Rebalancing Your Portfolio Is The Key To
Your Investing Success
The Dynamic Wealth Report
January 5, 2011
by Corey Williams, Editor
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?
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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!
• Gold (Under $1,380 an ounce)
Gold lost more than 2% yesterday. The uptrend is now at risk of
faltering after it failed to eclipse the December 7th high of $1,430. Now the yellow metal is testing support of the 50-day moving average.
This level has been a strong support zone on the three previous
pullbacks.
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