Why It Might Be a Good Time to Rebalance Your Portfolio

Rebalancing your portfolio is simply buying and selling specific portions of your portfolio to reset each asset class back to its original state. This can also be an excellent strategy for investors whose tolerance for risk, for example, has changed. They can use rebalancing to readjust the allocation of each asset in a portfolio to fulfill a newly designed investment strategy.

Think of it this way; you’ve developed an asset allocation strategy that ticks all the boxes. However, 12 months later, you find that the weighting of each asset in your portfolio has changed. In those 12 months, the result is a weighting change after each security within a portfolio earned a different return. This is where portfolio rebalancing comes into play, and an investor starts changing the weightings of assets to keep their risk levels in check and take advantage of new opportunities.

Take Advantage of the Down Market

If you look back at the great recession of 2008, you will undoubtedly notice the thousands of lives that were impacted by the financial crisis. 2022 is yet another year that seems to be heading in the same direction. The markets are down, bonds are performing poorly, and the interest rate environment is not that favorable either. Investment experts believe now is an excellent time to take advantage of the down market instead of counting your losses.

The question on everybody’s lips right now is, why would I invest when almost everything is going down? Well, the key lesson from the 2008 crash is that if investors had held onto their investments, most of them would have fully recovered. Here’s the thing; recessions are always followed by a recovery. And while it might make sense to try and recoup your losses, you do not have to sit idle as your portfolios get hammered by massive selling. Take advantage of recessionary instability to position yourself for the quick and robust rebound that will surely come.

Links and Resources:

PDF: Schiller and Regular PE

Listen now to learn the 8 Strategies to Take Advantage of Market Declines.