I believe most Indians believe in astrology, even though there is no scientific evidence to support it. Superstition has been hard-wired in our culture and up-bringing.
I sometimes tend to compare financial experts (Relationship Managers) with jyotishi pundits (fortune tellers, horoscope readers).
Do you believe investors should rebalance their investment portfolio every year?
For instance, lets say, you start investment with a balance of 70% stocks (say all NIFTY) and 30% bonds, which for *some* reason you think is right for you.
God blessed you, and your stocks had a good year. Now you're at 80% stocks and 20% bonds. Should you rebalance?
Ideally, if you witness some fundamental changes that change your overall financial circumstances, such as nearing retirement or winning at kaun-banega-karorepati, you might need to rebalance your portfolio.
But what if the only thing that happened was that you aged from 30 to 31...and your stocks had an unusually good year? Do you rebalance still?
Most financial experts will tell you..there’s a *magical* number that each investor should try to maintain in terms of portfolio balance. (Asset allocation).
First indication that something is fishy is that different experts will come up with different magical numbers.
Second sign of trouble is that same experts will have a naked self-interest in getting you to rebalance more than you might need to.
I, personally am not yet convinced that portfolio rebalancing is really required just because it has aged by an year.
Please try convincing me…
1 comment:
Asset allocation is a method to ensure that one sticks to the rules framed in. And I agree that it should not be based on age, but based on the risk profile, financial goal and time horizon. Again we've enough folks out there ready to talk jargon and take the gullibles for a ride. What say ?
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