Rebalancing your Portfolio for Optimum Results

Rebalancing your Portfolio for Optimum Results

Now that you have set up a robust portfolio, you begin to plan your journey towards your investment goals. With a disciplined approach, you follow a desired asset allocation (blend of stocks and bonds) that best matches your risk profile. But, what you did not anticipate is market volatility! Since markets tend to fluctuate without warning, it can cause your portfolio to veer off track. This is when you need to fit in a strategy to get it back on schedule. The entire process of doing so is called rebalancing.

What is portfolio rebalancing?

The process of realigning your portfolio back to target asset allocation, by buying and selling a portion of your portfolio is referred to as portfolio rebalancing.

For example, you decide to invest in equity and bond equally. A year later, the equity market outperforms and you put more money in equity investment. This change may seem like a good strategy on paper but in reality, your portfolio is exposed to greater risk than before.

The concept of rebalancing goes way deeper than just sticking to the original asset allocation. Rebalancing is a complex exercise and a number of factors need to be taken into consideration, such as age, income level and investment requirement. Your target asset allocation may also need to change as you age and your growing needs. The change in target asset mix also calls for rebalancing.

For example, with age you may want to shift from an aggressive asset allocation strategy to a conservative asset allocation strategy. Let’s say, you are currently at pre-set asset allocation of 70% equity and 30% bonds, which has a higher exposure to risk. As you age and get closer to your retirement years, you may want to play safer with your investment, for example move to an asset mix of 40:60 equity and debt. Given your risk appetite, you may need to relook at your portfolio accordingly.

Why do you need to rebalance?

  • For active risk management 

When the market is on a roll, a larger stock investment may seem good. But, when the market drops unexpectedly, you are exposed to a higher risk of price drop. Thus, rebalancing your portfolio on a timely basis can help keep the risk balanced.

  • To realign your portfolio based on your investment goals and needs

Your life circumstances, overall goal and risk level tend to change over time, which calls for a rethink on your asset mix and portfolio rebalancing. The asset mix that worked for you 10 years ago, may not be appropriate for at the moment, when you maybe only a few years away from your goal.

Type of portfolio rebalancing strategies

  • Tactical rebalancing: This particular strategy is applied based on external events and market environment. Basically, it is suitable for active investors who keenly follow the market.
  • Periodic rebalancing: A systematic application of periodic rebalancing is helpful in reviewing the portfolio on regular basis and can be rebalanced if necessary. You can define a percentage of deviation to trigger rebalancing. For example, your original asset allocation is 60% equity and 40% debt with a deviation of 5%. Rebalancing will trigger only when the equity exposure shoots up to 65% or comes below 55%.

A well-diversified portfolio includes various assets (stocks, bonds, gold and cash etc.) with different risk and return characteristics. A diversified portfolio also includes assets with differing correlation that do not move in the same direction during change in market condition. Thus, rebalancing a portfolio allows investors to capture the gain during market volatility with these uncorrelated assets. For example, gold and equity have an inverse relationship. When gold prices rise, stock prices tend to go down and vice versa. Thus, it is important to look at the market condition while rebalancing your portfolio..

Rebalancing may also involve costs such as tax and other transaction fees. Hence, rebalancing is a complex process that depends on various other factors like fluctuating market conditions, shift in financial circumstances, lifestyle changes and costs involved. Seeking expert help can benefit in managing risk professionally along with generating returns for your desired goal.


Portfolio rebalancing will depend on your risk/return profile. Ultimately, it is an important risk control tool that will help you to stick to your investment plan and goals regardless of market conditions changes.


