They say asset allocation is the key. What do they mean by this? Let’s say that you have carefully planned your investments, and based on your risk appetite at the time of investing, you decide to put 60% of your money in equities and 40% in debt. But here’s the catch: markets don’t sit still. If stocks soar (like they usually do), your portfolio might shift to 70% equities and 30% debt. Suddenly, you’re taking on more risk than you can.
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Portfolio rebalancing is simply the process of bringing your investments back to that original mix.
Here’s why you should rebalance your Portfolio
1. Risk management
When one part of your portfolio grows faster than the other, it can throw things off balance. Higher equity exposure means more risk, especially if the market takes a dip. Rebalancing ensures your portfolio doesn’t stray too far from the risk level you are comfortable with.
2. Profit booking
Let’s say your stocks have had a great year. But if they now dominate your portfolio, rebalancing lets you sell some of those winners and pocket the profits. It’s a smart way to secure your gains before the market decides to change the momentum.
3. Stay Disciplined
Markets can be an emotional rollercoaster; rebalancing keeps you grounded, stopping you from panic-selling during a crash or going all-in during a boom.
Why Should You Care
As investors, we have a lot of options, like stocks, mutual funds, fixed deposits, gold, and even real estate. Investing in our markets can be a wild ride, and our traditions influence how we invest. Take gold, for instance. During Diwali or Akshaya Tritiya, many of us buy gold as a cultural habit. If gold prices spike (like they often do around these times), your portfolio might end up overweight in gold. That’s great if prices keep rising, but what if they drop? Rebalancing helps you trim that excess and spread your money back into other asset classes.
Plus, with India’s growing economy and volatile markets, sticking to your plan is important. Take 2025: Indian equity markets have been a rollercoaster, with indices swinging 5–10% in weeks. Without rebalancing, an equity portfolio could leave you exposed if the market corrects. Whether you are saving for a house or your kid’s education, rebalancing keeps your investments working toward your goals.
How to Rebalance Your Portfolio
1. Set a Schedule
Decide how often you’ll check your portfolio, maybe once a year or every six months. You don’t have to do it as and when the markets fluctuate.
2. Check your allocation
Look at where your money is now versus where you want it to be. Are stocks at 70% when you aimed for 60%? If yes, you need to rebalance.
3. Make the Moves
Sell some of the overperformers (like those stocks that soared) and buy more of the underweighted assets (maybe bonds or a mutual fund).
4. Watch the Costs
Selling assets might trigger taxes, like short-term capital gains tax if you sell within a year, and don’t forget brokerage fees. These costs can derail your portfolio if not done efficiently.
Common Mistakes to Avoid
Rebalancing sounds easy, but we can make it complicated. Here are some pitfalls to dodge:
1. Overdoing It
Checking and tweaking your portfolio every month might rack up fees and stress you out. Stick to your schedule unless something drastic happens.
2. Ignoring Costs
Those taxes and transaction fees can nibble away at your returns if you’re not careful. Factor them in before you trade.
3. Letting Emotions Take Over
Selling because the market’s crashing or holding off because it’s booming? That’s the opposite of discipline. Trust your plan, not your gut.
4. Sticking to Old Goals
Life changes; maybe you are closer to retirement or just had a kid. If your goals or risk tolerance shift, your target mix might need a rethink too.
Take Action Today
Portfolio rebalancing isn’t just for financial gurus; it’s for anyone who wants their money to work. If you haven’t checked your investments lately, why not take a peek? See if your current mix matches your goals. If it’s off, take a small step to fix it.
