Q. I have had a great performance this year. Should I let my profit run instead of rebalancing my portfolio?
A. Rebalancing means buy low and sell high, which most investors fail to do so, think about it as a disciplined approach to investment, with the main purpose to maintain a portfolio that is consistent with your original target.
When you let profit run, you are increasing your risk of falling. Think about a target portfolio 50/50, when you let the winners keep running, soon you might see your portfolio becomes 40/60, 30/70, ... in other words, it gets increasingly concentrated in a few winners, and deviates from your target portfolio structure. We all know what happens for a 10/90 portfolio in 2008.
A. Rebalancing means buy low and sell high, which most investors fail to do so, think about it as a disciplined approach to investment, with the main purpose to maintain a portfolio that is consistent with your original target.
When you let profit run, you are increasing your risk of falling. Think about a target portfolio 50/50, when you let the winners keep running, soon you might see your portfolio becomes 40/60, 30/70, ... in other words, it gets increasingly concentrated in a few winners, and deviates from your target portfolio structure. We all know what happens for a 10/90 portfolio in 2008.
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