Should I wait for the economy to improve to rebalance my portfolio? | Value Research If your original asset allocation has completely gone for a toss, consider rebalancing irrespective of the economic outlook, suggests Dhirendra Kumar
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Should I wait for the economy to improve to rebalance my portfolio?

If your original asset allocation has completely gone for a toss, consider rebalancing irrespective of the economic outlook, suggests Dhirendra Kumar

As the economy appears to be improving, is it the right time to rebalance our portfolio? Should we wait for some time so that we may get better value for our investments? Please suggest.
- Mala Shyam

Don't look at the state of the economy to rebalance your portfolio. Rebalancing is an act of evaluating your asset allocation. For implementing a rebalancing exercise, you first need to have a pre-stated asset allocation and once you have decided on your asset allocation, say, investing 50 per cent in equity and 50 per cent in debt, then two factors should drive your rebalancing decision.
For one, you should, as a matter of habit, rebalance every year in a normal situation. The other and more important reason is if your asset allocation goes completely out of whack say, if 50 per cent equity becomes 70 per cent, then consider rebalancing irrespective of the state of the economy. Have some rules for yourself that if your 50 per cent goes beyond a certain point, then you will aim to rebalance. Otherwise, you would let it run as it is.
Do this in the converse situation as well. It means that if stock markets collapse, thereby taking down your equity allocation, then move your money from fixed income to equity. So, that actually becomes a more methodical and personalised way of rebalancing your portfolio. It should not be dependent on the state of the economy.

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