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A Brief Note on Investment Risks
Monitoring of an investment portfolio is an ongoing process, which involves reviewing and valuation. This way, investors can suitably amend asset allocation and minimise the risks for it to stay within tolerable limits in the bargain.
Rebalancing is the result of portfolio monitoring, which is the action of bringing a portfolio of investments that has deviated from the targeted asset allocation, back into its original allocation state.
When to consider rebalancing
An investor may consider rebalancing their portfolio either on the basis of time frame or calendar or on investments.
Experts recommend that investors should ideally rebalance their portfolios at a regular time interval, which could be every six months or a year. The advantage of this method is that the calendar is a reminder of when one should consider rebalancing.
Others recommend rebalancing only when the relative weight of an asset class increases or decreases more than a certain percentage that one has identified in advance. An investor can always reach out to a professional financial advisor in this regard.
The advantage of this method is that the investments themselves tell one when to rebalance. In either of the two above cases, rebalancing tends to work best when done on a relatively infrequent basis
As an investor, it is prudent to not put all your eggs in one basket. Try and gain insights into basic information through books, magazines, and websites. If possible, reach out to friends who may have similar questions, however, ensure doing due diligence on your part as well.
A new investor in the equity market should start with baby steps and learn as they go along the way. There is no need to do everything at once; even a small step is better than none.
Also, when it comes to investments, the earlier one starts, the better it is, always.
Rajiv is an independent editorial consultant for the last decade. Prior to this, he worked as a full-time journalist associated with various prominent print media houses. In his spare time, he loves to paint on canvas.
