A housekeeping chore investors deal with from time to time is “rebalancing” their portfolios.
How does a portfolio get unbalanced? Consider a game of Monopoly. Each player starts with the same amount of money, but after a few rounds of play, some are richer and some poorer — that is, some players have “outperformed” others.
A similar thing happens in your investment portfolio. Let’s assume you decided to implement SMI’s Upgrading strategy a year ago. You divided your money according to our recommended target percentages — 30% in this investment, 10% in that investment, and so on. Since then, some holdings have performed better than others, so your portfolio has drifted from its original targets.
(Of course, Upgrading made several fund changes in 2021 too, but even if there had been no fund changes, the percentages you started with would have changed as some funds and categories did better than others.)
If you follow more than one SMI strategy, this “percentage drift” also occurs in another way. As time passes, the percentage allocated to each strategy changes because of performance variations.
Rebalancing is like pressing a reset button that restores your portfolio to its original targets (or at least reasonably close to those targets), and this is a good time of year for that reset to occur. At the same time, you can add any new SMI recommendations and sell any funds being replaced.
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