INVESTING STRATEGY
What is portfolio balancing and why is it recommended
John Taylor.
10 November 2023
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Hi John.
Good question. I’ll answer it in 2 ways.
‘Portfolio Balancing’. This could simply means it’s recommended to diversify your portfolio between say Aussie shares and global shares for example. Reason being, diversification helps to avoid relying on a single outcome, spreads risk, and improves the odds of success for an investor by owning a larger more diverse group of companies.
‘Portfolio RE-balancing’. This refers to keeping a portfolio in line with its intended target. So most long term investors will have what’s called a ‘target allocation’ which they try to stick to over time. For example, let’s say that’s 50% VAS and 50% IVV. As the market moves regularly, over time the portfolio will stray from this 50⁄50 target. So ‘rebalancing’ means to get the portfolio back to target, which is usually done by buying more shares of the one that is under target, or in some cases, means selling some of the one that is over target.
Hope that makes sense, happy to elaborate further if needed.
Cheers, Dave
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