environment<\/a>, investors may be more tempted to delay rebalancing their portfolios. This is a trap because a portfolio usually becomes progressively more volatile and riskier without rebalancing.<\/p>\nRepeated research* over more than 30 years, including by Vanguard, has concluded that a diversified portfolio’s strategic asset allocation is the main cause of variations in its long-term returns.<\/p>\n
A recent Vanguard research paper,\u00a0Getting back on track: A guide to smart rebalancing<\/em>**, suggests three straightforward practices for portfolio rebalancing:<\/p>\n\n- \n
Rebalance to manage your risks and emotions:<\/strong>\u00a0A disciplined, easy-to-follow rebalancing strategy helps remove emotions from your investment decisions. And as discussed, rebalancing reduces the likelihood of your portfolio becoming riskier with movements in investment markets.<\/p>\n<\/li>\n- \n
Set rebalancing trigger:<\/strong>\u00a0Most investors following a rebalancing strategy use either a “time trigger” or a “threshold trigger”. With a time trigger, you rebalance your portfolio at set intervals of, say, once a year or more frequently. And with a threshold trigger, you rebalance when your portfolio drifts from its asset allocation targets by a predetermined percentage.<\/p>\n<\/li>\n- \n
Minimise rebalancing costs:\u00a0<\/strong>Keep potential tax and transaction costs of rebalancing to a minimum. Some investors use cash where possible \u2013 perhaps from dividends and savings accounts \u2013 to replenish asset classes that have become underweight over time. Those with investments inside and outside superannuation should keep in mind when rebalancing that their super savings are either concessionally-taxed or exempt from tax.<\/p>\n<\/li>\n<\/ul>\nThe rebalancing of a portfolio can seem counter-intuitive. This is because rebalancing requires the selling of currently outperforming assets to buy currently underperforming assets.<\/p>\n
Please contact us on |PHONE| if you seek further assistance .<\/p>\n
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