how much money you have invested in one investment or another.
In other words, you need to make sure your portfolio is balanced and aligned with your investment goals.
Why?
There is simply no such thing as a “set it and forget it” portfolio.
Remember, without doing anything, your portfolio can still get out of balance in a hurry. If one type of investment did really well and another did poorly, you now have a portfolio that’s out of whack. Too much of your capital is invested in the stock or fund and not enough in the other.
When this happens, you need to rebalance your portfolio. It’s good practice to sell some of the investment that did really well and buy more of the underperforming asset.
Now it may seem counterintuitive, but remember, a balanced portfolio is all about controlling risk. And no single asset stays in favor forever.
Last year’s golden boy could easily become this year’s flunky. And if you’re overinvested in this year’s flunky, you’re setting yourself up for disaster.
In other words, there’s no single investment that meets all of your goals and objectives. No matter how great it performed in the past, you’re still better off sticking to your plan and keeping your portfolio balanced.
Here’s one more thing to keep in mind as you’re rebalancing your portfolio this year.
Don’t forget about the growth of emerging markets. They’re contributing more and more to the global economy every year. As their contributions increase, so should the amount you dedicate to investing emerging markets.
In short, as the makeup of the global economy changes, your balanced portfolio needs to change with it.
An easy way to do this is by using ETFs.
There are ETFs from every major ETF provider that track emerging markets in a variety of different ways. They’ll allow you to rebalance and adjust your portfolio to account for the changing global economy.
So there you have it.
Get the New Year started on the right foot. Make a plan, rebalance your portfolio, and adjust to the changing global economy. Let’s make 2011 a year to remember!
Category: Stocks
