Rebalancing: A Behavioural Boost in Volatile Markets
Our default emotional setting in volatile markets is to "do something". We want to avoid danger, or possibly take excessive risks in order to make back our temporary losses in a short period of time.
Most of the time, the ideal strategy is to simply do nothing. But, there is one thing that you can do which allows you to reverse your default emotional settings and do something helpful for your portfolio - that is to rebalance.
Rebalancing is pretty simple - it is selling off assets that have gone up in order to purchase assets that have gone down in your portfolio. It brings the portfolio back to it's original weightings and makes sure that it remains in line with your risk profile and financial goals. When done correctly, it also reverses the "buy high / sell low" mistake that a lot of investors make. It turns that into a "buy low / sell high" approach - which will help you to stay on track.