04 August 2011

Portfolio Rebalancing in Long Term Investment

First of all, we must believe that we can make a profit in the market, and that is the reason why we are still in the market for a long term period. It does not matter whether you have any long or short position in the market, as long as you are still monitoring the market.

The portfolio rebalancing means to re-balance your asset allocation percentage that you have set earlier on. For example, say you have set aside 50% in Blue Chip Stock, 40% in Value Stock, 10% in Growth Stock. Other than that, you also set aside 50% in Cash and 50% in Stock. So the asset allocation portion would be like this:
  • 50% in Cash
  • 25% in Blue Chip Stock
  • 20% in Value Stock
  • 5% in Growth Stock

You will be able to sleep well even if the market movement is up or down. That is because you are still have 50% of cash besides you to allow you to invest more when the market is down or invest less when the market is up.

Of course, above is just an illustration for your better understanding on the portfolio rebalancing in long term investment. You can also set 100% in Cash 0% in stock/real estate when you feel uncomfortable with the market. 

The ultimate goal of long term investment is that, you can sleep well at night regardless of the market movement.


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