I have been investing in mutual funds through SIPs since the beginning of 2006 with a time horizon of 12 to 15 years. Before the recent market meltdown, the unrealised profit of my portfolio was more than 100 per cent. However, currently the unrealised loss is around 25 per cent. Though I am a long-term investor who may not need to redeem the money in the short-term, I am thinking of booking profits intermittently. If I am right could you please suggest the ways to do it?
Rangesh
Rebalancing is the keyword here. Rebalancing protects one's portfolio against the downside when the markets tank. It is important that you go for periodic rebalancing so that you do not expose your portfolio to more risk than you can handle. Ideally, one must rebalance his portfolio once a year but in volatile times like this, you can also go for quarterly rebalancing to ensure that your asset allocation doesn't get whacky. When you are nearing the end of your time horizon for which you wanted to invest, you must slowly reduce your exposure to equity and shift some percentage of your equity portfolio to debt every year. This will ensure that your investments are safe and in a more stable asset class when you will need to withdraw them.
Another important thing to note is that bear markets are a test of an investor's patience and belief. These are difficult times for investors watching their investments decline in value day after day. But it is important to continue investing during declines as they present the best opportunities of buying at low prices.
This article was originally published on April 06, 2009.
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