Sometimes the best and most profitable investment advice doesn't look like much, but it'll have a huge effect on your profit potential and correction resistance.
Today I'd like to talk about three simple, profit-boosting moves every successful investor regrets not making sooner.
My goal is twofold:
- To force you out of your comfort zone and away from the big risks most investors take inadvertently
- To move your money towards big windfall profits that can pay off year after year practically no matter what the markets throw at you
As always, I've got an exciting new investment to get you started, too.
Profit-Boosting Move No. 1: Rebalance
Rebalancing is something we've talked about a lot over the years for one simple reason.
The theory is very straightforward and very powerful.
Rebalancing forces you to capture profits and buy whatever is on sale. Over time, this significantly boosts your returns and reduces your risk.
Here's how it works.
Let's say you have a $100,000 portfolio that's invested using the proprietary 50-40-10 model I advocate in our sister publication, the Money Map Report.
Must See: This Great Depression-Era "Secret" Helped Transform Two Teachers into Millionaires. Read More…
For purposes of our discussion today, that'd be 50%-40%-10% in stocks, bonds, and speculative investments, respectively. Or, $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 Fed got aggressive with rates. 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. However, that strategy is totally unsuited to today's financial markets.
What most investors fail to realize is that every dollar you earn if you don't rebalance means you're taking on more risk.
Many investors think this isn't a big deal, but they're sadly mistaken.
Rebalancing regularly can add hundreds of thousands of dollars, even millions of dollars, to your bank account over time. What's more, the advantages associated with rebalancing can be 100%, 200%… even 300% or more in market conditions like those we've got right now.
Here's a study from Forbes highlighting the performance of two hypothetical $10,000 portfolios starting in 1985 and ending in 2010. Both use a 60-40 mix of stocks and bonds based on the S&P 500 Index and the Barclays Aggregate Bond Index. The only difference is that the blue portfolio was rebalanced annually while the orange portfolio was never rebalanced.
The rebalanced portfolio was worth just over $97,000 at the end of the study, but the un-rebalanced portfolio was worth only $88,980. In absolute dollars, that's an $8,020 loss, but in percentage terms it's a staggering 81% loss in investment potential.
Many investors I've talked with over the years get sick to their stomach when they realize that the money that should have been in their pockets because they didn't rebalance now belongs to somebody else who did.
Here's the real kicker, though.
Let me show you what can happen when you don't rebalance.
This catches a lot of people by surprise…
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.