Rebalancing Tires and Money

In Canada, we all know the importance of maintaining our vehicles for winter.  I am in the habit of putting on the snow tires, bringing out the storm windows, and preparing for the cold weather. We need to regularly rotate our tires for maintenance and efficiency. How about your portfolio? How is it rebalanced?

Avoid the pitfalls faced by investors–market volatility, currency risks, rising interest rates, and missed opportunities. Rebalancing on a regular basis can help you stay on track and on the road when things get rough. There are six ways to establish a rebalancing program with your finances. These types of rebalancing can help preserve your capital. The types of rebalancing, or what I refer to as elements of diversification, are:

1. Periodic (monthly, quarterly, or annual) adjustment of your portfolio mix.
2. Threshold, as in percentage-based, such as 5% to 8% off target.
3. Range-based, which adjusts your investments back to certain limits rather than a fixed asset allocation.
4. Volatility-based, which takes into account the expected range of ups and downs due to markets and types of holdings (high- or low-risk).
5. Active, which is determined based on markets and results.
6. Dynamic, which may use a combination of the different types of re-balancing strategies in a systematic way to achieve capital preservation.