Rebalancing an investment portfolio can help reduce risk and improve its performance. Despite this, many investors only take the time to adjust their portfolios when they are underperforming, and by then, it might already be too late. Instead, it is important to practice regular portfolio rebalancing to ensure long-term goals are met. To help investors learn more about portfolio rebalancing best practices, the Financial Post spoke with Sightline Wealth Management.
“Rebalancing a portfolio actually takes a lot of discipline and intestinal fortitude,” explains Sightline Wealth Management Senior Vice President and Investment Advisor Paul de Sousa. “We believe in using a rules-based approach, looking at your appetite for risk and your long-term goals, and sometimes doing what goes against human nature – taking some winners off the table as part of your rebalancing strategy.”
Sightline cautions investors against balancing portfolios using the traditional 60 percent stocks and 40 percent bonds allocation strategy. Instead, true diversification and optimization requires a strategic approach that begins with setting an allocation mix between asset classes. After this has been set, rebalancing consists of assessing the weight of each asset class and then buying and reselling to redistribute between classes as needed.
“If you set equities at 30 percent and that class now represents half the value of your portfolio, you’ll likely be selling some winners and buying low in asset classes that haven’t done as well,” de Sousa tells the publication. “You have to take your emotions out of the equation and stick to your rules, doing what you promised yourself you would, even when it goes against human nature. You’re never going to time market highs and lows perfectly, and that’s why it takes some discipline to rebalance.”
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Sightline Wealth Management LP (“Sightline”) is an investment dealer and is a member of the Investment Industry Regulatory Organization of Canada (IIROC) and the Canadian Investor Protection Fund (CIPF). Sightline provides management and investment advisory services to high-net-worth individuals and institutional investors primarily through fee-based accounts.
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