Some investments will perform better over time than others. This means that the investment balance changes over time.

For example, suppose you inherited $ 100,000 and decided to invest $ 70,000 in stocks and $ 300,000 in bonds.

A year later, a quick rush: stocks soared in a good year on the stock market, but bonds only rose slightly.

Starting with a portfolio with 70% of the shares, 30% of the bonds were converted into 80% of shares and 20% of the bonds. Investors call it "portfolio drift."

It is another investment term that you can throw at a cocktail party to show off your sophistication.
Rebalancing simply means returning the portfolio to the desired rate of return.

In investment language, the target balance of other investments is called asset allocation.
If rebalancing a portfolio sounds like more work than time, you are not alone.

That's why companies like Improvement and Alli Investment can be useful.

Customers do not have to worry about automatically rebalancing their portfolios.
We'll learn more about auto-remediation later.


In the above example, the target asset allocation was 70% of stocks and 30% of bonds.
However, the portion of stocks grew faster than the portion of bonds, and the portfolio drifted to 80% and 20% bonds.

To rebalance the portfolio, some of the shares are sold and the funds are invested in the bonds to return the portfolio to 30% of the desired 70% of the asset quota.

Within each asset class, investors can and should make more detailed asset allocations.
For example, among my stocks, I am targeting about 50% of US stocks and 50% of international stocks.

You can further deepen your target asset allocation. For example, in the case of US stocks, we aim to equitably distribute investments among small, medium, and large cap stocks.

This is a relatively aggressive asset allocation; Investors who dislike risk should consider investing more of their money in US equity funds.


There is no magic about asset allocation of 70% of stocks and 30% of bonds.
As an investor in his late thirties, I personally do not invest in bonds at all.

Existing retirement planning wisdom advises that as retirement gets closer, you need to move away from stocks and make a stable investment.

Stocks offer higher returns in the long run, but they can be very volatile in the short term.
For retirees, falling early in retirement can destroy the portfolio because it is known as the order of profit risk.

Years ago, the principle of allocating assets to stocks was to subtract your age by 100%.
Therefore, if you are 60, you will aim to allocate 40% equity, 60% bonds or other relatively stable assets as assets.

But because Americans live longer, many investment advisers are recommending that you change this rule to 110% or 120%, as CNN Money points out.

If you use 120% as a benchmark, you must aim to allocate 70% of your stock and 30% of your other assets as assets at age 50.

However, your target asset allocation is a personal decision not only based on your age but also on your risk tolerance and interests.

I have a lot of real estate experience, so I invest a lot of my income with the stock.
No matter which number you choose, the target asset allocation will change over time.

The rebalancing goal is to adjust to the target asset allocation even if the portfolio changes over time.


The portfolio must be readjusted by adjusting the age of the target asset allocation, but this is not the only reason why it can be readjusted periodically.

Moving a portfolio often results in asset allocation deviating significantly from the target value.

You might think: Why not ride the massive train indefinitely without letting the winners keep rolling?
But nothing can win forever. Let's look at how rebalancing can help the portfolio.


One advantage of rebalancing is that it forces you to buy higher prices and buy lower prices.
Target Asset Allocation 70% Stocks, 30% Return to Equity Let's imagine that there are bad years in stocks while bonds have a good year.

Because bonds now play a big role in asset allocation, some of the bonds are sold at a premium because of their good performance.

You will buy shares to rebalance your portfolio as revenue.
Because the stock is not performing well and the price is cheap, I buy it at a low price.

Everyone else is crying out that the sky is falling and stocks are bad investments, but because they invest mathematically without investing emotionally, they are in a good position to inevitably recover by buying at low prices.

As for mathematical investments, financial adviser Alan Ross said that's 18-year period in the early 21st century brought regular rebalancing of US equities and bonds to bring improved returns regardless of target asset allocation.

In some cases, the yield has improved by a whopping 18%.
It is noteworthy that in the Gallup and Wells Fargo joint study of 2017, the majority of investors hired financial advisors were only one-third of investors who managed money without professional help. There is a need.


keep in mind that not all financial advisers agree that a readjustment will improve returns.
For example, according to a study by securities firm Vaughard, rebalancing can sometimes reduce yields but also significantly reduce the risk of losses.


In the bull market, stocks tend to outstrip bonds. But then, investors may be overexposed to volatile stocks.

For example, from mid-2015 to mid-2018, S & P grew about 50%. Then it fell almost 15% from September 2018 to December 2018.

Ignoring the portfolio often leads to a large share of the stock, which makes the investor vulnerable to market collapse.

A 25-year-old can withstand this kind of fall, but a 70-year-old might not be able to handle that kind of volatility.

According to Vaidard's study, annual restructuring reduced portfolio variability from 13.2% to 9.9%, creating a fairly stable portfolio.

Note: Should you Rebalance Your Investment Portfolio ?

thanks for the time .

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