How to rebalance your portfolio

What is the importance of asset allocation and portfolio rebalancing? Dhirendra: Asset allocation is a very critical thing. It is the first step where you decide what part of your money will be in equity and what part in fixed-income. There isn't a precise scientific formula to derive it. Some people use a makeshift formula that deducts your age from 100 and tells you to put that much in equity. Don't follow that. Asset allocation is a very subjective thing. Equity gets you superior returns, but it comes with great volatility. On the other hand, fixed income provides you with stability, but gives you lower returns. The mix of equity and debt for anyone should be governed by his risk appetite. It should depend on how comfortable you are with the ups and downs of the market. Someone who has experienced the market pretty well and is comfortable with the volatility, can well choose to be 90 per cent in equity and 10 per cent in debt. On the other hand, there are people who have retired, and invested their money with no need for regular income. But they will still be very uncomfortable seeing their investment going up and down dramatically. So

This article was originally published on September 27, 2019.