Unconventional Investor, LLC - Strategy

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Rebalancing

The discipline of rebalancing reflects sound investor behavior. Responding to differences in relative performance, rebalancing returns a portfolio to its long-term target allocation. This generally involves purchasing a recent laggard while selling a recent stellar performer, effectively buying low and selling high! Rebalancing should be done in a tax-deferred account or via carefully targeting new investments. By preventing allocation drift, rebalancing reduces overall porfolio risk. It may be difficult to sell something that is appreciating but, in the long run, market returns generally revert to their historical mean. Ultimately, during a market correction, a rebalanced portfolio outperforms an out-of-balance portfolio.