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5 mistakes to avoid while rebalancing your portfolio
Either your equity component or debt component may go beyond the defined level. That will call for rebalancing.
Rebalancing your portfolio is necessitated by a variety of factors. Your goals may have been achieved and may call for rebalancing. You may need to maintain more by way of liquidity ahead of milestones and hence rebalancing may be required. There may be a major shift in the macros calling for a rebalancing in your portfolio. A change in your own financial situation may also call for rebalancing your portfolio. But more often than not, rebalancing is entirely rule-based. You start off with certain allocations for various asset classes. Either your equity component or debt component may go beyond the defined level. That will call for rebalancing.
When you rebalance your portfolio there are a lot of implications in terms of costs, taxes, impact goals etc. Here are 5 key mistakes you must avoid when you rebalance your portfolio.
1. When you rebalance, focus on the current winners and potential losers,
2. Don’t drive your rebalancing by personal likes and dislikes
3. It is always better to seek expert support for rebalancing
4. There is a tax angle to rebalancing and you must factor that in
5. Don’t rebalance without your eventual financial goal in mind
Self-driven planning and robot driven planning is good but it is always better to seek expert advice when it comes to rebalancing. It is after all about your long-term goals. What is the value-add that the advisor can provide? He can provide you a holistic picture and fine tune your decision. You can share further data with the advisor and he can add a personal touch to the entire rebalancing process. Experts can also caution you on what to do and what not to do when you rebalance your portfolio.
This is one of the most likely mistakes when you rebalance. Your rebalancing should be driven by your eventual financial goals and also by your milestones. For example when your milestones are approaching it is better to stay in liquid funds. Don’t rebalance these funds as liquidity is paramount when milestones are approaching. Also when you are looking to grow your money over the long term, remember that any shift out of equities can seriously impair your long-term wealth creation.
Source-www.moneycontrol.com
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