As hard as it is to believe, we're headed full speed into the end of 2015. That means now's a perfect time to discuss one of the most powerful investment tactics of all.
Before I tell you what it is though, let me say that the tactic we're going to discuss today is something many investors believe they know a lot about. Yet, in practice, very few actually get it right.
That's sad because "it" can significantly boost your returns and reduce your losses – all while taking less than 90 seconds of your time.
Ready to get started?
Here's How to Maximize Profits Immediately
People ask me all the time how much time they have to put into investing to make the process "worth it," and they nearly fall over every time I answer…
…about 90 seconds.
That's about how long it will take you to "rebalance" your portfolio.
If you've just joined us, rebalancing is one of the single most powerful yet easy-to-use strategies available to individual investors today for five simple reasons:
- You can do it anytime.
- You can lock in profits immediately.
- You minimize risk every time you rebalance.
- You maximize upside potential for years to come.
- You can do it easily… in about 90 seconds.
Simply put, rebalancing is a strategy that ensures your money is working the way you want and, perhaps most importantly, is aligned with your individual risk tolerance, objectives, and financial aspirations.
Here's How Rebalancing Works
Let's say you have a $100,000 portfolio that's invested 50%-40%-10% in stocks, bonds, and speculative investments, respectively. That means you'd have $50,000 in stocks, $40,000 in bonds, and another $10,000 in speculative investments.
A year from now, let's suppose that stocks have appreciated 10% and bonds have lost 12% because the U.S. Federal Reserve got aggressive. Let's also say you hit the big time with your speculative play and that it's up 100%.
That means your $100,000, 50-40-10 portfolio would now be worth $110,000 and the allocation would be more like 50%-31.8%-18.2%.
To get back to your targeted 50-40-10 risk profile, you'd rebalance by selling $9,000 worth of your speculative investments and buying a corresponding $9,000 worth of bonds using the proceeds, assuming you had no new money to invest.
This is where most investors go off the rails.
They don't see a problem with letting their winners "ride." That's fine if you're in a Las Vegas casino and want to leave your money on the table even as you continue to bet you won't lose it, but that strategy is totally unsuited to today's financial markets. Every dollar you earn if you don't rebalance means you're taking on more risk.
This is where many investors found themselves coming into the dot-bomb crash of late 1999/2000 and the Financial Crisis of 2008. They thought they were doing great. What they didn't realize was how concentrated their risk was becoming… in the very stocks that were making them gobs of money.
You can see that very clearly in orange. Note how much higher the risk associated with letting things ride became in 2000 and in 2007… right before the bottom fell out and they got shellacked. Contrast that with the much lower risk of a constantly rebalanced portfolio in blue.
Let's get back to our example.
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, and he's also the founding editor of Straight Line Profits, a service devoted to revealing the "dark side" of Wall Street... 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.