How to carry out rebalancing if you invest in individual stocks to improve your wealth returns with less volatility
I polled my facebook readers on what I have not really covered at Investment Moats and one common question is how I carry out rebalancing.
Specifically, is rebalancing different if you pick stocks instead of a low cost index ETF?
Before we start lets get some things out of the way.
Asset classes mean revert not individual stocks
The main reason why you rebalance is that prices in asset classes (cash, bonds, equities, commodities) swing from overvalued to undervalued due to supply and demand, technology changes, mass psychology.
If you have determine a 60% stocks and 40% bonds allocation based on your risk adverse nature, markets will swing up and down and that allocation will change.
If you do not bring it back to parity, your portfolio may be overly risky ......