In this video, I expose my current investment portfolio and break it down in terms of a risk categories perspective. I also discuss about what it means to rebalance your portfolio and why it is vital for us investors to regularly rebalance our portfolios.
Risk Profile Questionnaire: [ Ссылка ]
What is Rebalancing?
Rebalancing is the process of realigning the weightings of a portfolio of assets. Rebalancing involves periodically buying or selling assets in a portfolio to maintain a desired level of asset allocation or risk.
These two factors are important when you Rebalance Your Portfolio.
(1) Risk Tolerance
- Risk tolerance: How much money are you willing to “put on the line” into investments? The general rule is that the Higher Risk you are willing to tolerate, the Higher Reward potential do you hold. - However, the keyword here is “potential”. You may make greater money from higher risk investments, but at the same time, you may also lose the money.
- Identifying how much risk you’re willing to stomach is very important for your psychology. Let’s just say that you don’t want to be losing sleep thinking about the money you have put aside in your investments. If you are losing sleep, then perhaps that investment is not for you.
(2) Investment Time Horizon.
- Investment Time Horizon: How long are you able to and planning to keep your money in your investment assets before touching it?
- As a general rule, the longer your time horizon, the greater risk you should be able to tolerate. This is because time will be on your side where you can tolerate any volatile changes that your investments are faced with.
- However, if your time horizon is short - for example, you are investing to definitely buy a house in the next 3 years, then it would be better not to put your money in risky assets. You do not want to be risking your money in high risk assets if you have to depend on them.
3 Major Benefits to Rebalancing Your Investment Portfolio:
1) Identify opportunity to invest into riskier assets
- Just like how you saw in the video where I have transformed from a Conservative to a more Moderate Investor, by doing a rebalancing exercise it helps me identify room for opportunity to invest in riskier assets.
- This translates to increasing my investment return potential.
- I could have continued investing as I did in my previous years, but if my risk tolerance has grown bigger and I am able to further maximise my financial capacity by taking risk - then that is an opportunity I would not want to miss.
2) Help control higher risk assets
- Rebalancing give you better control over your investments from a risk management POV.
- Once we have redistributed our investments so that our portfolio is at the allocation ratio that we desire, it is important to keep track of your ratios and rebalance regularly.
- This is because there may be a case where your high risk assets grow to give you greater returns, and this will consequently cause your ratios to change.
- In this case, we need to ensure to rebalance our portfolio because considering our risk profiles, we may not want to take up as much risk.
3) Increase Overall Investment Performance
- At the same time, rebalancing also helps improve our overall investment performance.
- By reallocating returns from higher risk assets, we reduce the probability of large drawdowns in the long term. This helps us consistently grow our investment nest in a controlled and composed manner.
- Brent Osachoff from VTS explains this reason very well in his video [ Ссылка ] where he discusses a real-life investment portfolio example of how a portfolio with rebalancing performs better than one without.
Conclusion:
- Although its great to make big returns from high risk assets, we always need to remember that investment is a long term game.
- We need to protect ourselves from high risks, especially the ones that we are not prepare to tolerate, in order for us to be able to continue playing the investment game.
- And the longer we are able to play the investment game, with time on our side and compounding doing its magic in the background, that is how we can continually grow our wealth and get closer to reaching financial freedom.
***
Chapters
0:00 Introduction
0:36 Disclaimer
0:53 Current portfolio breakdown
3:16 Rebalancing - what is it?
6:12 Risk Profile Questionnaire
7:18 Why rebalance?
7:35 Benefit #1
8:21 Benefit #2
9:10 Bonus Benefits
9:36 Long-term game
10:09 Future plans
11:31 Conclusion
Learn more abt the course at 🌍 [ Ссылка ]
Follow The Personal Finance Challenge:
❤️ Instagram: [ Ссылка ]
🐦 Twitter: [ Ссылка ]
How I Rebalance My Investment Portfolio.
Теги
personal finance challengepfchallengerpfchallengeportfolio rebalancing theoryportfolio rebalancingportfolio managementwhat is rebalancingrebalancing investmentswhat is rebalancing a portfoliofinancial independence retire early firefinancial independence motivationpersonal finance basics for beginnersinvesting 101 courseretirement planning at 50pf challengerinvesting 101 stock market investing for the beginnerfinancial independencefinancial freedom