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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