Winter is coming. We all know that maintaining your vehicle for cold weather is important. Coming from Winnipeg, I need to get out of the habit of putting on the snow tires, bringing out the storm windows and preparing for the cold winters. Living on Vancouver Island changes the need for at least snow tires. But we still need to rotate our tires on a regular basis for maintenance and efficiency. How about your portfolio. How is it rebalanced?
Avoid the pitfalls faced by investors such as market volatility, currency risks, rising interest rates and missed opportunities. Rebalancing on a regular basis can help you stay on track and keep you on the road when things get rough. There are six ways to establish a rebalancing program with your finances. These types of rebalancing can help preserve your capital and keep you well balanced. The types of rebalancing, or what I refer to as elements of diversification are:
1. Periodic, monthly quarterly or annual frequency for adjusting a portfolio mix.
2. Threshold, as in percentage based such as 5-8% off target.
3. Range based which adjusts your investments back to certain limits rather than a fixed asset allocation.
4. Volatility based, which takes into account expected range of ups and downs due to markets and types of holdings such as high or low risk.
5. Active, which is determined based on markets and results.
6. Dynamic, which may use a combination of the different types of rebalancing strategies in a systematic way to achieve capital preservation.
Most pension plans in Canada utilize rebalancing strategies to preserve the capital for retirees and maintain payouts based on market conditions. Rebalancing your money can keep you safely on the road to financial success.