With the current volatility in the market, is now the time to rebalance my portfolio?

April 3, 2023

 

To start, if you have a well-designed portfolio strategy that is integrated with a long-term financial plan than the answer is simple, rebalance regularly. This approach not only can help manage overall risk, but also help take advantage of great opportunities.

 

‘Regularly’ can have a few meanings; for example, you could have an annual rebalance date, look at the portfolio when you are adding new money, rolling over fixed income maturities, making an alteration to an existing holding or when there are significant moves in the market. I am not saying that you need to make significant changes during high volatility times; but those times usually present great opportunities to those who can take advantage of them. When there are significant market moves (especially the downward ones) you are either making a mistake or benefitting from someone else’s. Why does having a well-designed portfolio and rebalancing make sense? It allows one to make unemotional adjustments to their investments that are often the exact opposite of the decision they would normally make.

 

Currently a lot of people putting new money to work in their RRSPs or TFSAs are wondering whether they should just buy a GIC versus adding it to this ‘crazy’ market. Of course, you should add to the asset class that is determined by your strategy, which could mean a combination or in the case where your Equities have declined, to them. This is called buying low. Alternatively, when the market is on fire and doing well, most people want to naturally add to the part of their portfolio that is performing well and not to some low yielding GICs or Bonds (think two years ago); however, they are missing the chance to sell at highs and taking on a higher degree of portfolio risk.

 

By having a disciplined rebalancing strategy, you are more apt to invest according to the tradition of ‘buying low and selling high’. So, if any doubt, relook at your portfolio and if it or certain components are well off their designated weightings, go ahead and rebalance.

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