Creating Wealth One Step at a Time

Introduction:With the right outlook and approach, building wealth can be one of the most gratifying and pleasing experiences in an investor's life. Every investor dreams of building a profitable investment portfolio. However, the question arises, what is portfolio investment? Portfolio investment is a strategy that covers financial goals and mitigates all possible risks. Understandably, it's an uphill task. You will need to set up your financial goals, understand your risk appetite, decide allocations and accordingly pick the right investments. But it is not over yet. Investing prudently also calls to have your ear on the ground, make sense of market information and discern the news to make it work for you. Through investment analysis and portfolio management you can track your investments as you keep building wealth. Keys for Successful InvestingTo evolve as a successful investor, it’s essential to keep an eagle eye on key changes in the market and know how stock market reacts to key economic data. Equity markets are highly susceptible to market changes and actively react to various political and economic changes. Let’s take two major events to understand this. Example 1: The Government’s decision to demonetize currency at the end of 2016 had a massive impact on the stock market. Demonetisation resulted in withdrawal of nearly 86% of circulated money in the market. This led to the BSE Sensex’s immediate and huge crash by 1690 points. Some of the sectoral indices of cash-driven sectors such as realty and consumer durables also witnessed a tremendous plunge.  Example 2: In 2017, the passing of the GST bill had a similar impact on the stock market. The Government’s decision to keep the tax rate low on mass consumption items and exemption of tax on cereals, milk and grains worked positively for FMCG stocks such as Nestle and Marico. Likewise, it had varied impact on various sectors. In order to make sense of market volatility, investors need to consider various data points such as inflation, GDP trends, global changes and the economy as a whole. The Higher the GDP, greater is the level of income and spending, which ultimately results in higher corporate earnings. Market sentiments vary with such data changes. Making a smart moveApart from the bigger picture, some specific elements mentioned below can be taken into account before investing: Corporate earnings: Being aware of what is happening in the company whose scrips you hold can help you make a rational decision. Company quarterly reports representing earnings provides a broader picture of the company’s progress towards its targeted annual growth. Along with net profit it is important to pay attention to other details like debt structure, earnings per share, net sales and operating expenses etc. However, analysing these numbers can sometimes, be, easier said than done.  Analyst ratings: Stock ratings by industry analysts give a measure of the stock’s expected performance for a particular period. Ratings are sometimes simply labelled as ‘buy, ‘hold’ or ‘sell’. Sometimes, ratings are given as ’equal-weight’ ’under-weight’,‘ ‘outperform’’ and ’underperform’. These ratings are assigned based on various valuations, market trends, competitive advantages, company’s earnings, prospects and other factors. It is worthwhile to consider such informed opinions.  Smart decisions always needs smart skills. Some skills required to make sense of news and use it for portfolio success include: Critical thinking: Strong critical thinking is important to make SWOT (Strength, Weakness, Opportunities and Threats) analysis of financial reports. Anticipate: Evaluating possible impact of major events and its effect on the financial market is important in making smart investment decisions. Outside the box research: Being mindful of various scenarios and being able to associate their possible impact on various market activities is crucial.  Competitiveness: It is required to stay innovative and tap good opportunities. Every investment decision needs extensive research and a constant check on the financial market. Being informed on market developments and analysing them is highly crucial in making a smart move. Thus, it is advisable to avail professional help. You could use the services of a stock portfolio manager to guide you in how to create an investment portfolio. Portfolio management services offer a customised portfolio investment process strategized and managed by experts or portfolio managers. Conclusion:The bottom line to building a successful investment portfolio is to make sense of the news, interpret data while analysing events and predicting every possible outcome. Portfolio managers help build a successful and customised investment portfolio with their knowledge, skill and strategy. Make use of their expertise and proficiency in navigating your financial future and pursuing your investment goals.

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Why You Should Review Your Investment Portfolio

Most first-time investors invest and forget, believing their money will work it out themselves. But having planted the seeds, your investment now needs tending to grow. Hence, monitoring your portfolio through portfolio management services could be a crucial step in achieving your goals. Do not ‘set it and forget’Once you create an investment portfolio, it needs to be well managed. You could manage it with the help of a portfolio tracker as an online tool. Portfolio management in itself is an art that involves building and managing various investments to reach the desired outcome.Usually, long-term equity investments facilitate wealth creation owing to its high returns. While this is true, the concept of ‘set it and forget it’ may not be ideal. You need to actively manage the portfolio with an online portfolio tracker to outperform the market index. Here are some steps towards a successful portfolio management:What is portfolio management services? Create a roadmap You need to plan ahead before building an investment portfolio. Take a look at your financial situation, figure out your risk taking ability, and identify your goals. Have a plan in mind for every purpose. Planning makes your investing journey smooth. Invest based on your goals and risk appetite The important thing is to decide asset allocation as per your risk appetite and goal. Asset allocation helps you decide what proportion of stocks, bonds, gold etc. to invest in. Right asset allocation aims at balancing out the risk and return in accordance with your personal financial goal. Along with asset allocation, it is also important to make the right pick of assets. For example, when it comes to choosing equity shares, make a diversified choice. Invest in shares of different sectors as no particular sector performs well all the time. Constant monitoring To be an active investor, you need to monitor and review your portfolio periodically. It is also important to keep a tab on emerging opportunities in the market. With changing economic conditions and rising competition, it is crucial to keep a continuous watch on your stock. Rebalancing Active rebalancing is the key to staying on track with the right asset allocation strategy. Rebalance your portfolio in accordance with your financial situation, goals and risk appetite. Follow a disciplined approach and keep stirring your portfolio to make the most out of your investments. Seek expert help If you are hard-pressed for time, unable to handle it all by yourself and believe you might need an expert eye to oversee your portfolio, seek the help of a financial expert. After all, deciding the right allocation needs knowledge and expertise!ConclusionThrough the use of benchmarks, you can get an idea of your portfolio's performance in relation to the stock market. At best, you expect your returns to mimic market ups and perhaps also exceed the relative norms. This is why smart investing is crucial to portfolio success.Smart investing requires proper planning, right selection and constant monitoring. By using a stock market portfolio tracker you can pursue pre-set goals. Although there is no sure-shot formula for guaranteed success, a disciplined investment approach can potentially elevate the chances of higher growth in the long run.

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