"What's the simplest strategy to boost my returns?"
This is one of the most frequently asked questions I hear when I'm on the road. And most people expect a long, drawn-out answer.
But in reality, there's a single word – the one you're about to see – that can lead to huge performance gains…
How huge?
Try triple-digit huge – that's why I place a high priority on this technique in the Money Map Report's proprietary 50-40-10 Strategy. It's critical to the success tens of thousands of our subscribers have enjoyed over the years.
It's incredibly simple, too…
Rebalancing: Your "Buy Low/Sell High Guarantee"
Most investors haven't heard of "rebalancing." That's very surprising, given all the lip service Wall Street pays to fancy-pants diversification, hyping stocks, and day trading as a sure route to wealth these days.
What I like about rebalancing is that it's deceptively simple yet immensely profitable, because rebalancing forces you to buy low and sell high. There's no ambiguity, no emotion, and no second-guessing yourself.
What I positively love about rebalancing is that it can lead to greater profits, even if the markets drift lower. Not too many strategies can do that.
Rebalancing isn't difficult. It doesn't matter if you're a newly minted graduate with $1,000 to your name or a sophisticated investor with 50 years of experience and millions. Anybody can do it.
I want you to have every advantage possible when it comes to building wealth, so I'm going to share my take on rebalancing – what it is and how it works. Then, I'm going to show what it can mean for your money.
What It Means and How It Works
Technically speaking, rebalancing is the periodic adjustment of your investments to reflect market conditions that have changed. Boring… ugh!
The plain English definition is much more appealing: Rebalancing means you buy and sell specific investments that have gotten out of line with your plan in order to bring your risk down and boost your returns. (I love that part.)
Let's look at an example…
John has $20,000 split between two investments – stocks and bonds – each representing 50% of his assets. He's a balanced fellow and likes it that way. You probably know quite a few investors like John – who use index funds to invest just like he does, using some variation of the "set it and forget it" approach.
A year later, John finds that his stocks have appreciated by $5,000 while his bonds have fallen by $2,000. So his 50/50 split is now $15,000 in stocks and $8,000 in bonds, or 65/35. That doesn't sound too bad on the surface because the value of his overall portfolio is now $23,000.
But John's risks are mounting. Because his stocks have appreciated so much, he's got a far riskier portfolio than he thinks he does.
That's where many investors find themselves now.
The markets have run up 150.9% from their March 2009 lows, as of September 24, 2013. Anybody who's got stocks and who hasn't rebalanced is just asking for a repeat of 1999 – or 2007 if things roll over, or more appropriately, when they roll over.
Fortunately, the solution is very, very simple.
Join the conversation. Click here to jump to comments…
About the Author
Keith Fitz-Gerald has been the Chief Investment Strategist for the Money Morning team since 2007. He's a seasoned market analyst with decades of experience, and a highly accurate track record. Keith regularly travels the world in search of investment opportunities others don't yet see or understand. In addition to heading The Money Map Report, Keith runs High Velocity Profits, which aims to get in, target gains, and get out clean. In his weekly Total Wealth, Keith has broken down his 30-plus years of success into three parts: Trends, Risk Assessment, and Tactics – meaning the exact techniques for making money. Sign up is free at totalwealthresearch.com.
People must be pretty dumb in their knowledge of money if they don't already know these strategies,e.g,50-40-10 and re balancing.
There are many Obama supporters who are wealthy investors as there are many liberal Canadians who are knowledgeable and successful investors so why the incessant rap on
Obama care?
No wonder the U.S. cant get their act together as they slide down the bank when" Money Morning" focus daily incorporates issues with the left instead of a powerful financial direction to fix the broken under who's flag you live.
I do appreciate YOUR input however.Must have a % Irish there.
Thanks for the kind words Magaret. I try my very best to separate the wheat from the chaff every day. And, yes, you bet there is some Irish in me.
All the best regards for a great day. And, thank you for being part of the Money Morning family!
Keith :-)
Unfortunately, your comparison isn't valid. If you really wanted to show the affects of re-balancing, you need to eliminate all other variables. From the chart it is obvious that during the first year the Money Map portfolio performed better than the 50/50 portfolio even before the first re-balancing. This means that most of the 248% gains may have came from something other than re-balancing.
Hi Michael.
Had I conducted the testing exclusively in that time frame, I would agree with you. However, the results are very similar across many time frames. Depending on the starting point, sometimes the cummulative alfa builds faster and sometimes slower.
Thanks to your input which has given me the idea, I'll be back in a future Marketology column with some insight on securities selection as a part of portfolio construction.
Best regards for a great day and thank you for being part of the Money Morning Family,
Keith :)
Sorry, didn´t quite get that – am hoping to start reinvesting gains when they appear one day. I only started last year, and my portfolio is still negative, but less so now because: I have "rebalanced" a few times when Ilearned what I was doing wrong.
Now I think I got it, thank you!