Rebalancing: Doing so will restore the asset allocation you may have decided upon based on your investment horizon and risk appetite, and also lower the risk in your portfolio
As one year ends and another begins, investors should review their portfolios. If you have chosen the right funds that are suitable for your risk appetite and time horizon, then checking your portfolio once in a year should suffice. Besides bringing the portfolio back to the asset allocation your financial advisor or you had decided upon based on your risk appetite and time horizon, rebalancing will also allow you to book gains and reduce the level of risk in your portfolio.
Go back to original asset mix:
Most investors have a mixture of equity funds, debt funds, and gold in their portfolios. In the years when equities do well, they come to have a higher weight in investors’ portfolios. This is what happened in 2017. Equity mutual funds have given much higher returns than debt funds, so the weight of equities in your portfolio would have increased. Therefore, you need to book some profits in equities in order to restore the asset allocation of your portfolio back to its original level. Another way of restoring the original asset allocation is to invest fresh money in the asset classes that have performed poorly, such as debt funds and gold this year.
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