Portfolio Theory

Updated 1 year ago

Portfolio theory, which I studied, claims that a very good approach to investments is regular rebalancing of your investment portfolio. Why rebalance – To rebalance is to make the mix of investments back to the 60/ 40% of stocks and bonds, or whatever mix of investments, you and your advisor thought was a good choice for you. Over time different assets ‘classes’ like stocks in large firms or small companies, municipal bonds or government bonds, perform differently. If bonds perform less well than stocks in a given period of time the mix may bein at 60 stocks and 40$ bonds but may become off kilter for you and may be 70 / 30. This new mix of assets may put your investment at a higher risk.Though there are many proponents of rebalancing not everyone agrees that this theory of a great one. ( I don’t know your goals, objectives or risk tolerance, so please see your advisor for a plan that is best for your needs.) Just say no- But the stock market downturn for the last few years made many doubt the wisdom of the rebalancing theory. Professional publications that I read loudly argued the merits of leaving things alone and the article hyperlink included in this story shows some equations that show that portfolios left alone – that go out of balance- perform better. I want you to know that investment theory is evolving. That professionals disagree. Don’t you feel that you must hold a particular view because things are always changing. Citations:Vanguardhttps://institutional.vanguard.com/iip/pdf/ICRRebalancing.pdfRebalancing can be hazardoushttp://seekingalpha.com/article/63576-rebalancing-can-be-hazardous-to-your-portfolioMarion R. Syversen, MBA – PresidentNorumbegaFinancial207.862.2952Marion@NorumbegaFinancial.com Check out our website that includes weekly streaming videoswww.NorumbegaFinancial.com Voted Bangor’s Best Financial Planning Firm 2009 by Market Surveys of AmericaDisclosure:Only securities and advisory services offered through Wall Street Financial Group, Inc. Registered Investment Advisor. Member FINRA/SIPC. Norumbega Financial and all other companies listed herein are separate entities, independently owned and operated. Opinions expressed are those of the author and not necessarily those of WSFG. The material has been prepared for informational purposes and is not a solicitation to participate in any trading strategy.


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